9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (10) TMI 292 - AT - Income TaxTP Adjustment - CIT-A directing the TPO to compute the Arm s Length Price (ALP) by adopting LIBOR rates to benchmark the receipt of interest by the assessee from its Associated Enterprise (AE) - non determining the spread on account of risk adjustment to be applied over and above the LIBOR rate - HELD THAT - As decided in assessee's own case 2017 (8) TMI 413 - ITAT MUMBAI in the subsequent AY.(AY 2012-13),the AO himself had made no adjustment on account of interest rate transaction even though the facts and circumstances were identical to the facts to the year under appeal. We also find that in the cases, relied upon by the assessee, the Tribunal has taken a consistent view that LIBOR 200bps or 300bps interest rate has to be considered arm's length rate of interest.In the case under consideration after adding 300 bps the rate would come to 5.49 %,whereas the assessee has charged 6%/7.5% interest from its AE thus, there was no justification for the FAA to uphold the order of the TPO/AO who had charged interest @14.39%.Therefore,reversing the order of the FAA,we decide third Ground of appeal in favour of the assessee . Disallowance u/s 14A - Computation of book profits u/s 115JB - HELD THAT - t is not in dispute that there was no exempt income claimed by the assessee. The law is now very well settled that when there is no exempt income, there cannot be application of disallowance u/s 14A of the Act. Accordingly, we direct the ld AO to delete the disallowance made u/s 14A of the Act both under normal provisions of the Act as well as in the computation of book profits u/s 115JB of the Act. Addition u/s 41(1) - reduction in its liability of buyback during the year of its Foreign Currency Convertible Bonds (FCCB) - HELD THAT - No dispute that the proceeds of the FCCBs were utilized by the assessee for acquisition of shares of its wholly owned subsidiary in USA. Hence it could be safely concluded that the FCCBs were utilized for capital purposes. We find that the assessee had undertaken the buyback of few FCCBs at a discounted value , which resulted in rebut, or remission of a part of the FCCBs. The assessee claimed the gains earned (reduction in the liability) on the buyback of FCCBs of ₹ 7,57,00,711/- as non taxable in the return of income since this was not a gain but an actual reduction in the liability which occurred due to buyback of FCCBs. We find that the decision in the case of CIT vs Xylon Holdings (P) Ltd . 2012 (9) TMI 449 - BOMBAY HIGH COURT clearly supports the case of the assessee wherein it was held that cessation / remission of liability to repay a loan taken to purchase a capital asset does not result in revenue receipt chargeable to tax. As relying on MAHINDRA AND MAHINDRA LTD. THRG. M.D. 2018 (5) TMI 358 - SUPREME COURT we hold that the gains earned on reduction of liability on the buyback of FCCBs at a discounted value in the sum cannot be brought to tax Recomputing the deductions u/s 10A, 10B and 10AA by setting off the losses of non-STP / non-tax holiday units - HELD THAT - As decided in own case for the Asst Year 2012-13 lower authorities had erred in disallowing part of the assesses claim of deduction under Sec.10AA by wrongly aggregating the income and loss of various units while quantifying its entitlement towards deduction under Sec.10AA of the I.T Act. In terms of our aforesaid observations, we vacate the disallowance under Sec.10AA
Issues Involved:
1. Whether the CIT(A) was justified in directing the TPO to compute the Arm’s Length Price (ALP) using LIBOR rates for interest received from Associated Enterprises (AEs). 2. Disallowance under Section 14A of the Income Tax Act, 1961. 3. Taxability of the reduction in liability from the buyback of Foreign Currency Convertible Bonds (FCCBs) under Section 41(1) of the Income Tax Act, 1961. 4. Recomputing deductions under Sections 10A, 10B, and 10AA by setting off losses of non-STP/non-tax holiday units. Detailed Analysis: 1. Arm’s Length Price (ALP) Computation Using LIBOR Rates The primary issue in the appeal of the revenue was whether the CIT(A) was justified in directing the TPO to compute the ALP by adopting LIBOR rates for interest received by the assessee from its AEs. The assessee had provided loans to its AEs in US Dollars and charged interest rates of 6% and 7.50% per annum. The TPO, however, used the Prime Lending Rate (PLR) of the State Bank of India (SBI) and made an adjustment of ?3,29,66,045/- towards ALP. The CIT(A) directed the TPO to use LIBOR rates, citing the decision of the Hon’ble Jurisdictional High Court in Tata Autocomp Systems Ltd and Cotton Naturals (I) (P) Ltd, which supported the use of LIBOR rates for benchmarking. The Tribunal upheld the CIT(A)'s decision, noting that in the assessee’s own case for the Asst Year 2008-09, LIBOR rates had been accepted for similar transactions. Therefore, the grounds raised by the revenue were dismissed. 2. Disallowance Under Section 14A The assessee challenged the disallowance under Section 14A of the Income Tax Act, both under normal provisions and in the computation of book profits under Section 115JB. It was undisputed that the assessee had not claimed any exempt income. The Tribunal noted that the law is well-settled that when there is no exempt income, there cannot be a disallowance under Section 14A. Consequently, the Tribunal directed the AO to delete the disallowance under Section 14A in both contexts, allowing the assessee's grounds. 3. Taxability of Reduction in Liability from FCCB Buyback The assessee contested the addition of ?7,57,00,711/- under Section 41(1) of the Income Tax Act, which was the reduction in liability from the buyback of FCCBs. The AO had added this amount, stating that the proceeds from FCCBs were not utilized for buying any capital asset but for subscribing shares in a subsidiary. The CIT(A) upheld this view. However, the Tribunal found that the proceeds were used for capital purposes and that the reduction in liability from the buyback did not constitute a revenue receipt. The Tribunal cited the Hon’ble Supreme Court's decision in Commissioner vs Mahindra and Mahindra Ltd, which clarified that waiver of loan does not amount to cessation of trading liability and is not taxable under Section 41(1). Therefore, the Tribunal allowed the assessee's grounds. 4. Recomputing Deductions Under Sections 10A, 10B, and 10AA The assessee challenged the recomputation of deductions under Sections 10A, 10B, and 10AA by setting off losses of non-STP/non-tax holiday units. The Tribunal noted that this issue was covered by its own decision in the assessee’s case for the Asst Year 2012-13, where it was held that deductions under these sections should be allowed without setting off losses from non-STP units. The Tribunal also referred to the Hon’ble Supreme Court's judgment in CIT Vs. Yokogawa India Ltd, which supported the unit-wise deduction approach. Consequently, the Tribunal allowed the assessee's grounds. Conclusion: The appeal of the revenue was dismissed, and the appeal of the assessee was allowed. The Tribunal upheld the CIT(A)'s direction to use LIBOR rates for ALP computation, deleted the disallowance under Section 14A, ruled that the reduction in liability from the buyback of FCCBs was not taxable under Section 41(1), and allowed deductions under Sections 10A, 10B, and 10AA without setting off losses from non-STP units.
|
