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2023 (10) TMI 646 - AT - Income TaxTP adjustment - interest paid to SCB India on working capital loan taken - Appellant had obtained working capital loans from SCB India for short tenure at prevailing interest rates - HELD THAT - We find that the transaction of loan taken by the Appellant from SCB India, with the Appellant being a tested party, has been sought to be benchmarked by the transactions undertaken by the SCB India with third parties whereby loan has been granted by SCB India to such third parties. Appellant is not party to the loan transaction identified by the Appellant and therefore, in our view, rate of the interest determined by the Appellant as arm s length rate of interest on the basis of such transactions does not constitute internal CUP. As per the Appellant s own submissions, the interest rate on working capital loans is a function of prevailing market rates, liquidity conditions and other related economic/commercial factors surrounding the transaction However, no such information/details is available on record in relation to the loan transactions identified by the Appellant. We are constraint to remand the issue back to the file of the AO/TPO for determination of arm s length rate of interest and transfer pricing adjustment, if any, in relation to transaction of working capital loan of INR 29 Crores granted by SCB India to the Appellant afresh. With the above direction, Ground No. 1 raised by the Appellant is allowed for statistical purposes. Interest received by the Appellant from SCB India on fixed deposits - TPO had compared the rate of interest charged by the Appellant with the Punjab National Bank ( PNB ) interest rate card and noted that interest rate on fixed deposits exceeding INR 1 Crore was higher by 1%, thus proposed TP adjustment - DRP noted that the PNB interest rate card adopted by the TPO was effective from 01/03/2009 only and therefore, directed the TPO/Assessing Officer not to adopt the PNB interest rate card for deposits prior to 01/03/2009 and restricting the adjustment to interest on fixed deposit placed thereafter - HELD THAT - Appellant challenge as contending that the PNB interest rate card cannot be adopted to benchmark the interest charged by a private company such as the Appellant as PNB was a nationalized bank is not acceptable - Accordingly, we are not inclined to interfere with the Final Order passed by the Assessing Officer on this issue as per the direction of DRP. Accordingly, Ground No. 2 raised by the Appellant is dismissed. Disallowance u/s 14A r.w.r. 8D(2)(iii) - assessee contended that no addition could have been made in the hands of the Appellant as no expenditure was incurred by the Appellant for earning exempt income - HELD THAT - We find merit in the contention of the Appellant with the AO has failed the record satisfaction before invoking provisions of Section 14A r.w.r. 8D of the Rules. On perusal of the assessment order we find that the AO has rejected the contention of the Assessee that no disallowance should be made u/s 14A and while doing so, AO as neither referred to any interest cost and/or administrative expenses incurred/claimed by the Assessee for earning the exempt income, nor made any reference to the accounts of the Assessee. Hon'ble Supreme Court in the case of Godrej Boyce Mfg. Co. Ltd. 2017 (5) TMI 403 - SUPREME COURT had observed that it was only after the AO had recorded his dissatisfaction as regards the correctness of the claim of the Assessee that the provisions of Section 14A of the Act read with Rule 8D could be invoked. Thus, it is settled legal position that before proceeding to invoke provisions of Rule 8D of the Rules for computing disallowance u/s 14A AO must express his dissatisfaction regarding the computation of disallowance made by the Assessee. Accordingly, addition be deleted - Decided in favour of assessee. Depreciation on routers, connection charges and servers - whether qualify for depreciation at the rate of 60%, being the rate applicable to computers? - HELD THAT - As relying on BSES YAMUNA POWERS LLD. / BSES RAJDHANI POWERS LTD. 2010 (8) TMI 58 - DELHI HIGH COURT appellant is entitled to claim depreciation at the rate of 60%. Accordingly, disallowance of depreciation stands deleted.
Issues Involved:
1. Transfer Pricing adjustment related to Interest paid on Working Capital loan. 2. Transfer Pricing adjustment related to Interest received on fixed deposits. 3. Disallowance under Section 14A of the Act read with Rule 8D. 4. Depreciation on Computer peripherals restricted to 15% as against 60%. Summary: Ground No. 1: Transfer Pricing adjustment related to Interest paid to Standard Chartered Bank-India (SCB-India) on Working Capital loan obtained - Rs. 21,75,000 The Appellant contested the transfer pricing adjustment of INR 21,75,000/- for interest paid on a working capital loan from SCB India at 14.75%. The Appellant benchmarked this rate using internal comparables, but the TPO rejected these comparables and selected a transaction with Indian Farmers Fertilizers Co-op Limited (IFFCO) at 14% as the closest comparable. The Tribunal remanded the issue back to the Assessing Officer/TPO for fresh determination of the arm's length rate of interest, noting the lack of detailed economic/commercial factors provided by the Appellant. Ground No. 1 was allowed for statistical purposes. Ground No. 2: Transfer pricing adjustment related to Interest received from SCB-India on fixed deposits placed - Rs. 8,150 The TPO initially made a transfer pricing adjustment of INR 52,548/- using the Punjab National Bank (PNB) interest rate card. The DRP reduced this adjustment to INR 8,150/-. The Appellant argued against using the PNB rate card, but the Tribunal found no supporting evidence for the Appellant's contention and upheld the DRP's decision. Ground No. 2 was dismissed. Ground No. 3: Disallowance under Section 14A of the Act read with Rule 8D - Rs. 900,000 The Appellant challenged the disallowance of INR 9,00,000/- under Section 14A read with Rule 8D(2)(iii), arguing that no expenditure was incurred for earning exempt income. The Tribunal found that the Assessing Officer failed to record satisfaction before making the disallowance, as required by the Supreme Court judgments in Maxopp Investment Ltd. vs. CIT and Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT. Consequently, the disallowance of INR 9,00,000/- was deleted. Ground No. 3 was allowed. Ground No. 4: Depreciation on Computer peripherals restricted to 15% as against 60%- Rs. 10,42,446 The Appellant claimed depreciation at 60% for computer peripherals, which the Assessing Officer restricted to 15%. The Tribunal referred to its previous decision for the Assessment Year 2007-08, which allowed 60% depreciation on computer peripherals, and thus, deleted the disallowance of INR 10,42,446/-. Ground No. 4 was allowed. Conclusion: The appeal was partly allowed with Grounds No. 1 and 4 allowed, Ground No. 2 dismissed, and Ground No. 3 allowed, resulting in the deletion of certain disallowances and remanding issues for fresh consideration. The order was pronounced on 23.06.2023.
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