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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
O R D E R
PER PAVAN KUMAR GADALE JM:
The assessee has filed the appeal against the order of the Commissioner Income Tax (Appeals)(CIT(A)) – 2, Mumbai, passed u/s 143(3) and 250 of the Act. The assessee has raised the fallowing grounds of appeal:
On the facts and circumstances of the case and in law ,the Honble CIT(A) has:
Cox and Kings Global Service Pvt Ltd, Mumbai. - 2 - 1.erred in confirming the action of the learned Assessing Officer ('AO') and assessing the total loss of the Appellant at Rs. (10,75,69,413) against Rs. (10,86,28,087) as reported by the Appellant in its return of income; Addition of interest of Rs.8.41,884 on account of loan granted to its Associated Enterprise (AE')) Cox & Kings Global Services Sweden AB ('CKGS-Sweden")
2. erred in confirming the action of the learned AO of making an addition of interest income amounting to Rs. 8,41,884 without appreciating the fact that no interest income has accrued or deemed to accrue or received or deemed to be received by the Appellant from CKGS Sweden;
erred in confirming the disallowance of interest under Section 36(1)(iii) of the Act without appreciating the fact that the said loans and advances have been given for business purpose and under commercial expediency;
4. erred in considering the Appellant's own international transactions with its other AEs as a comparable for benchmarking of interest, without appreciating the fact that such transactions of the Appellant with its other AEs do not qualify as comparable uncontrolled transactions;
without prejudice to above, erred in not appreciating the legal position that interest rate in respect of advances given in foreign currency to foreign AEs should be based on foreign currency lending rate, such as, LIBOR;
without prejudice to above, erred in rejecting the voluntary adjustment made by the Appellant on a conservative basis (considering USD LIBOR plus 200 basis point) i.e. 2.58%;
Cox and Kings Global Service Pvt Ltd, Mumbai. - 3 - Disallowance of Cash Expenses amounting to Rs. 2,00,100:
erred in confirming the action of the learned AO of treating the expenses of Rs. 2,00,100 (being 10% of the expenses of Rs. 20,01,003) incurred in cash as non- genuine without appreciating the fact that the said expenses were incurred for the purpose of the Appellant's business; Disallowance under Section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 (Rules') amounting to Rs. 16.690:
erred in confirming the disallowance of Rs. 16,690 under Section 14A of the Act read with Rule 8D of the Rules;
without prejudice to above, erred in not appreciating the fact that the amount of disallowance under Section 14A of the Act read with Rule 8D of the Rules, if any, cannot exceed the amount of exempt income earned by the Appellant during the year under consideration amounting to Rs. 6,837; Initiation of penalty proceedings under Section 271(1)(c) of the Act
erred in initiating penalty proceedings under Section 271(1)(c) of the Act.
The brief facts of the case are that the assessee company is engaged in the business of conducting domestic and international tours and other services. The assessee has filed the return of income for the Cox and Kings Global Service Pvt Ltd, Mumbai. - 4 - A.Y 2015-16 on 27.11.2015 disclosing a total loss of Rs.10,86,28,087/-.Subsequently the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act along with questionnaire was issued. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and submitted the details. On perusal of the financial statements, the AO found that the assessee has borrowed funds from its parent company and paid interest of Rs. 4,63,12,727/- being @15% and the assessee has extended the loan to one of its sister concern M/s Cox & Kings Global Services Sweden AB interest @ 2.58%. The assessee was called for the explanations and a show cause notice was issued why the proportionate interest expenditure should not be disallowed as it diversion of interest bearing funds. 3.Whereas the assessee vide letter dated 30.08.2017 has submitted that the assessee has extended loans to the associated concerns in the normal course of business and avail services at competitive prices and funds were provided for meeting working capital requirements of its associated concerns. Whereas the AO find that the assessee is paying higher rate of Cox and Kings Global Service Pvt Ltd, Mumbai. - 5 - interest and providing loan to sister concerns at lower rate and therefore the AO has made addition of differential proportionate interest @ 12.42% being (15-2.8) of Rs.67,78,453/- which works out to Rs.8,41,884/-.Further the AO found that some expenses were claimed by the assessee in cash and no details were submitted, therefore considering the facts and the nature of expenses, the AO has estimated the disallowance @ 10% which worked out to Rs.2,00,100/-.The third disputed issue, the AO found that the assessee has made investments in a dividend reinvestment plan amounting to Rs. 1,22,778/- and called for the explanations why there is no disallowance u/s 14A of the Act. In compliance the assessee has filed the details referred at Para 5.2 of the assessment order. Whereas the AO was not satisfied with the explanations and applied the provisions u/s 14A r.w.r 8D and computed the disallowance of Rs. 16,690/- and finally assessed the total loss of Rs. 10,75,69,413/- and passed the order u/s 143(3) of the Act dated 17.10.2017.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A).Whereas the CIT(A)
Cox and Kings Global Service Pvt Ltd, Mumbai. - 6 - considered the grounds of appeal submissions of the assessee and findings of the scrutiny assessment and has confirmed the additions and dismissed the assessee appeal. Aggrieved by the order of the CIT(A) the assessee has filed an appeal before the Tribunal.
5. At the time of hearing none appeared on behalf of the assessee and the assessee has challenged the additions made by the AO in respect of proportionate interest disallowance of Rs. 8,41,881/- on account of interest on loan to associate enterprises CKGS Sweden. The second disputed issue the assessee in respect of disallowance of cash expenses of Rs. 2,00,100/- and on the third disputed issue with respect to disallowance u/s 14A r.w.r 8D irrespective of the fact that the assessee has received the exempt income of Rs.6,837/-.The Ld.DR supported the order of the CIT(A).
6. We heard the Ld. DR submissions and perused the material on record. On the first disputed issue with respect of disallowance of addition of interest, on account of loan to its associated enterprises Cox & Kings Global Services Sweden AB, the assessee’s contentions in the ground of appeal that the assessee
Cox and Kings Global Service Pvt Ltd, Mumbai. - 7 - has not received any interest or interest accrued on loan to the CKGS Sweden and the disallowance u/s 36(1)(iii) of the Act is not warranted and the transaction was in the normal course of business. We find that no material information was filed with supporting evidences on the disputed issue and the CIT(A) has considered the factual aspects and judicial decisions and confirmed the addition and we do not find any infirmity in the decision of the CIT(A) on this disputed issue and upheld the same and dismiss this ground of appeal
7. The second disputed issue challenged by the assessee that the CIT(A) has erred in confirming the action of the A.O. on the disallowance of expenses @ 10%. We find that the AO has not pointed out any specific expenses irregularity and made adhoc estimated addition. Therefore, in the interest of justice we restrict the disallowance to the extent of @5% as against @10% and partly allowed this ground of appeal. 8.The last disputed issue is with respect to disallowance u/s 14A r.w.r 8D, where the AO has made disallowance of Rs. 16,690/-, we found as per
Cox and Kings Global Service Pvt Ltd, Mumbai. - 8 - the grounds of appeal
, the assessee has received the exempt income of Rs.6,837/- during the year and therefore considering the ratio of catena of judicial decisions on the disputed issue,we direct the Assessing officer to restrict the addition to the extent of exempt income and partly allow the ground of appeal.
9. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 23.01.2023.