DCIT Vs Rabo India Finance Ltd (ITAT Mumbai)
ITAT Mumbai held that guarantee fees paid to holding company for loan advanced by assessee to third party is commercial/ business expediency and hence allowable as deduction under Section 37 of the Income Tax Act.
Facts- RIFL (assessee) had given a loan to third party ‘Noble Grain/Sidharth Soya’ and for the said loan, Rabobank Hong Kong had provided a guarantee that in case of default by the borrower entity. RIFL would recover the amount from Rabo Hong Kong RIFL had taken such a guarantee in order to protect its interest in case of default by borrower for which it paid guarantee fees.
Revenue, vide the present appeal, contested that DRP erred in deleting the addition made in draft assessment order on account of interest on external commercial borrowing. DRP erred in deleting addition made in draft assessment order on account of Guarantee fee paid of ₹.5,63,600/-, Service fee paid of ₹.5,63,600/- and Interest on ECB of ₹.3,90,69,364/- paid to its holding company even though no substantial/specific service have been rendered by the holding company. Ld. DR relied on the findings of the TPO/Assessing Officer.
Conclusion- Held that Ld. DRP has considered the issues with the various documents submitted before them and issues were properly directed to be part of the business operation of the assessee carried on by them in India and it is part of the Indi-an operation. Therefore, we do not see any reason to disturb their findings and nothing on record shows that the expenditure claimed by the assessee is not relating to the business carried on by it in In-dia. Therefore, the ground raised by the revenue is accordingly, dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal is recalled vide Miscellaneous Application No. 160/Mum/2022 by observing that the issue raised in Ground Nos. 3 & 4 of ITA.No. 1584/Mum/2014 for the A.Y. 2006-07 have certain mistakes and needs rectification vide order dated 22.11.2022. Since the mistake was apparent on record this Miscellaneous Application was allowed and recalled the issue under consideration for fresh adjudication.
2. Limited Grounds were recalled by the Tribunal for denovo adjudication are Ground No. 3 and 4 raised by the revenue, the same are reproduced below: –
“3. “Whether in the facts and in the circumstanc-es of the case and in Law, the Ld. DRP erred in deleting the addition made in draft assessment order on account of interest on external commercia l borrowing?”
4. “Whether in the facts and in the circumstances of the case and in Law, the Ld.DRP erred in deleting the addition made in draft assessment order on ac-count of Guarantee fee paid-Rs. 5,63,600/-, Service fee paid-Rs. 5,63,600/- and Interest on ECB- Rs. 3,90,69,364/- paid to its holding company even though no substantial/specific service have been ren-dered by the holding company?”
3. At the time of hearing, Ld. DR brought to our notice relevant facts and submitted that Ld. DRP erred in deleting the addition made in draft assessment order on account of interest on external commercial borrowing. Further, Ld. DR submitted that Ld. DRP erred in deleting addition made in draft assessment order on account of Guarantee fee paid of ₹.5,63,600/-, Service fee paid of ₹.5,63,600/- and Interest on ECB of ₹.3,90,69,364/- paid to its holding company even though no substantial/specific service have been rendered by the holding company. Ld. DR relied on the findings of the TPO/Assessing Officer.
4. On the other hand, Ld. AR of the assessee objected to the submissions made by the Ld. DR and he relied on the order of Ld. DRP. He filed its submissions vide letter dated 29.05.2023, the same are reproduced below: –
“Brief facts of the case
1. The Miscellaneous Application was filed by the Department arising out of the order passed by the Hon’ble Income-tax Appellate Tribunal in Department’s Appeal ITA No. 1584/Mum/ 2014 dated 26th March 2021 only with respect to Ground No. 3 and 4 of the said order
2. The contention of the Department in the Mis-cellaneous Application was that Hon’ble ITAT has wrongly attributed the disallowance in ground No. 3 and 4 of Department’s Appeal ITA No. 1584/Mum/ 2014 under section 37(1) of the In-come-tax Act, 1961 (‘Act) to the Transfer Pricing Officer
3. The said Miscellaneous Application filed by the Department was allowed and the ground no. 3 and 4 of the appeal were recalled for fresh adjudication. The matter was freshly heard on 24 May 2023.
The ground No. 3 and 4 of the Department’s Appeal ITA No. 1584/Mum/ 2014 are pertaining to following expenses which were paid to group companies of RIFL/ Associated Enterprises:
