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Facts
The assessee company is in the business of Enterprise IT and consulting. The appeals arise from assessment orders concerning transfer pricing adjustments and disallowances for AY 2020-21 and 2018-19. The assessee's grounds of appeal include issues related to interest on receivables, guarantee commission, bogus purchases, and R&D expenses.
Held
The Tribunal partly allowed the appeals. For interest on receivables, the rate was directed to be LIBOR + 2%. For guarantee commission, it was restricted to 0.5%. The disallowance for bogus purchases was confirmed to the extent of actual transaction amount. The R&D expenses were to be re-examined based on Form 3CL. Deductions for donations from CSR funds were allowed subject to verification.
Key Issues
The main issues revolved around transfer pricing adjustments on interest on receivables and guarantee commission, validity of bogus purchase claims, eligibility of R&D expenses deduction, and deductibility of donations from CSR funds.
Sections Cited
143(3), 144C, 92CA, 37(1), 35(2AB), 80G
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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI ARUN KHODPIA
आदेश / ORDER
PER ARUN KHODPIA, AM:
The captioned appeals filed by the assessee company are directed against the orders passed by the Dispute Resolution Panel (for short ‘DRP’) passed u/s.144C(5) of the Income-tax Act, 1961 (in short, ‘the Act’) dated 17.05.2024 & 28.06.2022 which in turn arises from the assessments passed by the A.O, Central Circle-1(1), Mumbai under section 143(3) read with section 144C(13)/144C(1)of the Act, dated 14.06.2024 and 29.09.2021 for A.Ys. 2020-21 & 2018-19, respectively.
Both the aforesaid appeals pertain to the same assessee having similar facts, circumstances and identical grounds involved therein, therefore, the same are heard together and are being disposed of vide this consolidated order.
3 We shall first take up the appeal of the assessee in for the assessment year 2020-21 as lead matter for adjudication, wherein the assessee has raised following grounds of appeal:
“1. The learned Assessing Officer pursuant to the directions of Dispute Resolution Panel has confirmed the order of the Transfer Pricing Officer making an addition of Rs.2,98,53,254/- on account of interest on interest free short term loans and advance to associate enterprises.
2. The learned Assessing Officer pursuant to the directions of Dispute Resolution Panel has confirmed the order of the Transfer Pricing Officer making an addition of Rs.1,20,99,880/- on account of guarantee commission.
The learned Assessing Officer pursuant to the directions of Dispute Resolution Panel has confirmed the order of the Transfer Pricing Officer making an addition of Rs.4,17,64,968/-on account of interest related to outstanding receivables.
4. The learned Assessing Officer pursuant to the directions of Dispute Resolution Panel has confirmed the order of the Transfer Pricing Officer disallowing Rs. 7299,36,44,062/- as an expenditure of contingent nature.
The learned Assessing Officer pursuant to the directions of Dispute Resolution Panel has confirmed the order of the Transfer Pricing Officer not allowing carry forward loss for assessment year 2019-20.
6. The learned Assessing Officer pursuant to the directions of Dispute Resolution Panel has confirmed the order of the Transfer Pricing Officer making addition of Rs.73,23,866/- u/s.37(1) of the Act in respect of purchases made from M/s. Saloons Trade and Industry Pvt. Ltd.
7. The assessee craves leave to add, alter or amend the above grounds of appeal.”
The brief facts in this case are that the assessee is engaged in the business of providing services in the nature of Enterprise IT & consulting BI/Big Data Analytics, Geospatial/Engineering Information Management and Defense Security related software’s andCommunication Technology. The Transfer Pricing Officer (TPO) had passed order u/s. 92CA(3) of the Act wherein the Arm’s Length Price (ALP) to various eligible transactions had been determined with a proposed adjustment of Rs.8,37,18,102/-. Accordingly, the A.O undertook certain variations to the income of the assessee and passed draft assessment order, to which, the assessee has raised objections before the Ld. DRP.
5. The Ld. DRP, thereafter, has issued directions u/s. 144C(5) of the Act, dated 17.05.2024, wherein certain adjustments as suggested by the TPO were sustained, which were finally incorporated in the assessment by the A.O and accordingly, assessment order was passed u/s. 143(3) r.w.s. 144C(13) of the Act, dated 14.06.2024, whereby certain TP adjustments and corporate tax disallowances were made.
With the aforesaid Transfer Pricing Adjustments and disallowances, the return of income of the assessee has been enhanced to the assessed total income of Rs.7272,27,73,320/-.
7. Aggrieved with the aforesaid additions/disallowance as recommended by the TPO, directed by the DRP and added by the A.O, the assessee preferred the present appeal before us, raising the grounds extracted hereinabove.
At the very outset, the Ld. Counsel for the assessee as regards the Grounds of Appeal Nos. 1 & 3 regarding benchmarking of interest on outstanding receivables from AE’s, submitted that the assessee had granted loan to the subsidiary companies (AE’s) out of the commercial expediency as the subsidiary company sells its products in USA, thus indirectly promotes the name of the assessee and the assessee is benefited by virtue of transactions carried out by the subsidiary company. This issue was discussed by the TPO, who observed that the assessee as well as AE’sare loss making entities and in such scenario, the AE’s would have approached an independent third party like bank, the bank may have charged high rates as the entity is loss making or may even have refrained from giving any loan. Accordingly, TPO had benchmarked the transaction on the basis of LIBOR + 4% rate and had adopted the rate of 5%, which the panel finds reasonable in the facts and circumstances of the case.The aforesaid recommendation of the TPO has been upheld by the DRP and accordingly, upwards adjustment stands confirmed.
On the aforesaid issue, it was submitted by the Ld. Counsel that the TPO has recommended interest rate on outstanding receivable @ LIBOR + 4% which is unreasonable and very high whereas, the rate of LIBOR + 2% would be reasonable in terms with the decision of the ITAT, Bangalore in the case of Bioplus Life Sciences (P) Ltd. Vs. Deputy Commissioner of Income Tax (2022) 138 taxmann.com 297 (Bangalore-Trib).
On the other hand, the Ld. CIT-DR vehemently supported the findings of the A.O on the aforesaid issue of interest free loan to subsidiary companies (AEs) of the assessee.
We have heard the rival contentions of the parties herein and perused the material available on record and the decision referred to by the Ld. Counsel for the assessee. We find that the Co-ordinate Bench of the Tribunal, Bangalore on the identical issue in the case of Bioplus Life Sciences (P) Ltd. Vs. Deputy Commissioner of Income Tax (supra) has held as follows:
“6. The TPO in the order passed u/s 92CA of the I.T.Act, determined the TP adjustment of Rs.16,99,773 (notional interest) in respect of delayed receivable from its AEs. The DRP rejected the contention of the assessee that the adjustment is not required in this regard, since it is not an international transaction. However, the DRP directed the TPO to recompute the interest by taking into consideration the credit period granted by the assessee in the invoices. Pursuant to the DRP’s directions, the interest was reworked to Rs.8,91,560. The TPO determined the notional interest by adopting the rate of LIBOR + 300/400 basis points.
6.1 The limited submission of the learned AR before the Tribunal is that the rate of interest adopted by the TPO is erroneous and interest paid ought to be adopted at LIBOR + 2%. In this context, the learned AR relied on the Hon’ble Bombay High Court judgment in the case of CIT v. Aurionpro Solutions Limited (judgment dated 09.06.2017 in and the order of the Bangalore Bench of the Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. v. Addl./Jt./Dy./Asst.Commissioner of Income-tax/Income Tax Officer (order dated 21.01.2022 in IT(TP)A No.397/Bang/2021, dated 21-1- 2022. 6.2 The learned Departmental Representative supported theorders of the Income Tax Authorities. 6.3 We have heard rival submissions and perused thematerial on record. The Bangalore Bench of the Tribunal inthe case of Swiss Re Global Business Solutions India Pvt. Ltd.(supra) by following the judgment of the Hon’ble jurisdictionalHigh Court in the case of PCIT v. AMD (India) Pvt.Ltd. in ITANo.274/2018 (judgment dated 31.08.2018) held that deferredrevenue from AE would constitute independent internationaltransaction and the same needs to be benchmarkedindependently. Further, it was held by the Tribunal that therate of interest to be adopted is at LIBOR + 2%. The relevantfinding of the co-ordinate bench of the Tribunal in the case ofSwiss Re Global Business Solutions India Pvt. Ltd. (supra),reads as follows: “37. Once we have held that the transaction between theassessee and AE was in foreign currency with regard toreceivables and transaction was international transaction,then transaction would have to be looked upon by applyingthe commercial principles with regard to internationaltransactions and accordingly proceeded to take into accountinterest rate in terms of London Inter Bank Offer Rate (LIBOR)and it would be appropriate to take the LIBOR rate + 2%. Forthis purpose, we place reliance on the judgment of theBombay High Court in the case of CIT v. Aurionpro Solutions Ltd. 99 CCH 0070 (Mum HC). It is ordered accordingly.” 6.4 In view of the above co-ordinate bench order of theTribunal in the case of Swiss Re Global Business SolutionsIndia Pvt. Ltd. (supra), we direct the A.O. to calculate theinterest rate on outstanding receivable from AE by adoptingLIBOR + 2%. It is ordered accordingly.”
In view aforesaid discussion and jurisprudence, we find substance in the contention of the Ld. AR, based on the decision of the ITAT, Bangalore (supra) which is supported by the judgment of the Hon’ble High Court of Bombay in the case of CIT v. Aurionpro Solutions Ltd. 99 CCH 0070 (Mum HC) wherein, the Hon’ble High Court had held that “the transaction between the assessee and AE was in foreign currency with regard to receivables and transaction was international transaction, then transaction would have to be looked upon by applying the commercial principles with regard to international transactions and accordingly proceeded to take into account interest rate in terms of London Inter Bank Offer Rate (LIBOR)and it would be appropriate to take the LIBOR rate + 2%”, the rate of interest adopted by the TPO thus is erroneous and appropriate rate of interest paid to be adopted at LIBOR + 2%. Respectfully following the same, we approve the request of the Ld. Counsel. Accordingly, the A.O is directed to adopt interest rate on outstanding loan receivable fromAE’s @ LIBOR+ 2%. Thus, the Grounds of appeal No.1 & 3 raised by the assessee are partly allowed.
Ground of appeal No.2 pertains to the guarantee commission of Rs.1,20,99,880/-. On this issue, the Ld. Counsel submitted that the issue is squarely covered by the decision of ITAT, Mumbai in assessee’s own case in dated 29.06.2022 for A.Y.2016-17, wherein adjustment for corporate guarantee commission @1.418% by the TPO has been directed to be scaled down to @ 0.5% by the Tribunal.
Accordingly, it was requested that on similar parity, the issue may be decided and the guarantee commission may be adopted @0.5% instead of 1.3% approved by the DRP.
Per contra, the Ld. CIT-DR relied on the orders of the sub-ordinate authorities.
We have considered the rival contentions of the parties herein and perused the material available on record and the decision relied upon by the assessee. Admittedly, on the identical issue in assessee’s own case (supra), the Tribunal had held as follows:
“5. In ground No.2, the assessee has assailed T.P adjustment of Rs.93,33,78,654/- in respect of corporate guarantee commission. We find that the TPO has made adjustment by charging corporate guarantee commission @1.418%, We find that this issue was in dispute in assessment year 2012-13 and 2013-14. In assessment year 2012-13 the CIT(A) following the decision rendered by Hon'ble Jurisdictional High Court in the case of CIT vs. EverestKento Cylinders Ltd., 378 ITR 57 restricted the corporate guarantee commissionrate to 0.5%. Against the findings of the CIT(A), the Revenue filed appeal before the Tribunal in (supra). The Co-ordinate Bench upheld the findings of CIT(A) and dismissed the appeal of Revenue. Similarly, in the assessment year 2013-14, the C1T(A) restricted the corporate guarantee commission rate to 0.5%. The Revenue agitated the issue before the Tribunal in ITA No.5720/Mum/2017(supra). The Tribunal following its earlier order in assessee's own case for assessment year 2012-13 dismissed this ground of appeal
6. In the impugned assessment year since, the facts are identical to assessment year 2012-13 and 2013-14, we see no reason to take a different view. Consequently, ground No.2 of the appeal is allowed for parity of reasons.
In the result, appeal by assessee is partly allowed in the terms aforesaid.”
In the backdrop of the aforesaid facts and circumstances and the decision of the ITAT, Mumbai in assessee’s own case (supra), in absence of any distinguishing material/evidence submitted by either of the parties, since the issue is identical in the case of assessee for the A.Y.2016-17, therefore, we respectfully follow the same. Accordingly, we direct the A.O to restrict the benchmarking for corporate guarantee commission @ 0.5%. Thus, the Ground of appeal No.2 raised by the assessee is partly allowed.
The Ld. Counsel for the assessee has not pressed Grounds of appeal No. 4 & 5. Considering the submissions of the Ld. Counsel, the Grounds of appeal No.4 & 5 are dismissed as not pressed.
Ground of appeal No. 6 pertains to the disallowance on account of bogus 18. purchases made from M/s. Salsons Trade and Industry Pvt. Ltd.
19. Before us, the Ld. Counsel for the assessee submitted that disallowance was made under wrong appreciation of facts as the assessee had made purchases only for Rs.7,22,178/- from M/s. Salsons Trade and Industry Pvt. Ltd. during the relevant year, whereas addition was made to Rs.73,23,866/-. To substantiate such contention, the Ld. AR had placed before us the copy of ledger account of the M/s. Salsons Trade and Industry Pvt.Ltd., which is extracted as follows:
20. Regarding aforesaid issue, the Ld. Counsel for the assessee has drawn our attention to Para-13 of the DRP’s order wherein the issue has been discussed by the DRP and it is also submitted by the assessee that transaction is only for Rs.7,22,178/-. However, such contention of the assessee was not admitted by the DRP stating that the assessee had merely furnished ledger account of sales, therefore the assessee has failed to submit corroborative evidence to prove genuineness of the purchases. The assessee has only given vague reason like that it is unable to acquire documents as the same were lying in the premises Andheri office which is closed due to non-payment of electricity bills. With these submissions, the Ld. Counsel submitted that since the assessee has submitted ledger account as per books of accounts, then if any disallowance is made the same should not be exceeded the sum actual transaction i.e., for Rs.7,22,178/-.
The Ld. CIT-DR supported the orders of the revenue authorities.
Having considered the rival submissions, on perusal of the submissions in the form of ledger account of M/s. Salsons Trade and Industries Pvt.Ltd., it can be gathered that the transaction through the aforesaid party was only Rs.7,22,178/- vide invoice No.STIPL/0270/19-20, dated 21.05.2019 and there were no evidential proof for any further transactions which were carried out between the said party and assessee, also no evidence were brought on record by the revenue to dislodge the aforesaid assertion by the assessee. Under such circumstances, it is submitted by the Ld. AR that the assessee company is under the liquidation, the records of assessee company would be difficult to fetch, we confirm the addition made to the extent of actual transaction amount for Rs.7,22,178/- only. The A.O is directed to give effect to the same. Thus, the Ground of appeal No.6 raised by the assessee is partly allowed.
In the result, appeal of the assessee in for 23. A.Y.2020-21 is partly allowed.
The present appeal of the assessee for A.Y.2018-19 was earlier filed in through the erstwhile Director of company Shri Kamal K Singh, despite appointment of Insolvency Resolution Professional by the National Company Law Tribunal, Mumbai vide order dated 19.01.2023. Since the appeal was directed to be instituted only through IRP in terms of provisions of Section 140(c)(c) of the Income Tax Act, therefore, the appeal of the assessee was dismissed with the liberty that the IRP after due process of law may amend memorandum of appeal and furnish it before the Tribunal with a request for recall of the order of the ITAT dated 20.07.2023. in terms of the aforesaid direction of Tribunal, the appeal has been refiled under the prescribed Form 36 under the signatureof Insolvency Resolution Professional in the capacity of appellant on behalf of the assessee company on 31.01.2024. Accordingly, the matter is fixed for the hearing. Our adjudication to the grounds assailed in the appeal are as under:
As regards the Ground of appeal No.1 raised in the captioned appeal qua the disallowance on account of guarantee commission, we find that the similar issue has been adjudicated by us herein above in for A.Y.2020-21 vide Ground of appeal No.2 in the said appeal. Accordingly, our reasoning recorded therein as regards the said issue shall apply mutatis- mutandis to theGround of appeal No.1 raised in the appeal under consideration i.e., A.Y.2018-19. Thus, the Ground of appeal No.1 raised by the assessee is partly allowed.
As regards the Ground of appeal No.2 i.e. disallowance of R & D Expenses of Rs.59,00,51,663/-, it is noticed that the disallowance was made by the A.O as the assessee company was unable to furnish Form 3CL from Department of Science and Industrial Research (DSIR), Ministry of Science and Technology with respect to claim of deduction u/s. 35(2AB) of the Act.
Before us, the Ld. Counsel for the assessee submitted copy of Form 3CL for the A.Y.2018-19 issued on 20.08.2024 by the competent authority, therefore, it is requested that the deduction claimed by the assessee u/s. 35(2AB) of the Act needs to be re-examined and allowed in terms with Form 3CL issued by DSIR.
The Ld. CIT DR conceded to the request of the assessee. It was submitted by the Ld. CIT-DR that since Form 3CL is available now then the matter be revisited by the A.O to allow deduction u/s. 35(2AB) of the Act after considering Form 3CL, dated 20.08.2024.
We have considered the rival submissions of the parties herein and perused the copy of Form 3CL which is extracted as follows:
Referring to the aforesaid Form 3CL which is placed before us, it was submitted by the Ld. Counsel of the assessee and as conceded by the revenue that the matter needs to be restored to the file of the A.O for fresh adjudication in terms with report in Form No. 3CL issued by the DSIR, dated 20.08.2024. Accordingly, we restore the matter to the file of the A.O for fresh adjudication. Thus, the Ground of appeal No.2 raised by the assessee is allowed for statistical purposes.
Ground of appeal No.3 pertains to the disallowance of deduction u/s. 80G of the Act.The disallowance u/s. 80G of the Act of Rs.38 lacs made by the A.O for the reason that the assessee was unable to furnish necessary corroborative evidence to prove that the donations made are entitled for deduction u/s. 80G of the Act. Further, it is also observed by the A.O that fund allocated to CSR does not form part of Section 37(1) of the Act, therefore, the expenditure made out of such fund are not allowable for the benefit of exemption u/s. 80G of the Act.
On this issue, the Ld. Counsel submitted that this issue has already been decided by the Co-ordinate Bench of the ITAT, Mumbai in the case of Societe Generale Securities India Pvt. Ltd. Vs. Pr. CIT, for A.Y.2018-19, wherein it has been held that CSR expenses if utilized for the purpose of eligible donations u/s 80G, then the deductions under Section 80G would be allowable to the assessee (doner). Accordingly, amount paid as donations by the assessee, which are allowable for deduction u/s. 80G of the Act should be allowed to the assessee.
The Ld. CIT-DR submitted that the assessee was unable to furnish documentary evidence before the A.O regarding donation payment to claim deduction u/s. 80G of the Act, therefore, the matter needs verification for which the same should be restored to the file of the A.O.
We have heard the rival contentions of the parties herein and perused the material available on record a/w. decision of the ITAT. We find substance in the submission of the Ld.AR that donations made from CSR funds would be eligible for deduction under the provisions of section 80G of the Act. Our view is supported by the view adopted by the coordinate bench of ITAT Mumbai in various decisions, one of them is in the case of Krishna Processors & Industries Pvt. Ltd. Vs. Pr. CIT, Mumbai-4, in vide order dated 19.08.2025, wherein after a lengthy discussion on the issue, it is concluded that “the assessee would be eligible for claim of deductions u/s 80G for eligible donations out of the CRS funds, if the stipulated condition of sections 80G are duly satisfied.”, we therefore having similar issue involved herein are of the considered view that the contention raised by the Ld. Counsel is principally correctthat there is no bar on utilization of funds allocated for CSR if utilized for granting of eligible donation u/s. 80G of the Act, but subject to restrictions stipulated under section 80G(2)(iiihk) & (iiiha) r.w. Explanation 2 of Section 37(1) of the Act, thus, allow the aforesaid contention of the assessee subject to verification by the AOthat the eligibility criteria in terms of provisions of section 80G/37(1)are satisfied, for that purpose the matter is restored back to the file of Ld. AO, with the direction to decide the issue afresh after verification of documents according to our decision herein above. Needless to say,the assessee shall be provided with reasonable opportunity of being heard in the set aside
In the result, both the appeals of the assessee are disposed of as indicated herein above. Order pronounced in the open court on 25th August, 2025.