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2015 (12) TMI 1406 - AT - Income TaxTransfer pricing adjustment - DRP/AO/TPO benchmarking the foreign currency loan transaction using the fixed deposit rate of scheduled commercial banks and ignoring the internal CUP analysis performed by the assessee - Held that - The comparable adopted by the assessee, in his transfer pricing analysis, is the rate at which the Exim Bank of India had extended similar foreign currency loan to the assessee, and the TPO has rejected the same on the basis that such a rate constitutes costs of funds to the assessee which is irrelevant, in the considered view of the TPO, for the purpose of benchmarking the loan to its AE. What, however, the TPO overlooks is the fact that the credit rating of the AE, which is a newly formed and one hundred percent subsidiary of the assessee, is, in the normal course, expected to be the same as that of the subsidiary and if a credit institution like Exim Bank is offering the foreign currency loan to the assessee at a particular price, it is reasonable to proceed on the basis that the foreign currency loan, on similar terms, to the AE could be an arm s length transaction - Decided in favour of assessee. Adjustment on account of interest on outstanding interest receivable from AE - Held that - In the present case, however, ALP adjustment by way of charging interest is in respect to delay in payment of interest itself, and APL determination of interest is also before us. While dealing with the preceding ground of appeal, we have already held that the loan arrangement with Exim Bank is a valid internal CUP for this international transaction as well, and, therefore, even the question as to whether the delayed payment of interest will invite compounding of interest can be addressed in the light of the terms of the internal CUP. For this limited purpose, the matter is restored to the file of the Assessing Officer. Whatever be the rate of interest and terms applicable in a materially similar situation of delay in payment of interest to Exim Bank will apply mutatis mutandis in this fact situation as well.- Decided in favour of assessee for statistical purposes. Determining the ALP of the Guarantee fee @ 2% of the Guarantee amount extended by the appellant on behalf of its AE - DRP/AO/TPO rejecting the internal Comparable Uncontrolled Price ( CUP ) submitted by the Appellant and instead considering external data - Held that - There is no scientific basis for coming to the conclusion that 2% guarantee commission is an arm s length price of the corporate guarantee commission, but then there was no information furnished by the assessee to assist in ascertainment of the ALP. The assessee has not even given complete details about the guarantees issued by the assessee, nor has he offered any assistance whatsoever in ascertaining the arm s length price of the corporate guarantee issued by the assessee. In view of these discussions, as also bearing in mind entirety of the case, we deem it fit and proper to remit the matter to the file of the TPO for the limited purposes of ascertaining the arm s length price of the corporate guarantee issued by the assessee. The assessee is directed to fully cooperate by furnishing necessary information and inputs to the TPO and assist in expeditious disposal of the remanded matter. As the matter is being remitted to the file of the TPO for adjudication de novo, we consider it appropriate to give liberty to the assessee to raise such legal and factual arguments as the assessee may deem appropriate. With these directions, while the ALP adjustment is upheld in principle, the quantification of ALP adjustment is restored to the file of the TPO for adjudication de novo in accordance with the law, by way of a speaking order and after giving yet another opportunity of hearing to the assessee.- Decided in favour of assessee for statistical purposes. Non granting exemption under section 10(1) of the Act in respect of agricultural income - Held that - The issue is covered against the assessee, by Hon ble Karnataka High Court s judgment in assessee s own case for the assessment year 2001-02, inasmuch as the matter has been thus remitted to the file of the Assessing Officer for fresh adjudication. Disallowance under section 40(a)(ia) of the Act on account of non-deduction of tax at source on procurement and processing charges - Held that - The payments did not attract tax deduction under section 194C and, as such, there is no occasion for invoking disallowance under section 40(a)(ia).- Decided in favour of assessee Disallowance of deduction in respect of employees contribution to Provident Fund (PF)- amount paid beyond the due date but before the due date of filing the return of income - Held that - Respectfully following the esteemed views of Hon ble jurisdictional High Court in assessee s own case, and in the light of undisputed factual position to the effect that the payments were made before the due date of filing of income tax return, we uphold the grievance of the assessee and direct the Assessing Officer to delete this disallowance - Decided in favour of assessee Depreciation on goodwill - Held that - A petition dated 16th April 2015 seeking admission of additional evidence in support of this grievance, and contended that on becoming aware of the decision of Hon ble Supreme Court in the case of CIT vs SMIF Securities Limited (2012 (8) TMI 713 - SUPREME COURT ), the assessee has raised a ground in respect of allowability of deduction for goodwill and prayed that the same may be adjudicated on merits. A reference is also made to Hon ble Supreme Court s judgment in the case of NTPC Ltd Vs CIT (1996 (12) TMI 7 - SUPREME Court) in support of the contention that this issue can be raised even at this stage. We are of the considered view that the matter should be remitted to the file of the Assessing Officer for adjudication on merits on this issue.- Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Benchmarking of foreign currency loan transaction. 2. Adjustment on account of interest on outstanding interest receivable from AE. 3. Determination of the ALP of the Guarantee fee. 4. Exemption under section 10(1) of the Act in respect of agricultural income. 5. Disallowance under section 40(a)(ia) of the Act on account of non-deduction of tax at source. 6. Deduction in respect of employees' contribution to Provident Fund (PF). 7. Depreciation on goodwill arising on acquisition. 8. Credit in respect of tax deducted at source. 9. Levy of interest under section 234D of the Act. Detailed Analysis: 1. Benchmarking of Foreign Currency Loan Transaction: The assessee had granted a loan to its Amsterdam-based subsidiary and claimed it at arm's length price using internal CUP analysis. The TPO disagreed, stating that the right comparable should be a similar loan to an unrelated party in a similar situation. The TPO used the FD interest rate of scheduled banks in India to compute the arm's length interest rate, leading to an adjustment. However, the Tribunal found that interest rates on foreign currency loans are qualitatively different from rupee loans and should not be compared. The Tribunal upheld the assessee's approach using Exim Bank's foreign currency loan rate as a valid comparable and deleted the ALP adjustment. 2. Adjustment on Account of Interest on Outstanding Interest Receivable from AE: The TPO also computed an ALP adjustment for non-realization of interest on interest receivable. The Tribunal noted that interest on unpaid interest is a normal commercial practice. The Tribunal restored the matter to the AO to determine if the delayed payment of interest will invite compounding of interest based on the terms applicable in a similar situation with Exim Bank. 3. Determination of the ALP of the Guarantee Fee: The TPO determined the ALP of the guarantee fee at 2% of the guarantee amount, rejecting the internal CUP submitted by the assessee. The Tribunal noted that the issuance of a guarantee did have a bearing on the profits and income of the enterprise as the assessee incurred costs for the guarantee. The Tribunal remitted the matter to the TPO for fresh determination of the ALP of the corporate guarantee issued by the assessee, directing the assessee to provide necessary information. 4. Exemption Under Section 10(1) of the Act in Respect of Agricultural Income: The issue of exemption under section 10(1) for agricultural income was remitted to the AO for fresh adjudication in light of the Karnataka High Court's judgment in the assessee's own case. The Tribunal noted that the matter is pending before the Supreme Court and directed the AO to be guided by the Supreme Court's decision if available before finalizing the assessment. 5. Disallowance Under Section 40(a)(ia) of the Act on Account of Non-Deduction of Tax at Source: The AO disallowed payments for seed procurement and processing charges under section 40(a)(ia) for non-deduction of tax at source. The Tribunal noted that this issue is covered in favor of the assessee by coordinate bench decisions in the assessee's own case for earlier years, holding that such payments did not attract tax deduction under section 194C. The Tribunal directed the AO to delete the disallowance. 6. Deduction in Respect of Employees' Contribution to Provident Fund (PF): The AO disallowed the deduction for employees' PF contributions paid beyond the due date but before the due date of filing the return. The Tribunal, following the jurisdictional High Court's judgment in the assessee's own case, directed the AO to delete the disallowance as the payments were made before the filing of the return. 7. Depreciation on Goodwill Arising on Acquisition: The assessee claimed depreciation on goodwill arising from the acquisition of a business. The Tribunal remitted the matter to the AO for adjudication on merits, allowing the assessee to file additional evidence and arguments in support of its claim. 8. Credit in Respect of Tax Deducted at Source: The assessee claimed credit for tax deducted at source, which the AO did not allow. The Tribunal remitted the issue to the AO for verification and consequential relief. 9. Levy of Interest Under Section 234D of the Act: The issue of interest levied under section 234D was also remitted to the AO for verification and consequential relief. Conclusion: The appeal was partly allowed, with several issues remitted to the AO for fresh adjudication or verification based on the Tribunal's directions and applicable legal principles.
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