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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI PAVAN KUMAR GADALE, JM
These are the two appeals filed by the same assessee i.e. M/s Macrotech Developers Ltd (the Assessee/Appellant) for two assessment years i.e. 2017 – 18 and 2018 – 19, involving identical grounds and same set of facts and circumstances, therefore, both the parties argued them together, therefore, we dispose of both these appeals by this common order.
“The following grounds of Appeal are without prejudice to each other:-
Transfer Pricing Grounds
1. On the facts and in the circumstances of the case and in law, the Assistant Commissioner of Income- tax, Central Circle 7(3), Mumbai ("Ld. AO'), the Assistant Commissioner of Income-tax, Transfer Pricing- 3(2)(1), Mumbai, the Hon'ble Dispute Resolution Panel ('DRP') erred in:
1.1. not appreciating that explanation to section 92B of the Act as amended by Finance Act, 2012 does not alter the basic character of the definition of 'international transaction' u/s 928 and therefore, since provision of guarantee (by the assessee to its AE) did not have any bearing on profits, income, losses or assets of enterprise, it would be outside the ambit of 'international transaction'.
1.2. not appreciating that provision of guarantee is essentially in the nature of shareholder
1.3. Adopting the arm length rate for the guarantee commission at 0.50% as directed by DRP.
1.4. without prejudice to the above, the Ld. AO/TPO erred in disregarding the detailed benchmarking analysis based on interest savings approach conducted by the appellant without providing any cogent reason for doing
1.5. Each one of our previously mentioned grounds of appeal is without prejudice to the other
2. On the facts and in the circumstances of the case and in law, the Ld AO/Hon'ble DRP, erred in:
2.1. disallowing an amount of Rs. 10,22,402 under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (the Rules) as expenditure incurred for earning exempt dividend income under normal provisions of the Act without considering the fact that the Appellant has not earned any exempt income during the year under consideration
2.2. adding the disallowance made under section 14A of the Act to the book profits computed under section 115JB of the Act.
2.4. On the facts and circumstances of the case and in law, the learned AO / DRP has erred in not following the binding decision of the Hon'ble Jurisdictional Tribunal, Mumbai in the appellant own case on the issue under consideration.
2.5. Each one of our previously mentioned grounds of appeal is without prejudice to the other
3. On the facts and the circumstances of the case and in law, Ld AO/Hon'ble DRP, erred in:
3.1. disallowing foreign exchange loss of Rs. 99,06,468 by capitalizing the same to inventory.
3.2. Without prejudice to the above, if it is held that foreign exchange loss is capitalized then the foreign exchange gains should also be considered as capital receipts and only the net amount debited to profit and loss account 1.e., Rs.48,63,974/- should be capitalized and not the gross amount disallowed by the learned AO.
3.3. Without prejudice to the above, if the foreign exchange loss is considered as part of inventory the same should be allowed in the 3.4. Each one of our previously mentioned grounds of appeal is without prejudice to the other
4. On the facts and the circumstances of the case and in law, Ld AO/ Hon'ble DRP, erred in:
4.1. disallowing an amount of Rs. 2,03,051 under section 43CA of the Act as the difference between the value adopted by Stamp Duty Authority and value of sale consideration.
4.2. Not appreciating that the stamp duty value does not exceed 105% of the consideration received and is therefore covered by the proviso to section 43CA of the Act.
4.3. On the facts and the circumstances of the case and in law, the learned AO/ DRP failed to appreciate that the said tolerance band of 5% / 10% under first proviso to section 43CA of the Act, is curative in even though stated to be prospective must be held to relate back to date when related statutory provisions were made effective.
4.4. Each one of our previously mentioned grounds of appeal is without prejudice to the other
5.1. making a disallowance of Rs. 3,20,92,006 under section 40(a) (i) of the Act.
5.2. Not appreciating that services availed by the appellant do not make available any technical knowledge, experience, skill, know-how or processes, etc. to the assessee under Article 12 of the India-Singapore DTAA and hence shall not be subject to tax in India.
5.3. Each one of our previously mentioned grounds of appeal is without prejudice to the other
6. On the facts and in circumstances of the case and in law, the learned AO has erred by initiating penalty proceedings under section 270A of the Act and holding that the appellant has under reported its income.
7. The appellant craves leave to add, amend, alter or delete the said ground of appeal.”
Brief facts of the case shows that the assessee is a company engaged in the business of builders and developers. Assessee has undertaken residential and commercial projects. It is following Percentage Completion Method for revenue recognition. Assessee filed its return of income on 31st October, 04. 2017, declaring total income of ₹140,25,03,230/- as
Assessee has entered into international transactions and therefore, the learned Assessing Officer referred the matter to the learned Asst. Commissioner of Income Tax, Transfer Pricing, 3(2)(1), Mumbai [ The Ld TPO ] for determination of Arm's Length Price.
Assessee has issued a corporate guarantee in the name of its Associated Enterprise, Lodha Developers International Limited (LDIL) along with few other group companies. Fact show that during F.Y. 2014- 15,
i. Lodha Developers International Limited (LDIL), a Mauritius base company, has raised USD 200 Million by way of issuance of 12% Senior Notes Due 2020 (‘Bonds’) listed on Singapore Exchange to be used for the purpose of construction and development of real estate project in United Kingdom (UK). ii. For the issuance of bonds, corporate guarantee was issued by the assessee along with other parties. iii. Bond agreement provides that M/s Lodha Developers International Limited have to iv. Accordingly, seven Indian entities have provided corporate guarantee for the issuance of bonds to USD 200 Million, as on 31 March 2017, assessee is one of them. v. Assessee did not charge any guarantee commission. vi. Claim of the assessee is that it is not an international transactions and it is shareholders' activity. Assessee submitted that it is a subsidiary of shareholder of the associated enterprises for issuance of securities by whom guarantee is given. It was further stated that guarantee was given on behalf of its holding company and was fully indemnified by the holding company. Therefore, no commission was charged. vii. Learned Transfer Pricing Officer held that it is an international transaction and further the assessee should have charged the guarantee commission fee. He issued show cause notice on 20th viii. January, 2021, noted that the M/s Lodha ii. Learned Assessing Officer also noted that assessee has claimed foreign exchange loss of ₹ 99,06,468/- which is incurred because of purchase of material and is revenue expenditure. The learned Assessing Officer held that the foreign exchange loss incurred on material purchases forms part of construction cost and should be part of the cost of the project. Accordingly, he disallowed the foreign exchange loss. iii. During the assessment proceedings, assessee was asked to reconcile information as per annual information return and return of income. The learned Assessing Officer found that on 30th March, 2017, assessee has sold Taj Majala Wing 11, New Cuff pared, Wadala, Mumbai for ₹4.75
Assessee preferred the objections before the learned Dispute Resolution Panel, who passed its direction on 29 June 2022. The learned Dispute Resolution Panel
i. Rejected objections no.1 of the assessee holding it to be general in nature. It also confirmed disallowance under Section 14A of the Act. ii. Objection no.2 with respect to disallowance of foreign exchange loss was also confirmed vide paragraph no.8. iii. Objection no 3 , The addition under Section 43CA of the Act of ₹2,03,051/- was also confirmed by paragraph no.11 of the direction. iv. Objection no.4 with respect to disallowance of ₹3,20,92,006/- being foreign payment for which tax is not deducted are also confirmed vide paragraph no.14 of the Act. v. With respect to the objection no.6 of upward adjustment of ₹1,98,25,276/- on account of corporate guarantee, ld DRP decided by Para no.20, rejecting benchmarking of the ld TPO without giving any reason following the
Assessee is aggrieved with that and has preferred this appeal.
During the course of hearing, the assessee has raised an additional ground of appeal as per letter dated 24th November, 2022, raising following two issues:-
i. That tax deduction at source of ₹6,40,23,793/- was claimed by the assessee, however, the learned Assessing Officer granted the credit of only ₹6,38,02,475/- and therefore, there is a short credit of ₹2,21,318/- which should be granted to the assessee ii. The second issue was that disallowance under Section 14A of the Act computed in the normal
It was claimed that these additional grounds are required to be admitted, as no fresh facts are required to be investigated and are apparent from assessment order that can be raised at any time.
The learned Departmental Representative vehemently objected the same.
We find that the grounds raised
by the assessee are apparently verifiable from the records available before us and no fresh facts are required to be investigated. In view of this, we admit the additional grounds raised by the assessee. We direct the ld AO to grant credit to the assessee of prepaid taxes in accordance with the law. With respect to addition to the book profit of disallowance computed u/s 14. A of The Act , we find that this issue is now squarely covered in favour of the assessee by the decision of PCIT V J J Glastronics P Limited [2022] 139 taxmann.com 375 (Karnataka) where in it has been held that :-
"8. Section 115JB of the Act is a complete code in itself. The controversy relating to disallowance under section 14A of the Act for determining book profit under
Thus we hold that increase of book profit by the addition u/s 14 A of the Act is not correct, hence ld AO is directed to delete it.
Accordingly, both the additional grounds are allowed.
Coming to the regular grounds of appeal, we find that ground no.1 is with respect to the transfer pricing adjustments. The learned authorized representative first took us to the facts of the case and then submitted that the assessee has given corporate guarantee to its associated enterprises that is not an international transaction and further it does not affect the profit/loss or assets of liabilities of the company. Even otherwise, it is a shareholders activity. Therefore, the assessee did not charge any guarantee commission. It was submitted that during the course of transfer pricing assessment, the assessee submitted without prejudice to the other contention the computation of the arm's-length price of the guarantee commission adopting the interest saving approach. The learned transfer pricing officer accepted the interest saving approach however further made an adjustment with respect to the transaction of loan by the assessee to its associated enterprises and further making adjustment on
The learned departmental representative vehemently supported the direction of the learned dispute resolution panel that upheld the arm's-length price of the guarantee commission at 0.5% following the decision of the honourable Bombay High Court.
We have carefully considered the rival contention and perused the orders of the Ld TPO as well as the direction of the learned dispute resolution panel. Claim of the assessee is that provision of corporate guarantee to the associated concerns is not an international transaction and further it is a shareholder activity and therefore, assessee is not required to be remunerated. Second limb of the argument is that the guarantee commission upheld by the learned Dispute Resolution Panel at the rate of 0.5% is not correct.
We find that the first argument that Corporate Guarantee is not an international Transaction is no more valid in view of the decision of Honourable Madras High court in case of PCIT V Redington [ India] Limited [2021] 430 ITR 298 (Mad) where in it has been held as under :-
In the light of the above decisions, we hold that the Tribunal committed an error in deleting the additions made against corporate and bank guarantee and restore the order passed by the Dispute Resolution Panel."
In view of this, we find that the argument of the learned authorized representative that corporate guarantee issued by the assessee to its associated enterprises is not an international transaction is not acceptable.
Another argument of the assessee is that issuance of the corporate guarantee is a shareholders' activity and therefore non-charging of corporate guarantee commission is proper. We find that assessee is not a
Now we come to the last claim of the ground number 1 that is against the quantum of the guarantee commission. The learned dispute resolution panel has categorically held that they do not agree with the contention of the learned Transfer Pricing Officer. The learned dispute resolution panel after that straight away followed the judicial precedent of the honourable Bombay High Court in case of Everest Kanto cylinders Ltd [TS-200-HC-2015(BOM)-TP] where arm's-length price of the corporate guarantee was held to be 0.5% of the guarantee amount. It was held so only for the reason that the learned transfer- pricing officer in that particular case has compared the corporate guarantee with the bank guarantee. That is not the case before us. In the present case, assessee without prejudice to the other argument, benchmarked the guarantee commission by looking at the credit rating of the company in whose favour of the guarantee is issued, based on that interest saving approach (yield approach) was used to find out difference between interest rates charged, where the loans are guaranteed and interest rates where the loans are not guaranteed. The difference between these two rates was further adjusted by the tenure of the loan (Tenor adjustment). The resultant interest was found to be the interest saved because of corporate guarantee of the assessee along with
Thus, there is no difference between methodology adopted by assessee and LD TPO, both adopted interest saving approach. Both also reached at same interest rate saved. i.e. 2 %. . The only difference is in Tenor adjustment, Currency swap and attribution of interest saved between contracting parties.
The learned Dispute Resolution Panel issued the direction as per paragraph number 20 is under:-
" 20. We have used the TPO's order. We have also considered the written submissions
We have considered the approach of the TPO and also the objections and pleadings of the assessee. The TPO has recorded reasons for treating the corporate guarantee in question as international transactions needing to be benchmarked. We are of the considered opinion that the corporate guarantee in question is an international transaction under section 90 2B, which is needed to be benchmarked. Therefore, we do not find any reason to interfere with the approach of the TPO in this regard. As far as benchmarking of the rate of guarantee commission is concerned, we do not agree with the approach of the TPO determining the arm's-length rate of commission. Because guarantees by corporate Sara on different footing because it facilitates acquisition of loan by AE's. We find support in the judgment of m/s Everest Kanto cylinders Ltd by the honourable Bombay High Court (Para 10 of income tax appeal number 1165 of 2013, dated 8/05/2015). We find that the issue of charging of rate of guarantee commission has been a matter of adjudication in several honourable Mumbai ITAT decisions. These decisions were 0.5% as the arm's-length and
We are not saying that judicial decisions should not have been applied but there should have been applied if they pertain to the similar assessment year, shows similar economic conditions, have proper benchmarking methodology adopted, and is in consonance with the provisions of transfer pricing assessment and computation.
According to us, the corporate guarantee commission can be benchmarked by employing (1) CUP method,
Ground 2 of appeal is with respect to the disallowance under section 14 A of the act. The learned authorized representative submitted that assessee has not earned any exempt income during the year and therefore there is no question of any disallowance under section 14 A of the act. He
The learned departmental representative vehemently stated that there is no requirement of earning any exempt income to make any disallowance under section 14 A of the act. He further referred to the explanation introduced with effect from 1/4/2022.
We have carefully considered the rival contention and perused the orders of the lower authorities. It is an admitted fact that during the year assessee has not earned any exempt income. As assessee has not earned any exempt income during the year, the disallowance under section 14 A of the act is not warranted. We find that this issue is squarely covered in favour of the assessee by the decision of the honourable Delhi High Court in PRINCIPAL COMMISSIONER OF INCOME-TAX vs. [2022] 448 ITR 674 (Del) wherein it has been held that the explanation inserted in section 14 A of the act by the finance act 2022 with effect from 1/4/2022 is prospective in nature. Accordingly, ground number 2 of the appeal of the assessee is allowed and the learned AO is directed to delete the disallowance under section 14 A the act.
Ground number 3 is with respect to the foreign exchange gain incurred on purchase of material
The learned departmental representative vehemently supported the orders of the lower authorities. He specifically referred to the direction of the learned dispute resolution panel wherein it has been held that the above foreign exchange loss is required to be added to the cost of inventory.
We have carefully considered the rival contentions and perused the orders of the lower authorities. The assessee is engaged in the business of construction
Ground number 4 of the appeal is with respect to the addition of Rs 2,03,051/- by invoking the provisions of section 43CA of the act. During the year, the assessee has sold a commercial property to a customer for the sale consideration of ₹ 47,500,000. The stamp duty value of the flat as determined by the stamp duty authority is ₹ 47,703,051/– which exceeded the value of the sale consideration by ₹ 203,051. Thus, the difference between the sale consideration and stamp duty value is merely 0.43%. The learned assessing officer has made the addition of the above sum by invoking the provisions of section 43CA of the act. This was also upheld by the learned dispute resolution panel.
The learned authorized representative submitted that first proviso to section 43CA (1) of the act states that where the difference between the sale consideration and value adopted for the purpose of stamp duty does not exceed 1 10% of the sale consideration, the deeming provisions of this section will not apply and the actual sale consideration will be considered for the purpose of calculation of the profit. Prior to 1 April 2021, the proviso provided tolerance band of 105% of the sale consideration it was submitted that
The learned departmental representative supported the orders of the lower authorities and submitted that such tolerance bench should not be applied retrospectively. The learned departmental representative referred to the historical background of provisions of section 43CA of the act and submitted that earlier it did not apply to transfer of immovable property held as stock in trade and for curbing the use of unaccounted money by parties involving in transfer of immovable property where the stock in trade is sold the above provisions were included. He relied upon the decision of the honourable Bombay High Court in case of principal Commissioner of income tax versus Swanand properties private limited (2019) 111 taxmann.com 94, the decision of the honourable allowable High Court where retrospective operation of rule 6AA was held to be prospective in case of CIT versus Rajasthan Charm Kal Kendra (2005) 144 taxman 320 and decision of the coordinate bench in welfare properties private limited versus deputy Commissioner of income tax 180 ITD 591 wherein it
The learned authorized representative vehemently opposed the submission of learned departmental representative and referred to page number 21 of the assessment order wherein assessee specifically objected to the above addition before the learned assessing officer submitting that that there can be several reasons for the difference such as shape of the plot, location et cetera and therefore, the learned AO should have referred the matter to the valuation officer. Even otherwise, he submitted that the several judicial precedents have held that it is retrospective in nature. He further referred to the central board of direct taxes Circular number 8 of 2018 dated 26/12/2018 wherein the tolerance band of 5% was provided which is enhanced to 10% with effect from 1/4/2021. He therefore submitted that there is no reason why assessee should not be given a benefit of the above tolerance band.
We have carefully considered the rival contention and perused the orders of the lower authorities.
"4. We observe from plain reading of sec. 43CA that it provides in a case where consideration received or accruing as a result of the transfer by an assessee of an asset other than the capital asset being land or building is lesser than the value adopted or assessed by any Government authority for the purpose of payment of stamp duty then the difference will taxed as deemed income. At the same time, the proviso to this section states that if there is a difference of such value within 10% margin then there cannot be any addition on the pretext of deemed income and this 10% margin has been inserted by Finance Act, 2020 w.e.f. 1-4-2021. The assessment year under consideration before us is A.Y. 2015-16 that is prior to the date when the amendment took place and such 10% margin was inserted. The question therefore, arises whether this amendment effective from 1-4-2021 can even apply to prior assessment years as well. The assessee had relied on Pune Tribunal decision in (supra) where the Tribunal has given retrospective effect in regard to section 43CA first proviso where the tolerance margin of 10% has been held to be applicable even for the prior assessment years.
5-6. The essence of the decision is that if any liability has to be fastened with the assessee tax- payer retrospectively then the statute and the provision must spell out specifically regarding such retrospective applicability. However, if the provision is beneficial for the assessee, in view of the welfare
Therefore, the above decision of the coordinate bench clearly clinches the issue in favour of the assessee wherein it has been held that tolerance
ii. V.K. DEVELOPERS VERSUS THE ACIT, CIRCLE-3, PUNE. ITA No.923/PUN/2019 iii. M/S. SHETH DEVELOPERS PRIVATE LIMITED VERSUS DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-4 (2) , MUMBAI AND (VICE-VERSA) TA No.1953/Mum/2020 And And ITA No.11/Mum/2021 And ITA No.12/Mum/2021 iv. M/S. CITY CORPORATION LIMITED, (EARLIER KNOWN AS M/S. AMANORA FUTURE TOWERS PVT. LTD.,) VERSUS DCIT, CIRCLE-1 (1) PUNE AND VICE VERSA [2022] 96 ITR (Trib) 246 (ITAT [Pune]) 044. We find that the decision of the coordinate bench in case of welfare properties private limited versus DCIT (supra) did not consider the retrospective applicability of the tolerance band provided under section 43CA of the act same was not the issue argued before it.
Accordingly we hold that if the difference between the stamp duty value of a stock in trade and the transaction value covered by the provisions of section 43CA is less than 10% even prior to 1/4/2021, does not warrant any addition in the hands of the assessee. Accordingly, we direct the learned assessing officer to delete the addition of ₹ 203,051/– made under section 43CA of the act. Ground number 4 of the appeal of the assessee is allowed.
Ground number 5 is with respect to the disallowance of ₹ 32,092,006/– under section 40 (a) (i) of the income tax act being amount paid to non-resident without deduction of the tax rejecting the contention of the assessee of applicability of article 12 of the India Singapore double taxation avoidance agreement only if the technical knowledge, experience, skill, know-how or process is made available to the non-resident.
When objections were raised before the learned dispute resolution panel, it was held: –
"We have considered all the materials placed before us. We have also gone through the provisions of sections relied upon by both the assessee as well as the assessing officer. We have also gone through the relevant articles of the DTAA. We find that the nature of the services is such that it would have required a very long the presence of the service providers or its man to see the desired result on the ground. We note that such projects go on for very long time. We also know that the services were for multistoried projects, which have complex nature of engagements. We also note that
The learned authorized representative referred to each of the payment and submitted that all the parties are based out of Singapore. The services rendered by them are in the nature of architectural/landscape design and layout, interior designing and lighting services provided by the vendor's while proceeding with the development activities for its project. He referred to each of the agreement based on which the nature of services rendered by those parties was explained. He submitted that the services provided by the vendor's are unique, project specific and cannot be performed by anybody and everybody unless such person is a possession of a specific skill set and knowledge. Therefore the assessee cannot on its own apply those services/ skill etc in a different project. Each project requires expertise of the vendor to prepare reports/design separately. He further referred to the article 12 (4) (b) of the India Singapore tax treaty where it is provided that the services would be characterized as 'fees for technical services' if such services 'make available' technical knowledge, experience, skill, know-how or processes which enables the person acquiring the services to apply the technology contained therein. He further referred to the definition of Article 12 of the treaty along with the definition of the term 'fees for included services'
The learned departmental representative vehemently supported the orders of the lower authorities. It was the claim of the learned departmental representative that these consultants have made available the technology and skill to the assessee and therefore it satisfies the conditions of article 12 of the double taxation avoidance agreement and therefore tax should have been deducted at source and hence disallowance, as assessee failed to do so.
We have carefully considered the rival contentions and perused the orders of the lower authorities. Admittedly, the assessee has paid fees to various persons based in Singapore for the project consultancy. The services of the consultancy were included undisputedly by the learned assessing officer as well as the assessee under article 12 of the India Singapore DTAA . In Article 12 (4) of DTAA provided that :-
(a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein ; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person."
The assessee has made payment to following parties:-
serial name of party nature of amount nature of number remittance services 1 Site Techtonix consultancy 2,43,46,781 the area of private limited services work include both the Singapore landscape, water and soft space responsibilities for the external area of development inclusive of road and drive it treatment, the area of the work for landscape included podium
The claim of the learned assessing officer is also with respect to applicability of article 12 (4) (b) of DTAA
While paragraph number 10.3 of the assessment order says that that the designing services were provided by the consultant in close coordination with the architect/contractor appointed by the assessee and the whole process was approved by the owner after satisfying. Therefore, consultant even interprets the whole design to the owner's contractors, which clearly makes available the services to the owner's contract for using the said design independently. Therefore the condition of make available a satisfied. The learned DRP at page number 74 of the direction held that the nature of services are such that it would have required very long presence of the service provider or its people to see the desired result on the ground. Such projects go on for a very long time. The DRP also noted that the services are of such a nature that training of the main power of the assessee would be a prerequisite for subsequent observation and upkeep. Therefore in the considered
The learned authorized representative has relied upon the decision of the i. coordinate bench in case of 72 taxmann.com 238 Gera Developments Private Limited dated 29 July 2016 wherein in case of an assessee was engaged in the business of development of land and construction of the building, the services were with respect to the site requirements, surroundings, conceptual designs and drawings and the issue involved was the interpretation of fees for technical services or royalty with respect to Indo US DTAA which is identically worded as India Singapore DTAA (there were two sub clauses in US DTAA wherein there were three sub clauses in Singapore DTAA) wherein in case of make available condition was applied with respect to the above services. We find that we are concerned here with the India Singapore
ii. Same is the issue with the decision relied upon by the learned authorized representative in case of 103 taxmann.com 344 in case of Buro Happlod Ltd versus Deputy Commissioner Of Income Tax where the coordinate bench was concerned with the interpretation of Double Taxation Avoidance Agreement between India and United Kingdom wherein in paragraph number 20 of that decision it simply followed the decision of the coordinate bench in case of Gera developments private limited. iii. The third decision relied upon by the learned authorized representative is of Deputy Commissioner Of Income Tax, Mumbai Vs Forum Homes Pvt Ltd in ITA number iv. Later on it has come to our notice that coordinate bench in assessee's own case for assessment year 2014 – 15 to 2016 – 17 and 2018 – 19 in ITA number 497 – 500 & 784/M/2022 along with cross objections number 73 – 75 and 85/MUM/2022 dated 24/1/2023 where the learned AO was in appeal against the order of the learned CIT – A deleting the claim under section 201 (1) and interest under section 201 (1A) of the act for not withholding tax under section 195 of the income tax act pertaining to the payment v. Furthermore ITA number 782 and 7834 assessment year 2015 – 16 and 2016 – 17 as well as cross objection number 83 – 84 for the same assessment year was also decided by vi. As the coordinate bench in assessee's own case for the same assessment years have held that the assessee was not required to deduct tax on source on payment made to Singapore entities as they were not chargeable to tax in India according to article 12 of the double taxation avoidance agreement and also for the subsequent and earlier years, we respectfully following the decision of the coordinate bench, hold that assessee was not required to deduct tax at source under section 195 of the income tax act for the above payment which is disallowed by the learned assessing officer.
However, as we have made it absolutely clear that the claim of the revenue is that those services fall under article 12 (4) (b) and it has been made available to the assessee, which is unfounded, we hold that the services do not satisfy the make available condition and therefore are not chargeable
Ground number 6 is against initiation of penalty proceedings under section 270A of the act, it is premature, and therefore does not require adjudication, hence dismissed.
Accordingly, appeal of the assessee is partly allowed. ITA number 2239/M/2022 Assessment Year 2018 – 19
Now we come to the appeal of the assessee for assessment year 2018 – 19 in ITA number 2239/M/2022 wherein the assessee has raised following grounds of appeal. "
1. The learned assessing officer/TPO/DRP has erred in making transfer-pricing adjustment in respect of
The learned assessing officer/DRP has erred in disallowing an amount of ₹ 54,199,690/– under section 14 A of the act.
3. The learned assessing officer/DRP has erred in enhancing the book profit of ₹ 54,199,690/– by disallowance under section 14 A of the act while calculating MAT liability under section 115JB of the act 4. The learned assessing officer/DRP has erred in disallowing loan processing fee of ₹ 46,843,401/–.
5. The learned assessing officer/DRP has erred in disallowing ₹ 105,373,481/– under section 40 (a)(i) of the act by categorizing consultancy fees as fees for technical services
6. The learned assessing officer has erred in disallowing an amount of ₹ 444,627,471/– under section 43CA of the act. The learned
The learned assessing officer ought to have granted MAT credit of merged entities.
The learned assessing officer/DRP has erred in short granting tax deduction at source credit of ₹ 48,157,988/– including TDS credit of merged entities.
The learned assessing officer has erred in computing/charging interest under section 234B of the act
10. The learned AO erred in holding that the appellant has underreported the income and thereby initiating penalty proceedings under section 270A of the act.
i. Adjustment of corporate guarantee commission of ₹ 137,810,366/– on security, guarantee given on the senior notes. The facts relating to this is identical to assessment year 2017 – 18. ii. Corporate guarantee commission of ₹ 569,235/– in respect of tenancy agreement of the overseas associated enterprises. The fact shows associated enterprise of the assessee
The learned assessing officer has made following corporate addition to the total income of the assessee over and above transfer pricing adjustment:-
i. disallowance under section 14 A read with rule 8D of ₹ 62,503,451/– ii. disallowance of loan processing fee of ₹ 46,843,401 iii. addition under section 43CA of ₹ 383,532,986/– on account of the difference between the documented sale price of the stock in trade and the stamp duty value of the same iv. disallowance under section 40 (a) (i) of the act of ₹ 105,373,481/– for non-deduction of tax at
Assessee preferred an objection before the learned dispute resolution panel, which passed its direction is on 28/6/2022. Based on that:-
i. The learned dispute resolution panel reduced the total adjustment of guarantee commission of ₹ 212,448,083 to only ₹ 98,653,150/– directing the learned transfer pricing officer to follow the decision of the honourable Bombay High Court in case of Everest Kanto and computed the arm's-length price of the guarantee commission fee at ₹ 0.5 percent. ii. The disallowance under section 14 A on receipt of dividend income of ₹ 8,303,761/– as exempt income, where the assessee on its own offered a disallowance under section 14 A of the act to the exempt income of ₹ 8,303,761/– but the learned assessing officer made a disallowance of ₹ 62,503,451/– was restricted to only ₹ 54,199,690/– granting assessee the benefit of disallowance offered by it in its return of income. iii. With respect to the disallowance of loan processing fee of ₹ 4,68,43,401 as capital expenditure was upheld v. With respect to the disallowance under section 43CA of the act where the sale consideration offered by the assessee is less than the value adopted for assessed by the authority of state government for the purpose of stamp duty amounting to ₹ 383,532,986/– was also upheld. In this case, the assessee has offered addition of RS. 1 44,25,474/– in its return of income.
Accordingly order under section 143 (3) read with section 144C capital (13) of The Income Tax Act was passed on 30/7/2022 determining the total income of the assessee at ₹ 1,451,242,270/– in the book profit computed under section 115JB of the act in addition of ₹ 54,199,690/– was also made on account of disallowance under section 14 A. The book profit was determined at ₹ 7,955,032,446/–. Assessee is aggrieved with that order and is in appeal before us by the grounds of appeal stated above.
The learned authorized representative submitted that ground number 1, 2, 3, 5 and 6 are identical to grounds of appeal of the assessee for assessment
The learned departmental representative also agreed with above statement of facts.
We have carefully considered the rival contentions and perused the orders of the lower authorities as well as the direction of the learned dispute resolution panel on this issue.
With respect to ground number 1 of the appeal regarding arm's-length price of the guarantee commission fee from associated enterprises. We have already decided this issue in the appeal of the assessee for assessment year 2017 – 18 wherein we have categorically upheld that the arm's-length price of guarantee commission income at the rate of 0.35% with respect to the senior bonds issued by the associated enterprise.
With respect to the various guarantee amount on loan raised by associated enterprise the AO has adopted the same guarantee rate of 1.20%. The learned DRP has reduced it to 0.5%, based on nature of guarantee is which are for borrowing obtained by the associated enterprises, as held in case of guarantee of senior notes, we direct the learned AO to adopt the arm's-length price of guarantee commission at 0.35%.
With respect to the guarantee given to the property owner against the payment of rent, we do not find that there is much difference in the functions, assets and risk involved of the assessee. It would meet the interest of the Justice, if arm's-length price of the guarantee commission income of this transaction is also restricted to 0.35%.
Accordingly, ground number 1 of the appeal of the assessee is partly allowed.
76. Ground number 2 is against disallowance under section 14 A of the income tax act of ₹ 54,199,690/– . The brief of the fact shows that during the year the assessee has earned exempt income of ₹
The learned authorized representative has made the several arguments against the disallowance however the clinching argument was that the disallowance should be restricted to the extent of the exempt income of ₹ 8,303,761/– which is already been disallowed by the assessee and therefore no further disallowance is called for.
The learned departmental representative may mentally submitted that there is no correlation between the amount of exempt income and amount of the disallowance. It can even exceed the amount of exempt income also.
We have carefully considered the rival contention and perused the orders of the lower authorities. We find that the issue that disallowance under section 14 A cannot exceed the exempt income earned by the "9. There is no perversity in the orders passed by the Commissioner (Appeals) and the ITAT on this issue. Besides in Nirved Traders (P.) Ltd. (supra), this Court has held that disallowance under section 14A of the IT Act cannot be more than the exempt income earned by the Assessee during the assessment year in question.."
Accordingly, ground number 2 of the appeal of the assessee is allowed.
Ground number 3 is with respect to the disallowance under section 14 A of the act added by the learned assessing officer while computing the book profit under section 115JB of the act. Identical issue arose in the case of the assessee for assessment year 2017 – 18 wherein we have followed the decision of the honourable Karnataka High Court and held that disallowance under section 14 A of the act cannot be added to the book profit under section 115JB of the act. Accordingly we direct the learned assessing officer to not to make any adjustment in the book profit with respect to disallowance under section 14 A of the act. Ground number 3 of the appeal is allowed.
The learned departmental representative vehemently supported the orders of the lower authorities and submitted that when the assessee has loan- processing fee of ₹ 461,656,164/– except the above sum there is no reason that this should be allowed to the assessee as a deduction in this year. Therefore, he vehemently supported the order of the learned assessing officer that the above sum should also be capitalized as a work in progress.
We have carefully considered the rival contention and perused the orders of the lower authorities. Assessee is engaged in business of construction and development of realistic projects including purchase and sale of building materials. It is in fact borrowing cost the method adopted by the assessee is that it has allocated the finance cost to a specific project based on the fund flow of the company. The assessee aggregated all project cost incurred up to 31/3/2018 including land and also aggregates own sources of funds. The net deficit if any is calculated and the weighted average borrowing cost are located on such deficit to arrive at the interest cost, which has to be included into the cost of project. Accordingly assessee out of the total loan processing fees of ₹ 46.16 crores and balance sum of Rs. 4.68
"4. From the facts found by the Tribunal on record, it is clear that assessee undertook two-fold activities. It bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under section 28 of the Income-tax Act. In this case, we are concerned with the second activity (hereinafter referred to, for the sake of brevity, as "Kandivali Project"). According to the Commissioner, loan was raised for securing land/development rights from the Mandal. That, the loan was utilised for purchasing the development rights, which, according to the Commissioner, constituted a capital asset. According to the Commissioner, since the loan was raised for securing capital asset, the interest incurred thereon constituted part of capital expenditure. This finding of the Commissioner was erroneous. In the case of India Cements Ltd. v. CIT [1966] 60 ITR
Therefore, respectfully following the decision of the honourable Bombay High Court, we direct the learned assessing officer to allow the deduction of ₹ 46,843,401 of loan processing fee as expenditure allowable under section 36 (1) (iii) of the act. Accordingly, ground number 4 of the appeal is allowed.
Ground number 5 is with respect to the disallowance under section 40 (a) (i) of the act amounting to ₹ 105,373,481/– being amount paid as a consultancy
The fact shows that during the year the assessee has paid to several Singapore entities professional fees such as landscape architectural consultancy services, architectural design consultancy services, interior designing fees, and reimbursement of expenditure. The total sum paid is ₹ 105,373,481/–. The assessing officer was of the view that assessee should have deducted tax at source under section 195 of the income tax act and as assessee has failed to do so, he disallowed the same. The learned dispute resolution panel also confirmed the same.
The learned authorized representative submitted identical issue arose in the case of the assessee for assessment year 2017 – 18 and therefore his arguments also remains the same.
The learned departmental representative vehemently supported the orders of the learned AO as well as the direction of the learned DRP.
We have carefully considered the rival contention and perused the orders of the lower authorities. This issue is identical to the issue in appeal of the assessee for assessment year 2017 – 18 wherein the learned assessing officer disallowed the above sum paid to Singapore entities without deduction of tax at source. We have dealt with this issue in ground
The learned authorized representative referred to page number 210 of the paper book wherein complete arguments were noted. These arguments are:-
i. the significant inventory is have been piled up and huge amount of funds have been locked up and therefore the company has sold certain properties at the prevailing market prices which were lower than the stamp duty value adopted by these authorities. ii. The assessee has supported its sale by valuation report from the independent valuer which has considered the relevant factors of the particular property such as area, nature, use, width, adjacent localities, urgency of sale, need of the buyer, other relevant market factors and prevalent market demand and supply conditions. It was submitted that
Accordingly, it was submitted that the addition made by the learned assessing officer under section 43CA of the act is required to be deleted. 095. The learned departmental representative vehemently supported the orders of the learned assessing officer and direction of the learned dispute resolution panel stating that the addition made by the learned assessing officer on account of deemed sale
Both the parties confirmed that the facts and circumstances of the case and their argument also remains the same as per ground number 04 of the appeal for assessment year 2017 – 18.
We have carefully considered the rival contention and perused the orders of the lower authorities. The facts and circumstances of the case identical to ground number 4 of the appeal of the assessee for assessment year 2017 – 18. While disposing off that ground, we have categorically held that the tolerance band limit of 10% though inserted with effect from 1/4/2021 applies retrospectively relying upon the several judicial precedents.
Therefore, for the reasons given by us in ground number 4 of the appeal for assessment year 2017 – 18, we direct the learned assessing officer to compute the disallowance afresh after granting the benefit of tolerance band of 10% to the assessee for this year.
There is another aspect also in this ground. As per provisions of (2) of section 43CA provides that provisions of subsection (2) and subsection (3) of section 50 C shall, so far as may be, apply in
Assessee submitted before ld AO as under :-
During the year under consideration the assessee company has sold various properties both commercial and residential in nature. In this respect working u/s 43CA as required by your goodself is enclosed as under for assessee company Macrotech Developers Pvt Ltd (Formerly known as Lodha Developers Pvt Ltd) along with entities which have been merged with assessee company during the year under consideration. Sr. Company Commerci Residential Total Suo Moto 43 CA No. al Variation Disallowed workin in COI g I Macrotech 5,52,51,77 16,19,03,66 21,71,55,43 1,40,34,52 Annex Developers Ltd. 2 6 8 4 ure-A (Assessee Company) II Palava Dwellers - 17,87,84,26 17,87,84,26 - Annex Pvt. Ltd. 4 4 ure –B (Merged entity) III Bellissimo - 17,15,680 17,15,680 3,90,950 Annex Developers ure-C Thane Pvt. Ltd. (Merged entity) VI Bellissimo - 3,03,078 0,03,078 - Annex Mahavir ure-D Associates Dwellers Pvt. Ltd. (merged entity) Total 5,52,51,77 34,27,06,68 39,79,58,46 1,44,25,47 2 8 0 4 Further, we are also enclosing the 43CA working of other merged entities as Annexure - F where there is no difference between sale consideration and stamp duty value. Further, company wise detailed submission with respect to difference between sale consideration and stamp duty value is explained in subsequent paras. I. Macrotech Developers Limited The assessee in the year under consideration was developing the projects comprises of residential and commercial units. Details of projects in which units sold during the year and where difference is Project Units sold Unit sold Total Units Percentage at < RR at > of units sold <RR
Casa Rio 99 25 124 80% Casa Rio 178 54 232 77% Lodha 62 1 63 98% Freshia Average 85%
From the above table it may be observed that on an average assessee has sold 85% of units below the ready reckoner rate considered for the purpose of payment of stamp duty. Thus, it is evidently clear that the substantial sales made by the assessee company fails under the "below the ready reckoner rate" category and the value determined by the stamp duty authority is not the fair market value of the property as there was no market existed for such a price determined by stamp duty authority. Accordingly, the circle rate so decided is not the only factor contributing to the fair market value of the property. iv. In support of our claim, we have obtained the valuation report from the independent recognized property valuer determining the fair market value of the property after considering all the relevant as under- a. CASA RIO With respect to this project, we have obtained the valuation from Independent registered valuer of Flat No. 501 for building "Nautica" under project "CASA RIO". Copy of the same is enclosed as Annexure H for your ready reference and records. On perusal of the same, your goodself will observe that in the valuation report it is stated that the sale consideration of the assessee is the fair market value of the property after considering all the relevant factors for determining the fair market value of the property for the period under consideration. Accordingly, it is submitted that the other units sold by the assessee company in the same project
…….. IV. Bellissimo Developers Thane Private Limited The assessee in the year under consideration was developing the projects comprises of residential units. Details of projects in which units sold during the year and where difference is on account of sale consideration and stamp duty value is as under: Sr. No. Project Nature of Location Variation as Units per 43CA working (refer Table 3) i. Amra Residential Kolshet, 17,15,680 Khokali & 0100. The Ld AO did not take any cognizance of the submission of the assessee with respect to claim of the assessee that stamp duty rates are not the fair market value of the property and to support such claim it produced valuation reports of authorized valuers.
0101. Before ld DRP on the aspect where assessee objects to stamp duty valuation rate , it was held as under :-
"The assessee has raised without prejudice' sub-ground of objection no. 4.3, which relates to the claim that if its objection
We have noted all facts and material brought before us with regard to the issue. We have also gone through the valuation reports submitted by the assessee. We 0102. On careful perusal of the submission made by the assessee placed at page number 210 to 222 of the paper book we find that assessee has objected before the learned assessing officer per letter dated 27 September 2021 with respect to the sale value of the property being less than the stamp duty rates. Assessee has submitted company wise, project - wise, type wise (commercial or residential), name of the owners, date of booking of the property, saleable area, sales consideration and stamp duty valuation. It objected by submitting the valuation report prepared by Mr Deven K Dadbhawala dated 2/9/2021 with respect to all properties where there is a difference with respect to project (1) Lodha Boulevard, (2) Lodha Supreme Pawai , (3) casa Rio Gold , (4) Lodha Freshia D Wing. Before the assessing officer, as well as the learned DRP, assessee submitted that if the assessee's contention is not accepted and the valuation reports obtained from independent valuer's stating that the sale consideration of the assessee is the fair market value of the property is disregarded, then, the assessee submitted that the properties in respect of which disallowance/addition is proposed under section 43CA of the act, be referred for valuation by the learned AO as per subsection (2) of section 43CA of i. S MuthuRaja V CIT 37 taxmann.com 352 (Madras) ii. Sunil Kumar Agarwal versus CIT 47 taxmann.com 158 (Calcutta) iii. Avishkar film private limited versus ITO 108 taxmann.com 270 iv. Meghraj baid V Ito 23 SOT 25 (jd)
0103. Before the assessing officer, assessee has submitted a 66 page summary of all the sale transactions comparing the actual sale price as well as the deemed sale consideration under section 43CA of the act. Wherever assessee did not find any reason to substantiate that actual sale consideration is the market rate, assessee itself accepted and has offered such higher deemed sale consideration for the purpose of computation of profits and gains. Wherever, assessee had objected, it has objected by submitting the reasons, substantiated such reasons with the valuation report and made a specific request to the learned assessing officer to refer the matter to the valuation cell for arriving at deemed sale consideration. Repeatedly saying so before the AO, the learned assessing officer did not care to look into 0104. In fact, in this situation the learned AO is duty- bound to follow the mandate of subsection (2) of section 43CA of the act. That meant that takes the AO to the provisions of 50 C (2) and (3) of the act. Those provisions clearly states that if the assessee claims before AO that the value of the property determined by the stamp valuation authority exceeds the fair market value of the property as on date of transfer, the AO is duty-bound to refer valuation of such capital asset to valuation officer and thereafter to look at provisions of subsection (3) to substitute the actual sale consideration with the such valuation. The AO has failed to do what the law mandates him to do. He conveniently does not look into the claim of the assessee at all.
0105. When the matter reached before the learned dispute resolution panel, the learned DRP did not reject the claim of the assessee of making a reference to the valuation officer by the learned AO but has held that according to the provisions of section 50 C (2) (b) the assessee has not given any evidence that the stamp valuation authorities valuation has not been disputed before specified authorities. The plain reading of the provisions of section 50 C (2) the 0106. Apparently, the learned AO has failed to carry out the mandate of the law of referring valuation of those properties to the valuation cell for valuing those properties. We refer to Para no 21 of The "21. It is further settled law that when a power is given to do certain thing in a certain way, the thing must be done in that way or not at all and other methods of performance are forbidden. [See: Taylor Vs. Taylor,1875) 1Ch.D.426; Nazir Vs. King Emperor, AIR 1936 PC 253, AIR 1975 SC 985; Babu Verghese Vs. Bar Council of Kerala, (1999) 3 SCC 422]."
0107. Thus where the law mandates the learned assessing officer to do the things in a particular manner, if he fails to do so as per the provisions of the law, we do not have any other alternative but to delete the addition. Such a view has been taken even in case of violation of procedures; we are dealing with the substantive addition in the hands of the assessee.
0108. Accordingly, ground number 6 of the appeal of the assessee is allowed.
0109. Ground number 7 of the appeal of the assessee is with respect to the grant of minimum alternative tax credit to the assessee of merged entities. Ground number 8 is with respect to short grant of tax deduction at source credit of ₹ 48,157,988 including the tax deduction at source credit of merged entities.
0111. The learned departmental representative submitted that the provisions of section 72A of the act clearly prohibit such set of. He specifically referred to number 49 of the decision referred by the learned AR. It was further submitted that there is no provision in the act itself to grant any such credit under section 115JAA of the act. 0112. We have carefully considered the contentions of the parties and find that when the effective date of merger is 1/4/2017 whereby 11 companies merged with the assessee company by the order of the National company law Tribunal. since pursuant to an 'amalgamation',
(ii) the amalgamating company ceases to exist and the amalgamated company becomes successor of the amalgamating company.
(iii) Act provides as per Section 2(1B), that in an amalgamation "all assets and liabilities" of the amalgamating company should become the "assets and liabilities of the amalgamated company". If all the assets and liabilities of the amalgamating companies are not transferred to the amalgamated company, the amalgamation scheme itself becomes non-tax neutral.
(iv) "Guidance Note for accounting of credit available in respect of Minimum Alternative Tax under Income-tax Act, 1961" issued by the Institute of Chartered Accountants of India also recognizes MAT Credit as an "asset" and lays down the conditions and manner in which it has to be recognized in the financial statements of the amalgamated company.
(v) As MAT Credit is included in the definition of "assets" under a scheme of amalgamation naturally, unutilized MAT Credit is an 'asset' of the amalgamating company, it should also move to the amalgamated company upon amalgamation.
(vii) in several judicial precedents of coordinate benches the above view has been upheld a) M/s. Caplin Point Laboratories Ltd. v. Assistant Commissioner of Income-tax 31/1/ 2014 [ITA No.667/Mad/2013 (Chennai)] b) Ambuja Cements Ltd. v. Deputy Commission of Income-tax 5/9/2019 [ITA no.3643/Mum./2018 ( Mumbai)] c) Capegemini Technologies Services India Limited [1857/PUN/2017 dated 30/8/2022] 0114. Ground number 8 is with respect to short granting of tax deduction at source credit of ₹ 48,157,988 including the tax credit of merged entities. For the reasons given by us in deciding ground number 7 of the appeal of the assessee, we direct the learned assessing officer to grant credit of such sort deduction of tax at source of the assessee as well as of merged entities after proper examination. Thus, ground number 8 of the appeal is allowed.
0115. Ground number 9 is with respect to the charging of interest under section 234B of the act, which is consequential in nature, and ground number 10 of the appeal is with respect to initiation of penalty proceedings under section 270A of the act, which is premature, hence both these grounds are dismissed.
0116. Accordingly, appeal of the assessee for assessment year 2018 – 19 is partly allowed.
Order pronounced in the open court on 17.04.2023.