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2017 (11) TMI 1874 - AT - Income TaxTP adjustment for recovery of management expenses - expenses are incurred by the assessee for his own investment purpose and not for or on behalf of the AE- TPO/AO making adjustment for mark up to be recovered from AE being the mark @13.71% - HELD THAT - We find it is clear from the records that these transactions are independently undertaken with the professional bodies which are not connected in any fashion with the assessee. There is no evidence on record to suggest that M/s. J. Sagar Associates and M/s. S.S. Iyer and Company are related AEs of the assessee. In our view, the issue raised in Ground 4(b) is dependent on the Ground No.4(a) and the same is required to be remanded for want of facts, as argued by the Ld. Counsel for the assessee before us. Therefore, we direct the AO/TPO to consider the above and decide the issue afresh after granting reasonable opportunity of being heard to the assessee. Accordingly, Ground No.4(a) and (b) are allowed for statistical purposes. Benchmarking rate of interest @13.25% as against assessee charging interest @8% for the loan given to Autoline Industries Limited, USA and accordingly making a TP adjustment - HELD THAT - In our view the benchmarking of the international transaction applying the flat rate of 13.25% of the bank rate is not proper. There is requirement for maintaining the principle of consistency from the Department side. Therefore, we remand this issue also to the file of the AO to verify the set principles of consistency and decide the issue afresh after granting reasonable opportunity of being heard to the assessee. Accordingly, Ground No.4(c) raised by the assessee is allowed for statistical purposes. TP adjustment for Foreign Exchange Loss - HELD THAT - we perused the ledger extract connection to the foreign rate fluctuations and find the losses are mainly on account of balances linked to the accounts in Kotak Mahendra Bank C/A ₹ 44,76,000/- and Forex Benefit of ECB loan ₹ 10,38,287/-. Prima-facie, we find these amounts does not seem to be the ones relating to the international transaction involving the Associated Enterprises of the assessee. Therefore, we find it relevant to remit this issue also to the file of the AO for fresh adjudication. Assessee is directed to file relevant documents in support of the claim of the assessee. Accordingly, Ground No.4(d) is allowed for statistical purposes. TP adjustment for recovery of Guarantee Fees when the transaction of money given to AE was on investment account - HELD THAT - The impugned transactions of this year being outside the scope of international transaction, could not be said to be effected by the retrospective effect of the amendment The amendment to the Explanation to section 92B of the Act, though stated to be clarificatory has to be necessarily treated as effective from at best the A.Y. 2013-14 onwards and not to the A.Y. 2009-10 under consideration. In the current year, such guarantees does not constitute international transactions . Same is the ratio as held by the Delhi Bench of the Tribunal in the case of Bharti Airtel Ltd. 2014 (3) TMI 496 - ITAT DELHI . While deciding the above, both the Benches have kept their reliance on the Delhi High Court judgment in the case of New Skies Satellite BV . 2016 (2) TMI 415 - DELHI HIGH COURT - Therefore, we are of the opinion that the assessee is entitled to relief on this account. Accordingly, this part of ground is allowed. Disallowance u/s 14A r.w.r. 8D of expenses for earning exempt income - HELD THAT - As demonstrated before us that the assessee s investments appeared in the balance sheet under the heading investments made by the assessee by the end of the order is much less than the assessee s own funds - we find the issue needs to be remanded to the file of AO for fresh adjudication. AO is directed to examine the figures and apply the ratios laid down by the binding judgments of the jurisdictional High Court. We remit Ground No.4(f) to the file of the AO for fresh adjudication after granting reasonable opportunity of being heard to the assessee.
Issues Involved:
1. Transfer Pricing (TP) adjustment for recovery of management expenses. 2. TP adjustment for markup recovery from Associated Enterprises (AE). 3. Benchmarking interest rates for loans to AE. 4. TP adjustment for Foreign Exchange Loss. 5. TP adjustment for recovery of Guarantee Fees. 6. Disallowance of expenses for earning exempt income under Section 14A and Rule 8D. Detailed Analysis: 1. TP Adjustment for Recovery of Management Expenses: The assessee incurred professional fees totaling ?12,80,000 for investment purposes in a foreign company, which the TPO treated as international transactions with AEs. The Tribunal found no evidence linking the professional bodies (J. Sagar Associates and S.S. Iyer and Company) to the AEs. The issue was remanded to the AO/TPO for fresh adjudication, directing them to verify the facts and provide a reasonable opportunity for the assessee to be heard. 2. TP Adjustment for Markup Recovery from AE: The TPO made an adjustment for a markup of ?1,75,498 on the professional fees. Since this issue is dependent on the resolution of the first issue, it was also remanded to the AO/TPO for fresh adjudication. 3. Benchmarking Interest Rates for Loans to AE: The assessee charged an 8% interest rate on loans to Autoline Industries Ltd, USA, while the income-tax authorities applied a 13.25% bank lending rate. The Tribunal noted the need for consistency in applying benchmarking principles, referencing a DRP order from A.Y. 2012-13 that accepted LIBOR plus as the benchmark. The issue was remanded to the AO for reconsideration, emphasizing the principle of consistency. 4. TP Adjustment for Foreign Exchange Loss: The TPO treated a foreign exchange loss of ?20,76,408 as recoverable from the AE. The Tribunal found that these losses were related to transactions with banks, not AEs, and thus outside the scope of international transactions. The issue was remanded to the AO for fresh adjudication, directing the assessee to provide relevant documentation. 5. TP Adjustment for Recovery of Guarantee Fees: The TPO benchmarked a recovery of ?20,25,000 for guarantee fees related to investments in AEs. The Tribunal referred to judicial interpretations and decisions, including those from the Mumbai and Delhi Benches, which stated that amendments to the definition of "international transaction" are effective from A.Y. 2013-14 onwards. Therefore, for the A.Y. 2009-10, such guarantees do not constitute international transactions. The Tribunal allowed relief to the assessee on this ground. 6. Disallowance of Expenses for Earning Exempt Income under Section 14A and Rule 8D: The AO disallowed ?10,90,405 relating to expenses for earning exempt income. The Tribunal noted that the jurisdictional High Court judgments on the presumption of using assessee’s own funds for investments were not considered by the lower authorities. The issue was remanded to the AO for fresh adjudication, directing them to apply the principles from the binding judgments and verify the figures. Conclusion: The appeal was partly allowed for statistical purposes, with multiple issues remanded to the AO/TPO for fresh adjudication, ensuring the assessee is provided with a reasonable opportunity to present their case. The Tribunal emphasized the importance of consistency, proper verification of facts, and adherence to judicial precedents in making TP adjustments and disallowances.
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