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2018 (11) TMI 1744 - AT - Income TaxTP Adjustment - interest rate charged by the appellant on the loans granted to AE - LIBOR (US) rate application - HELD THAT - The assessee had indeed charged its associates enterprises the interest in question @ 6%. The lower authorities had made the impugned adjustment by computing ALP thereupon @ 8.73%. The assessee had adopted Comparable Uncontrolled Price (CUP) method for its above benchmark. The CIT DR fails to dispute the clinching fact that the impugned adjustment is well within the tolerable margin of /.5% relevant to the impugned assessment year. The assessee has further proved the average US Dollar LIBOR (US) during the relevant financial year to be 1.13% only. The question as to whether foreign currency denominated loan are to be benchmarked as per LIBOR or not stands answered in assessee s favour as per a catena of case laws (supra). We hold in these peculiar facts and circumstances that the CIT(A) has rightly deleted the impugned loan interest ALP adjustment in all these three years. Mr. Srihari submits at this stage that the CIT(A) ought to have remanded the case back to the TPO for appropriate adjudication of all the LIBOR (US) rate. We find no force in Revenue s instant half-hearted argument in absence of any specific particulars challenging correctness of CIT(A) s findings on the LIBOR rates in issue. - Decided against revenue ALP of corporate guarantee(s) - International transaction or not? - HELD THAT - We find that this tribunal s co-ordinate bench s decision in EIH Ltd. 2018 (5) TMI 1853 - ITAT KOLKATA holds that the said explanations applies from financial year 2012-13 only without having any retrospective effect. We are also informed that the department s special leave petition on the very issue stands admitted its honble apex court. We find no merit in the instant plea as mere admission of a special leave petition does not amounted to change in law. We therefore conclude that CIT(A) has rightly treated the corporate guarantee in question to be not in the nature of international transactions in all three assessment year(s). The Revenue failed in its corresponding substantive ground in these three appeal(s) therefrom. Interest and administrative expenditure disallowance u/s 14A r.w.s. 8D - HELD THAT - Assessee had successfully proved its non interest bearing funds to be much more than investments as per the relevant compilation in preceding paragraph. The Revenue fails to dispute all these clinching figure(s) during the course of hearing. Coupled with this, we find that the CIT(A) has followed this tribunal s decision in REI Agro Ltd. vs. DCIT 2013 (9) TMI 156 - ITAT KOLKATA regarding administrative expenditure disallowance that only dividend income yielding investment are to be considered has been affirmed in hon'ble jurisdictional high court. We conclude in these facts and circumstances that the CIT(A) has rightly deleted the impugned 14A r.w.s 8D disallowance regarding proportionate interest and administrative expenses in both assessment year(s) of 2009-10 and 2010-11. Prior period expenses disallowance - HELD THAT - Revenue's sole argument during the course of hearing is that the assessee follows mercantile system of accounting and therefore, it was supposed to claim the impugned expenditure in the year of accrual only. He fails to rebut the crucial findings of fact that the assessee had successfully proved during the course of lower appellate proceedings that the impugned liability crystallized during the relevant previous year only. This is further an instance of revenue s neutral issue since assessee has been assessed at the maximum marginal rate in both in the year of accrual as well as in the impugned assessment year. We therefore decline the Revenue s instant third substantive ground Characterization of income - compensation received from M/s Danone as a capital receipt not chargeable to tax - assessee is the owner of the relevant Tiger trademark and therefore the Assessing Officer had rightly taxed the impugned receipts as long term capital gains (LTCG) as deleted in CIT(A) s - HELD THAT - We find no merit in Revenue s instant arguments since CIT(A) s detailed discussion in light of the relevant agreement clause(s) has made it clear that the assessee had received the impugned settlement sum in lieu of surrendering its right to sue than former any transfer giving rise to capital receipt only as held in hon'ble Gujarat high court s decision in Baroda Cement Chemicals Ltd. 1985 (12) TMI 55 - GUJARAT HIGH COURT followed by various tribunals decisions. We thus conclude that CIT(A) has rightly held the assessee to have received the impugned sum not in lieu of conceding its right to sue in foreign courts. We thus confirm the CIT(A) s order under challenge holding the impugned receipt to be capital receipt. The Revenue fails in its instant last substantive ground as well Non deduction of TDS - payments made to the District Judge Alipore for and on behalf of Kolkata Port Trust (KTP) - HELD THAT - Assessee s payments made to KPT are on account of interlocutory directions passed in the ongoing litigation which is always subject to final outcome. The same is therefore in the nature of an interim measure to protect the interest of litigating parties. Chapter-XVII-B of the Act however prescribes TDS deduction on such amount of payments under various heads. We make it clear that there is no clarity as rightly held by the CIT(A) about the application of the TDS charging provision since the assessee has made payments in favour of district civil court registry only. We accordingly express our agreement with the CIT(A) s findings deleting the impugned disallowance in this reason above Assessment had been erroneously framed in absence of any draft assessment order - HELD THAT - We find no merit in assessee s Rule 27 petition in hand at this stage since the CIT(A) has not decided the corresponding substantive ground. Rule 27 s clinching legislature expression the respondent though he may not have appealed, may support the order appealed against on any of the grounds decided against him . The CIT(A) s decision on the said substantive ground forms sine qua non for filing of Rule 27 petition therefore. We accordingly reject assessee s Rule 27 in assessment year 2010-11. Disallowance on account of short or less deduction of TDS - addition u/s 40(a)(ia) - HELD THAT - In M/S SK. TEKRIWAL 2012 (12) TMI 873 - CALCUTTA HIGH COURT rejecting sec. 40(a)(ia) application on account of short deduction of TDS. We conclude in these facts and circumstances that the CIT(A) has rightly granted relief to the assessee. The Revenue s fails in its last appeal
Issues Involved:
1. Arm’s Length Price (ALP) Adjustment of Interest on Loans and Corporate Guarantees. 2. Disallowance under Section 14A read with Rule 8D. 3. Disallowance of Prior Period Expenses. 4. Treatment of Compensation Received from M/s Danone. 5. Disallowance for Non-Deduction of TDS on Payments to Kolkata Port Trust. 6. Disallowance under Section 40(a)(ia) for Short Deduction of TDS. Issue-wise Detailed Analysis: 1. Arm’s Length Price (ALP) Adjustment of Interest on Loans and Corporate Guarantees: The Revenue's appeals challenged the deletion of ALP adjustments made by the TPO/AO on interest on loans and corporate guarantees provided to the assessee’s overseas associate enterprises. The CIT(A) found that the interest rate charged by the assessee (6%) was within the acceptable range when benchmarked against the US LIBOR rate (1.13%) plus a credit spread, resulting in an arm's length interest rate of 8.74%. The Tribunal upheld the CIT(A)'s decision, noting that the adjustment was within the tolerable margin of +/-5% and that the foreign currency denominated loans should be benchmarked against the relevant LIBOR rate. The CIT(A)'s deletion of the corporate guarantee adjustments was also upheld, citing that corporate guarantees are not considered international transactions under Section 92B of the Act, as supported by various tribunal decisions. 2. Disallowance under Section 14A read with Rule 8D: The CIT(A) deleted the proportionate interest and administrative expenditure disallowances under Section 14A for the assessment years 2009-10 and 2010-11. The CIT(A) found that the assessee's own funds were significantly higher than the investments capable of yielding exempt income, and thus, no interest disallowance was warranted. The Tribunal upheld this finding, noting that the CIT(A) correctly followed the jurisdictional High Court's ruling in the case of CIT vs. Rasio Ltd., which held that investments made from own funds do not warrant disallowance under Rule 8D(2)(ii). 3. Disallowance of Prior Period Expenses: The CIT(A) deleted the disallowance of ?22,50,000/- for prior period expenses related to repairs and maintenance. The CIT(A) found that the liability to pay the expenses crystallized during the relevant previous year, supported by sufficient documentation and email correspondence. The Tribunal upheld this decision, noting that the assessee had proved the crystallization of liability during the relevant year and that the issue was revenue-neutral since the assessee was assessed at the maximum marginal rate in both years. 4. Treatment of Compensation Received from M/s Danone: The CIT(A) treated the compensation received from M/s Danone as a capital receipt not chargeable to tax. The CIT(A) found that the settlement amount was received for withdrawing legal suits and securing a restrictive covenant from Danone, not for transferring any capital asset. The Tribunal upheld this finding, citing that the compensation was for surrendering the right to sue, which does not constitute a transfer of a capital asset and is not taxable under capital gains, as per the Supreme Court's decision in CIT vs. B.C. Srinivasa Shetty. 5. Disallowance for Non-Deduction of TDS on Payments to Kolkata Port Trust: The CIT(A) deleted the disallowance of ?563.44 lacs for non-deduction of TDS on payments made to the District Judge, Alipore, for and on behalf of Kolkata Port Trust. The CIT(A) found that the payments were made under court orders during ongoing litigation and were not in the nature of rent payments under Section 194-I. The Tribunal upheld this decision, noting that the payments were interim measures to protect the interests of litigating parties and did not attract TDS provisions. 6. Disallowance under Section 40(a)(ia) for Short Deduction of TDS: The CIT(A) deleted the disallowance of ?12,00,98,294/- under Section 40(a)(ia) for short deduction of TDS. The CIT(A) found that short deduction of tax does not equate to non-deduction, and Section 40(a)(ia) only applies to cases of non-deduction or non-payment of TDS. The Tribunal upheld this decision, following the jurisdictional High Court's ruling in CIT vs. S.K. Tekriwal, which held that short deduction does not attract disallowance under Section 40(a)(ia). Conclusion: The Tribunal dismissed all three Revenue’s appeals, upholding the CIT(A)'s decisions on all issues.
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