DCIT 10(2)(1), MUMBAI vs. LAQSHYA MEDIA P.LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI AMARJIT SINGH, JM आयकर अपील सं/ I.T.A. No.2114/Mum/2018 (निर्धारण वर्ा / Assessment Year: 2009-10) DCIT-10(2)(1) बिधम/ M/s. Laqshya Media Pvt. Ltd Laqshya House, Next to Room No.216-A, Aayakar Vs. Rameshwar Temple, Bhavan, M.K. Road, Saraswati Baug, Society Mumbai-400020. Road, Jogeshwari (E), Mumbai-400060.

CO. No.108/M/2019 (Arising out of ITA. No. 2114/Mum/2018) (निर्धारण वर्ा / Assessment Year: 2009-10) M/s. Laqshya Media Pvt. Ltd बिधम/ DCIT-10(2)(1) Laqshya House, Next to Room No.216-A, Aayakar Vs. Rameshwar Temple, Bhavan, M.K. Road, Saraswati Baug, Society Mumbai-400020. Road, Jogeshwari (E), Mumbai-400060. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACL5004C (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) Revenue by: Shri S. Senthil Kumar (DR) Assessee by: Shri M. P. Lohia/ Hemen Chandaniya सुनवाई की तारीख / Date of Hearing: 11/06/2019 घोषणा की तारीख /Date of Pronouncement: 31/07/2019

ITA. No.2114/M/18 CO. No.108/M/2019 A.Y. 2009-10 आदेश / O R D E R PER AMARJIT SINGH, JM:

The Revenue as well as assessee have filed the above mentioned appeal as well as cross-objection against the order dated 08.01.2018 passed by the Commissioner of Income Tax (Appeals)-5 to 7, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2009-10.

ITA. NO.2114/M/2018

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.8,32,613/- made by AO to book profit u/s 115JB on account of disallowance of the I.T. Act, 1961 by not considering express provision of clause of explanation 1 of section 115JB of the I.T. Act,1961 which unequivocally states that any expenditure incurred in connection with income claimed as exempt u/s 10, 11 & 12 of the Act should be excluded while working out Book Profit u/s 115JB." 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing interest expenditure under section 36(1)(iii) of the I.T. Act, 1961 of Rs. 4,91,30,906/-relying on the decision of Hon'ble Apex Court in S.A. Builders Vs CIT without appreciating the fact that commercial expediency in advancing interest free loans to sister concern will depend on ultimate utilization of expenditure and hence cannot be used too widely to inhibit effective interpretation." 3a. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing to restrict the charging of commission for corporate guarantee at 0.5%."

ITA. No.2114/M/18 CO. No.108/M/2019 A.Y. 2009-10

b. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing to restrict the charging of commission for corporate guarantee at 0.5% relying on the decision of Hon’ble ITAT in the assessee's own case for A.Y.2010-11 which was given relying on the decision of Horible ITAT in the case of Everest Kanto, without discussing & appreciating the facts brought on record by the TPO for adopting 7% per annum". c. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in relying on the decision of Hon’ble Bombay High Court in the case of Everest Kanto without discussing as to how the facts on the cases are identical". d. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has ,erred in restricting the guarantee commission at 0.5% by relying on various ITAT decisions, without discussing how the facts of this case and other cases are similar or identical." e. On the facts and the circumstances oi the case and in law, the Ld. CIT(A) has erred adopting the rate of 0.5% based on the decision in various cases of fee like The credit rating, interest rate and FAR analysis etc. differ case to case and year on year and so a rate arrived at in a particular case and rr particular assessment year cannot be blindly adopted in every case and in every assessment which is also violate of Rule 1013(4) of the I.T. Rules. f. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in adopting the Corporate Guarantee amount at Rs.71,55,84,800/- for working out ALP Guarantee fee as against guarantee amount of Rs.73,30,24,000/reported in financials of the assessee and admitted vide submission dated 22.10.2012 made before the TPO." 4. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the A.O. be restored. 5. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary. ” 4. The brief facts of the case are that the Assessee filed its return of income on 30.09.2009 declaring total loss to the tune of Rs.(-)21,58,15,493/-. Thereafter, the assessee filed revised return of income on 30.03.2011 showing total loss to the tune of Rs.(-)22,61,93,619/-. The

ITA. No.2114/M/18 CO. No.108/M/2019 A.Y. 2009-10 return was processed u/s 143(1) of the Act. The case was selected for scrutiny. Thereafter, the notice u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The draft assessment order u/s 143(3) r.w. s. 144C(1) of the I.T. Act, 1961 was passed on 01.03.2013 proposing to assess the total income of the assessee at loss to the tune of Rs.158,700,676/-. The assessee vide letter dated 20.04.2013 wish to file the appeal u/s 246A of the I.T. Act. Thereafter, the final order passed u/s 25.04.2013. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who partly allowed the claim of the assessee but the revenue was not satisfied on the ground which has been mentioned above, therefore, the assessee has filed the present appeal before us. ISSUE NO. 1:- 5. Under this issue the revenue has challenged the deletion of addition of Rs.8,32,613/- made by AO to Book profit u/s 115JB of the Act on account of disallowance u/s 14A of the I.T. Act. The Ld. Representative of the Revenue has argued that the addition raised in view of the provisions u/s 14A of the I.T. Act, 1961 is liable to be confirmed in view of the clause- 5 of the Explanation-1 of Section 115JB of the Act, 1961 but the CIT(A) has wrongly deleted the said addition, hence, the finding of the CIT(A) is based on surmises and conjectures which is not liable to be sustainable in the eyes of law. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:- “Decision:

ITA. No.2114/M/18 CO. No.108/M/2019 A.Y. 2009-10

I have considered the submissions made by the Appellant. In this regard, in similar facts and circumstances the Hon'ble DRP in Appellant's own case for AY 2010-11 has excluded the same investment made by the Appellant in Growth Mutual Funds while computing disallowance under section 14A r.w.8D(2)(ii). Following the same, it is held that the investment in growth mutual funds should be excluded while computing disallowance under section I4A of the Act and accordingly, the disallowance is restricted to R.s.82,613/-. as against Rs.8,32,6131-. made by the AO and ground no. 2 of Appellant is partly allowed.” 6. On appraisal of the above mentioned finding, we noticed that the CIT(A) has deleted the addition raised in view of the provisions u/s 14A r.w. Rule 8D(2)(ii) on the ground of this fact that the DRP has already been allowed the claim of the assessee in the A.Y.2010-11. Further, it also came into noticed that the matter of controversy has been adjudicated by the Hon’ble ITAT in the assessee’s own case in ITA. No.1984/M/2017 dated 14.11.2018 in favour of the assessee and the relevant finding is hereby reproduced below.:-

“7.3 We have carefully heard the rival contentions. The documents on record reveal that the assessee has earned dividend income of Rs.85,135/- on 23/08/2011 against Birla Sun Life Mutual Fund. The disallowance under dispute is expense disallowance as per Rule 8D(2)(iii). After perusal of decision of Special Bench of Delhi Tribunal in ACIT Vs. Vireet Investment (P.) Ltd. [supra], we observe that the special bench, after considering catena of judicial pronouncements, has arrived at conclusion that only those investments are to be considered for computing average value of investments which yielded exempt income during the year. Respectfully following the same, we direct Ld. AO to recompute the disallowance after considering only those investments which have yielded exempt income during the year. The assessee is directed to provide requisite details in this regard. 7.4 So far as adjustment of disallowance u/s 14A in computation of book profit u/s 115JB is concerned, we find that the matter stood squarely covered in assessee’s favour by the same judgment of Delhi Tribunal (Special Bench) rendered in ACIT Vs. Vireet Investment (P.) Ltd. [82 Taxmann.com 415]. Upon perusal of the same, we find that Special Bench, after considering two contrary decision of Hon’ble Delhi High

ITA. No.2114/M/18 CO. No.108/M/2019 A.Y. 2009-10

Court titled as CIT Vs. Goetze (India) Ltd. [2014 361 ITR 505] & PCIT Vs. Bhushan Steel Ltd. [ITA 593/2015 dated 29/09/2015], took the view favorable to the assessee in terms of ratio of decision of Hon’ble Supreme Court rendered in CIT Vs. Vegetable Products Limited [1973 88 ITR 192]. The decision in PCIT Vs. Bhushan Steel Ltd., in turn, placed reliance on the decision of Hon’ble Supreme Court rendered in Apollo Tyres Ltd. Vs. CIT [255 ITR 273] which held that the Assessing Officer did not have the jurisdiction to go behind the net profit shown in the Profit & Loss Account except to the extent provided in Explanation to Section 115J. Similar view has been expressed by our jurisdictional Bombay High Court rendered in CIT Vs. JSW Energy Limited [2015 60 Taxmann.com 303], CIT v. Essar Teleholdings Ltd. [ITA No. 438 of 2012, dated 07/08/2014] & CIT Vs. Bengal Finance & Investments Pvt. Limited [ITA No. 337 of 2013 dated 10/02/2015]. Therefore, respectfully following the catena of judgment in assessee’s favour, we hold that adjustment of disallowance u/s 14A was not required to be made in Book Profits for the purpose of Section 115JB.” 7. On appraisal of the above mentioned finding, it is quite clear that the issue has now been squarely covered by the decision of Hon’ble ITAT in the assessee’s own case in ITA. No.1984/M/2017 for the A.Y.2012-13 dated 14.11.2018, therefore, in the said circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee.

ISSUE NO.2

ITA. No.2114/M/18 CO. No.108/M/2019 A.Y. 2009-10 disallowed and added to the income of the assessee. However, on the other hand, the Ld. Representative of the assessee has argued that the issue is squarely covered by the decision of Hon’ble ITAT in the assessee’s own case for the A.Y. 2010-11, 2011-12 and 2012-13, hence, the finding of the CIT(A) is quite correct which is not liable to be disturbed at this stage. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:-

“Decision: I have gone through the submissions made by the Appellant. In similar facts arid circumstances, Hon'ble ITAT for AY 2010-11 in Appellant own case has deleted the addition made under section 36(1 )(iii) of the Act on the ground that loans given to subsidiaries are out of business expediency and also made of sufficient own funds available with the Appellant. Following the same, the AO is directed to delete the addition made under section 36(1)(iii) of the Act of Rs.4,91,30,096/-.” 9. On appraisal of the above mentioned finding, we noticed that the CIT(A) has allowed the claim of the assessee on the basis of the decision of Hon’ble ITAT in the assessee’s own case for the A.Y.2010-11. The relevant finding has been given in para no. 5.5 which is hereby reproduced below.:-

“5.5 The Ld. AR submitted that the assessee waived the interest keeping in view the overall circumstances and principles of commercial expediency which revenue authorities could not question. A plea has also been raised that keeping in view the Real Income Theory, hypothetical income which could never be earned by the assessee could not be brought to tax. Another plea was based on the fact that since no income was earned by the assessee form impugned transactions, the same could not be considered as an international transaction within the meaning of Section 92. An alternative plea was also raised that since the loans were given in foreign currency, the same were to be benchmarked at LIBOR rate only.

ITA. No.2114/M/18 CO. No.108/M/2019 A.Y. 2009-10 10. Subsequently, the issue in question has been adjudicated by Hon’ble ITAT in the assessee’s own case for the A.Y.2011-12 & 2012-3. Since the issue is squarely covered by the decision of Hon’ble ITAT in the assessee’s own case(supra). The facts are not distinguishable at this stage also. No law contrary to the law relied by the CIT(A) has been produced before us. In view of the said circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee.

ISSUE NO.3

““Decision: I have considered the submission of the Appellant and in similar facts and circumstances the Hon'ble ITAT in Appellant's own case for AY 20 10-11, has held that transaction of providing corporate guarantee is an international transaction and should be benchmarked @ 0.5% in the light of various judicial precedents. Following the same, I hold that corporate guarantee should be bench- marked @ 0.5% on the entire amount of guarantee given to AE. Hence

ITA. No.2114/M/18 CO. No.108/M/2019 A.Y. 2009-10

adjustment is restricted to Rs.11,92,642/-. (0.5% of Rs.71,55,84,800/-. for 4 months) as against Rs.I.73 crores determined by TPO/AO and ground no. I of Appellant is partly allowed.” 12. On appraisal of the above mentioned finding, we noticed that the CIT(A) has followed the order of the Hon’ble ITAT in the assessee’s own case for the A.Y. 2010-11, we further noticed that the said order was followed for the A.Y 2011-12 and for the A.Y. 2012-13 in a order passed by the Hon’ble ITAT in the assessee’s own case. The facts are not distinguishable at this stage. Since the issue is squarely covered by the decision of the Hon’ble ITAT, therefore, in the said circumstances, we hold the corporate guarantee should be benchmarked @ 0.5% on the entire amount of guarantee given to the AE. The CIT(A) has rightly restricted the addition @ 05% of the corporate guarantee of sum of Rs.71,55,84,800/- for the period of 4 months. The finding of the CIT(A) following the order of the Hon’ble ITAT is quite justifiable which nowhere required to be interfere with at this appellate stage. We affirm the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue.

In the result, appeal filed by the revenue is hereby dismissed.

CROSS-OBJECTION NO.108

ITA. No.2114/M/18 CO. No.108/M/2019 A.Y. 2009-10

“1. erred by not accepting the order passed by the 011(A) and by filing an appeal against the order of CIT(A) which is based on rulings of the Hon’ble jurisdictional Tribunal in Assessee's own case and hence, the appeal ought to be dismissed: Disallowance under section 14A r.w.s 115JB of the Act 2. erred in objecting to the Hon'ble CIT(A)'s order without appreciating the fact that the Special Bench of Hon'ble Tribunal in case of Vireet Investment Private Ltd (ITA 502/De112012) has held that provisions of sub-section (2) and (3) of section 14A of the Act, cannot be imported into clause (1) of the Explanation to section 11 5J of the Act. Disallowance under section 36(1)(iii) of the Act erred in objecting to the Hon'ble CIT(A)s order which is based on rulings of the Hon’ble jurisdictional Tribunal in Assessee's own case holding that since, the loans have been given to subsidiaries engaged in same line of business out of commercial expediency and same have been made out of Assessee's own funds available, then no disallowance of interest under section 36(1)(iii) of the Act is warranted. Adjustment on account of Corporate Guarantee provided to bankers in connection with loans taken by AE erred in objecting to the Hon'ble CIT(A)'s order without appreciating the fact that Hon'ble Jurisdictional Tribunal in Assessee's own case has directed to the AO/ TPO to consider 0.5% as Arm's length rate of guarantee fees based. which has also been approved by Jurisdictional High Court in various cases on similar facts and circumstances. On the facts and in the circumstances of the case as well as in law, the Hon'ble CIT(A) has: Disallowance of Rs.2,09,872 on account of AIR details 5. erred in confirming the action of AO of making addition of non- reconciliation of AIR details amounting to Rs.2,09,872, without appreciating the fact that books of the Assessee were accepted as correct and complete and that merely on the basis of mismatch of information with AIR details, no addition can be made; Disallowance of Rs.82,613/- on account of Section 14A of the Act:

ITA. No.2114/M/18 CO. No.108/M/2019 A.Y. 2009-10

ISSUE NO. 5

ITA. No.2114/M/18 CO. No.108/M/2019 A.Y. 2009-10 contention. The copy of order dated 14.11.2018 passed in ITA. No. 1984/M/2017 in the assessee’s own case is on the file in which the Hon’ble ITAT has given the following finding.

“8. The root of next issue lie in the fact that certain incomes as reflected in Form 26AS were not found to be credited in the Profit & Loss Account and the income to the extent of Rs.1.02 Lacs could not be reconciled by the assessee. The Ld. DRP directed Ld. AO to make further enquiries from the parties confirmed. Since no response was received from the concerned parties till the date of impugned order, the addition thereof was made in the hands of the assessee. The Ld. AR has pleaded that the additions are not warranted and raised an alternative plea that the credit of TDS against those payment should be granted to the assessee. Upon due consideration of factual matrix, we find that onus to reconcile the entries was on assessee. Since impugned order was passed on 31/01/2017, Ld. AO is directed to re-appreciate the entries in Form 26AS and re-adjudicate the same in the light of the confirmations / any other evidences received after the date of the impugned order. This ground stand allowed for statistical purposes” 17. In view of the finding of the Hon’ble ITAT in the assessee’s own case for the A.Y.2012-13 in ITA. No.1984/M/2017, we restore the issue before the AO to re-adjudicate the same on similar lines. Needless to say that an opportunity of being heard is required is given to the assessee in accordance with law. Accordingly, this issue is hereby allowed for statistical purposes.

ISSUE NOS. 6 & 7

ITA. No.2114/M/18 CO. No.108/M/2019 A.Y. 2009-10 19. In the result, the appeal filed by the revenue is hereby ordered to be dismissed and the cross-objection of the assessee is hereby ordered to be partly allowed. Order pronounced in the open court on 31/07/2019 Sd/- Sd/- (SHAMIM YAHYA) (AMARJIT SINGH) न्यधनिक सदस्य/JUDICIAL MEMBER लेखा सदस्य / ACCOUNTANT MEMBER मुंबई Mumbai ददनांक Dated : 31/07/2019 Vijay आदेश की प्रनिनिनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- आयकर आयुक्त / CIT 4. 5. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, “सत्यादपत प्रदत //True Copy//” (Sr. Private Secretary) आिकर अिीिीि अनर्करण, मुंबई / ITAT, Mumbai