9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (2) TMI 981 - AT - Income TaxTransfer pricing adjustment Interest received on loans given to Associated enterprises Held that - The decision in Siva Industries & Holdings Ltd. Versus Assistant Commissioner of Income-tax, Co. Circle VI(4), Chennai 2012 (10) TMI 890 - ITAT CHENNAI followed LIBOR rate which has to be considered while determining the arm s length interest rate in respect of the transaction between the assessee and the Associated Enterprises - no addition on this count is liable to be made in the hands of the assessee - The AO is directed to examine whether the rate of interest received was at LIBOR percentage points - The adoption of Prime lending rates is not approved in various coordinate bench decisions thus, assessee lending at LIBOR plus rates can be considered as arm s length provided there is no other expenditure on the borrowed funds - Since some of the loans are reflecting rate at ordinary percentage points, conversion to LIBOR plus is required It can also be taken as arm s length rate for the loans advanced during the year. AO is directed to examine Decided in favour of Assessee. Claim of bad debts Held that - It is not necessary to prove that the debt has become irrecoverable and is enough if bad debt is written off in the accounts of the assessee - There is no dispute that the amount claimed is towards supplies made and the debtor company is not in the position to repay the decision in TRF. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT followed - the AO is directed to allow the amount as claimed Decided in favour of Assessee. Disallowance made u/s 40(a)(ii) of the Act Held that - As decided in assessee s own case for the previous assessment year, since no services are rendered in India, sales commission cannot be disallowed under the provisions of section 40(a)(ia) the amounts covered by sales commission are not accruing or arising to the non-residents in India thus, provisions of section 195 does not apply and, section 40(a)(ia) cannot be invoked. Product registration and filing fee Held that - Without examining the nature of the amount and whether the other non-resident has any permanent establishment in India or made available anything in India or rendered any services In India, the amount cannot be considered under the provisions of section 40(a)(ia) - Since complete details of the amounts and to whom they are paid are not forthcoming on record thus, the matter is remitted back to the AO for fresh adjudication - If the non-resident has not rendered any services in India, or the amount paid is not taxable in India, provisions of section 195 does not apply and disallowance under section 40(a)(ia) does not arise Decided in favour of Assessee. Disallowance of claim u/s 35D of the Act Held that - The assessee s contentions are to be accepted - Even though assessee made claim under section 35D, the claim is allowable under section 37(1) as in Mahindra & Mahindra Limited vs. CIT 2009 (10) TMI 639 - ITAT MUMBAI The assessee is eligible for deduction under section 37(1) - Since the issue of allowance under section 37(1) was not examined by the AO thus, the matter remitted back to the AO Decided in favour of Assessee. Disallowance of payment u/s 40(a)(ia) of the Act Held that - The order of the AO cannot be upheld which mainly focus on non-obtaining of TDS certificate and also there is no clarity in the order of the A.O. about nature of payments and its taxability under the IT Act - even the DRP also expressed difficulty to conclude whether the payments are in the nature of income or not - since the nature of payment and whether any services are rendered in India or not have not been examined in detail, item-wise along with the applicable DTAA provisions The matter remitted back to the AO for fresh adjudication Decided in favour of Assessee.
Issues Involved:
1. Transfer Pricing Adjustment on Interest Received on Loans to Associated Enterprises (AEs) 2. Claim of Bad Debts 3. Disallowance under Section 40(a)(ii) for Non-Deduction of TDS on Payments to Non-Residents 4. Disallowance under Section 35D for FCCB Issue Expenses Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment on Interest Received on Loans to Associated Enterprises (AEs): The Assessee and Revenue filed cross appeals against the CIT(A)-III's order concerning the transfer pricing adjustment on interest received on loans given to AEs. The TPO had proposed an adjustment of Rs.7,62,83,592/- by considering a 12% p.a. interest rate as reasonable. The CIT(A) partially accepted the Assessee's contention and adopted a 9% rate for loans to M/s. Citadel Aurobindo Biotech Limited and 11% for other loans, reducing the addition to Rs.4,71,83,370/-. The ITAT, referencing various coordinate bench decisions, directed the A.O. to re-examine the interest rates using LIBOR + percentage points as the arms-length price. The ITAT emphasized that the adoption of prime lending rates was not approved and directed the A.O. to ensure no other expenditure was incurred on borrowed funds before accepting LIBOR + rates as the arms-length price. 2. Claim of Bad Debts: The Assessee claimed a bad debt of Rs. 3 crores related to supplies made to M/s. Citadel Aurobindo Biotech Limited. The A.O. disallowed the claim, considering it premature. The CIT(A) upheld the disallowance. The ITAT, citing the Supreme Court judgment in TRF Limited vs. CIT, held that it is sufficient for the debt to be written off in the Assessee's accounts and directed the A.O. to allow the bad debt claim, as the debtor company was not in a position to repay. 3. Disallowance under Section 40(a)(ii) for Non-Deduction of TDS on Payments to Non-Residents: The Assessee contested the disallowance of Rs.12,75,39,872/- under Section 40(a)(ii) for non-deduction of TDS on payments to non-residents. The payments included sales commission, product registration fees, and professional and consultancy charges. The ITAT upheld the Assessee's claim for sales commission, referencing earlier ITAT decisions and a CBDT circular stating that commission paid to non-resident agents for services rendered abroad is not liable for TDS. For product registration fees and professional charges, the ITAT restored the issue to the A.O. to examine whether the amounts were taxable in India, emphasizing that if the services were rendered outside India, Section 195 would not apply, and consequently, Section 40(a)(ii) disallowance would not arise. 4. Disallowance under Section 35D for FCCB Issue Expenses: The Assessee claimed Rs.4,11,71,160/- as a deduction under Section 35D for FCCB issue expenses, which the A.O. disallowed, arguing that FCCBs were not public issues. The ITAT, referencing the Mahindra & Mahindra Limited vs. CIT case, held that such expenses are allowable under Section 37(1) and can be treated as deferred revenue expenditure over the conversion period of FCCBs. The ITAT restored the issue to the A.O. to allow the claim accordingly. Conclusion: The ITAT allowed the Assessee's appeals for statistical purposes, directing re-examination of interest rates on loans to AEs and the nature of payments to non-residents. The ITAT also directed the allowance of bad debt claims and FCCB issue expenses. The Revenue's appeal was dismissed.
|
