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Income Tax Appellate Tribunal, MUMBAI BENCH “K”, MUMBAI
Before: SHRI M. BALAGANESH & SHRI KULDIP SINGH
Per : Kuldip Singh, Judicial Member: For the sake of brevity aforesaid cross appeals/cross objections filed by the Revenue as well as the assessee bearing common question of law and facts are taken up for disposal by way of composite order.
Appellant M/s. Cox & Kings Ltd. (hereinafter referred to as the assessee) and Income Tax Officer-1(1)(1), Mumbai (hereinafter referred to as the Revenue) cross objector M/s. Cox & Kings Ltd. (hereinafter referred to as the assessee) by filing aforesaid cross appeals/objections sought to set aside the impugned order dated 02.12.2015 passed by the AO in consonance with order passed by TPO/DRP on the grounds inter alia that:
ITA No.1716/M/2016 (Assessee’s appeal)
“1. erred in assessing the total income of the Appellant at Rs.97,95,23,830 against Rs.86,23,89,109 as reported by the Appellant in its return of income;
Transfer Pricing (TP) Grounds:
Adjustment on account of interest on grant of advances by the Appellant to its Associated Enterprises (AEs) –
2. erred in making a notional adjustment of interest income of Rs.2,53,02,702 by considering the domestic interest rate of State Bank India ('SBI') base rate + 200 basis points, without appreciating the fact that no interest income accrues or
3. erred in making the adjustment without appreciating the fact that the said interest free advances were given out of commercial expediency in the Appellant's capacity as a holding / parent company and hence, is a shareholder activity and quasi-equity in nature;
4. erred in not appreciating the fact that loans to AEs were made by the Appellant in foreign currency and were repaid by the AEs in foreign currency, accordingly, applying domestic interest rate to benchmark the transaction would be inappropriate;
Grounds 5 to 7 are on a without prejudice basis to Grounds 2 to 4
5. 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 not be based on domestic interest rate and should be based on foreign currency lending rate, such as, LIBOR, and infact, subsequently the ITAT in Appellant's own case for AY 2009- 10 and AY 2010-11 accepted the interest rate at LIBOR;
6. without prejudice to above, erred in rejecting the benchmarking analysis undertaken by the Appellant (basis LIBOR plus ECB spread) i.e. 3.5% on the ground that the same is applicable for inward loan only and not on the outward loans given by the Appellant;
7. without prejudice to the above, erred in rejecting the internal Comparable Uncontrolled Price ('CUP') (i.e. rate of interest paid by AEs on loan taken from third parties in their respective jurisdictions) / prime lending rate ('PLR') of respective jurisdiction to benchmark the interest on advances given by the Appellant to its AEs in various countries;
4 & ors. M/s. Cox & Kings Ltd. Adjustment made with respect to the international transaction of provision of corporate guarantee for loans taken by AEs 8. erred in making an adjustment on account of provision of corporate guarantee by the Appellant to its AEs, without appreciating the fact that such transactions do not qualify as international transactions within the meaning of Section 92B of the Act;
without prejudice to above, erred in making a notional adjustment of guarantee commission @ 1.77% amounting to Rs.2,47,95,643 by determining the Arm's Length Price ('ALP') on the corporate guarantee provided by the Appellant, without appreciating the fact that no guarantee commission accrues or deemed to accrue or received or deemed to receive to the Appellant from its AEs;
10. without prejudice to above, erred in not appreciating the fact that the guarantee given by the Appellant is for strategic purpose, in its capacity of a shareholder is a financial arrangement;
without prejudice to above, erred in determining the credit rating of Cox & Kings (Australia) Pty. Ltd and Cox & Kings Travel Limited, UK (on adhoc basis) thereby imputing the said notional guarantee commission, without appreciating the fact that no benefit arose to CNK Australia and CNK Travel UK from corporate guarantee given by the Appellant; 12. without prejudice to above, erred in using information obtained from CRISIL for determining the interest rates for Appellant and its AEs, without appreciating the fact that the same was not available in public domain and not applicable to the facts of the case of Appellant;
without prejudice to the above, erred in disregarding the decisions of the various tribunals which have upheld the arm's length rate of guarantee commission in the range of 0.2% to 0.5%, and infact, subsequently the ITAT in Appellant's own case for AY 2009-10 and AY 2010-11 accepted the guarantee commission adjustment at the rate of 0.5%;
Disallowance under Section 14A of the Act by applying Rule 8D of Rules
erred in not appreciating that the investments considered for the purpose of disallowance under Section 14A of the Act were made out of owned funds of the Appellant in various years and not from the borrowed funds;
erred in making disallowance of Rs.3,58,29,968 under Section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 ('Rules') by considering the investments made in growth scheme of mutual funds while calculating average investments, without appreciating the fact that the income from growth scheme of mutual funds is chargeable to tax and not an exempt income;
without prejudice to the above, erred in not appreciating the fact that the investment in growth scheme of mutual funds were made out of owned funds (ie. IPO proceeds);
Disallowance in respect of the Annual Information Report ('AIR') reconciliation
erred in making addition of Rs.18,04,870 in the amount of tour sales on the basis of AIR statement filed by third parties, without appreciating that the onus is on the AO to establish the specific defects in the tour sales recorded by the Appellant in its books of account, the said contention has been accepted by the ITAT in Appellant's own case for AY 2009-10 and AY 2010-11;
erred in not appreciating the fact that the total tour sales recorded in the books of account of the Appellant are more than that as AIR statement and accordingly, there is not under-recording of tour sales by the Appellant;
without prejudice to the above, the learned AO has erred in making an addition of Rs.18,04,870 being entire amount of unreconciled tour sales, without appreciating the fact that the addition, if any, should be restricted to the extent of profit embedded into the amount (i.e. 12.18% on the sales of Disallowance of travel booking engine expenses considered as Capital Work in Progress CCWIP) in the books of account and claimed as revenue in the return of income of the captioned AY 20. erred in disallowing the travel booking engine expenses of Rs.2,37,39,309 incurred by the Appellant by holding that the said expenditure is capital in nature and not allowable under Section 37(1) of the Act;
erred in not appreciating the fact that out of the total expenditure of travel booking engine incurred, Appellant has only claimed expenses related to salaries paid to staff and professional fees paid to consultants (which are items of revenue nature) as deductible as per provisions of Section 37(1) of the Act;
erred in holding that travel booking engine expenditure as capital in nature basis the fact that the same has been considered as CWIP in the books of account without appreciating the legal position that accounting treatment in the books of account cannot be a decisive factor to determine the allowability of any expenditure under the Act;
without prejudice to the above, erred in not directing to grant the depreciation on the travel booking engine expenses considered as capital in nature, in the year in which the same will be capitalized in accordance with the provisions of Section 32 of the Act;
Disallowance in respect of expenditure incurred for the issue of Non-Convertible Debentures (NCDs') adjusted against 'share premium' in the books of account and claimed as revenue in the return of income of the captioned AY
erred in disallowing the expenditure incurred for the issue of NCDs of Rs.56,62,228 by the Appellant by holding that since the NCDs were utilized for capital purposes, the
erred in not appreciating that the proceeds from NCDs were utilized by the Appellant for the purpose of its business, accordingly, the expenditure incurred on issue of NCDs should be in the nature of revenue expenses;
failed to appreciate that the adjustment of expenditure incurred for issue of NCDs against share premium account balance in the books of account is only to comply with the statutory requirements of the Indian Companies Act, 1956, and disregarding the ratio laid down by the Supreme Court that the accounting treatment in the books of account cannot be a decisive factor to determine the allowability of any expenditure under the Act;
Without prejudice to the above, erred in not allowing depreciation on the NCDs issue expenses of Rs.56,62,228 considered as capital in nature in accordance with the provisions of Section 32 of the Act;
Non grant of credit of taxes
erred in not granting credit of tax deducted at source of Rs.10,26,342;
Levy of Interest under Section, 234B, 234C and 234D of the Act
erred in levy of interest under Section 234B, 234C and 234D of the Act, which is not in accordance with the provisions of the Act.
Initiation of penalty proceedings under Section 271(1)(c) and 271G of the Act
erred in initiating penalty proceedings under Section 271(1)(c) and 271G of the Act.”
“1. Whether on the facts and in the circumstances of the case and in law, the Hon'ble DRP-1, Mumbai was justified in directing to delete the disallowance made at Rs.3,33,41,372/- claimed by the assessee towards Video Shooting expenses as revenue expenditure despite the fact that the assessee itself has capitalized the said expenses and carried it to the Balance Sheet and thus the said expenditure is capital in nature because the assessee derives enduring benefit from the advertisement expenditure 2. Whether on the facts and in the circumstances of the case and in law, the Hon'ble DRP-1, Mumbai was justified in relying on the decision of the Bombay High Court in the case of Geoffrey Manners & Co Ltd. and in the case of Proctor & Gamble Home Products 2O15, when the facts of the assessee's case are different from the facts of the cases relied upon.
3. Whether on the facts and in the circumstances of the case and in law, the Hon'ble DRP-1, Mumbai was justified in directing to treat the disallowance of expenditure incurred in proportion to the amount of debenture used, for purchasing fixed assets of Rs.40.87 Crores and not put to use and which was utilized for issue of NCD's, as revenue expenditure, despite the fact that the assessee has itself charged the said expenses to Share Premium account which is treated as capital receipts ? Further, the Hon'ble DRP-1, Mumbai has also not decided categorically whether debiting the expenses in Share Premium account instead of passing through Profit & Loss Account amounts to capital or revenue expenditure."
CO No.30/M/2016 (Assessee’s cross objection)
“1. erred in objecting the direction of Hon'ble DRP in allowing the expenditure incurred on video shooting expenses of Rs.3,33,41,372, by alleging that the said expenditure is capital in nature since the Respondent has capitalized the same in its books of account;
2. erred in not appreciating the legal position that the accounting treatment in the books of account cannot be a decisive factor to determine the allowability of any expenditure under the Act;
9 & ors. M/s. Cox & Kings Ltd. 3. failed to appreciate the fact that the video shooting expenditure has been incurred towards advertisement and promotional campaign of the Respondent's business and accordingly, is in the nature of revenue expenditure allowable under Section 37(1) of the Act;
erred in not appreciating that the facts of the cases of Geoffrey Manners & Co Ltd and Proctor & Gamble Home Products (which were relied upon by the Hon'ble DRP) are similar to the facts of the Respondent and as such the ratio laid down by these decisions is squarely applicable to the case of the Respondent;
Disallowance of Non-Convertible Debentures (NCDs) issue expenses of Rs 3,53,32,472
5. erred in objecting the direction of the Hon'ble DRP in allowing the expenditure incurred on NCDs to the extent the NCDs were utilized for revenue purposes, by alleging that the said expenditure is capital in nature as the Respondent has capitalized the same in its books of account;
6. erred in not appreciating the legal position that the accounting treatment in the books of account cannot be a decisive factor to determine the allowability of any expenditure under the Act;
7. failed to appreciate that the adjustment of NCDs issue expenses against the balance in share premium account is in accordance with the provisions of Section 78 of the Indian Companies Act, 1956”
Briefly stated facts necessary for adjudication of the controversy at hand in the aforesaid cross appeals/cross objections are: in compliance to the order passed by the Ld. Transfer Pricing Officer (TPO) and Ld. Disputes Resolution Panel (DRP), Assessing Officer framed the assessment under section 143(3) read with Act’) by making adjustment of Rs.5,00,98,345/- by further making addition therein to the total income of the assessee on account of transfer pricing adjustment qua the international transactions entered into by the assessee with its Associate Enterprise (AE) regarding interest on advance given and corporate guarantee.
4. The AO also made disallowance of Rs.28,17,160/- by invoking provisions contained under section 14A read with rule 8D of the Rules. The AO also made addition of Rs.3,33,41,372/-, Rs.2,37,39,309/- and Rs.4,09,94,700/- on account of video shooting expenses, travel booking expenses and NCD expenses debited to the share premium respectively and thereby framed the assessment at the total income of Rs.97,95,23,829/- under section 143(3) read with section 144C(13) of the Act.
Assessee carried the matter before the Ld. DRP by way of filing objections who has partly allowed the same. Feeling aggrieved with the order passed by the Ld. DRP both Revenue as well as assessee have come up before the Tribunal by way of filing the present cross appeals/cross objections.
Despite issuance of the notice to the assessee company none appeared on behalf of it, so the Bench decided to decide these assistance of the Ld. D.R. for the Revenue.
We have heard the Ld. Departmental Representative for the Revenue, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and case law relied upon.
At the very outset it is brought to the notice of the Bench that National Company Law Tribunal (NCLT), Mumbai Bench in CP(IB)-2640/I&B/MB/2019 in the matter of Rattan India Finance Pvt. Ltd. vs. M/s. Cox & Kings Ltd. entertained and decided the petition against the assessee of corporate debtor vide order dated 22.10.2019 by returning the following findings:
“20. This Adjudicating Authority, on perusal of the documents filed by the Creditor, is of the view that the Corporate Debtor defaulted in repaying the loan availed. In the light of above facts and circumstances, the existence of debt and default is reasonably established by the Financial Creditor as a major constituent for admission of a petition under section 7 of the I&B Code. Therefore, the Application under sub-section (2) of Section 7 is taken as complete, accordingly this Bench hereby admits this Petition prohibiting all of the following of item-I, namely:
(I) (a) the institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
12 & ors. M/s. Cox & Kings Ltd. (b) transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act);
(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the Corporate Debtor.
(II) That the supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during moratorium period.
(III) That the provisions of sub- section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
(IV) That the order of moratorium shall have effect from 22.10.2019 till the completion of the corporate insolvency resolution process or until this Bench approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of Corporate Debtor under section 33, as the case may be.
(V) That the public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of the Code.
(VI) That this Bench hereby appoints, Mr. Alok Kumar Agarwal, having office at 605, Suncity Business Tower, Golf Course Toad, Sector 54, Gurugram, Haryana- 122 002 and having Registration No.IBBI/IPA-001/IP- P00059/2017-18/ 10137 as Interim Resolution Professional to carry the functions as mentioned under Insolvency & Bankruptcy Code.” the considered view that since proceedings under Insolvency & Bankruptcy Code (IBC) have already been initiated and moratorium has been declared for prohibiting all the proceedings against the corporate debtor including execution of judgment decree or order in any court of law, Tribunal, arbitration panel or other authority, present appeals in the present format are not maintainable, being not filed by Mr. Alok Kumar Agarwal, Interim Resolution Professional (IRP), who is empowered to file appeal only on approval of the committee of creditors. Hence both the appeals are liable to be dismissed being not maintainable at this stage.
Resultantly, the aforesaid cross appeals/objections filed by the assessee company as well as Revenue are dismissed with liberty to file fresh one in proper format duly verified by persons authorized to file the return of income or to get the present appeals/cross objections restored by moving an application.
Order pronounced in the open court on 21.03.2022.