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2019 (11) TMI 701 - AT - Income TaxTP Adjustment - adjustment made u/s 92CA(3) on account of interest on loan and on account of corporate guarantees - HELD THAT - There is no dispute that the CIT(A) has adopted judicial consistency in following his findings on the every issue in earlier assessment years attending finality upto this tribunal as well. There is no distinction on facts or law indicated at the Revenue s behest in the impugned assessment year. We therefore affirm the CIT(A) s findings under challenge deleting corporate guarantee s arm s length price adjustment(s) in both the impugned assessment years Transfer pricing adjustments, interest on loan advanced to payee - HELD THAT - The matter is well covered by the general consensus among the Hon'ble ITAT Benches that international transactions involving cross- border country loans to AE can be bench marked against LIBOR, as also supported by the RBI's circular that a spread ranging from 1 % - 2% over LIBOR is reasonable (or advancing loans. Therefore, in deciding the matter, it is held that an interest rate of LIBOR plus 2% can ,be held to be Arm's length rate of interest, and as for the case at hand, the interest charged by the assessee from its AE is higher than LIBOR plus 2%, the adjustment made by the Ld. TPO in the case is held to be unjustified and not sustainable. CIT(A) has followed the propositions of law laid down by different benches of the Tribunal on this issue, we find no infirmity in the same. The Kolkata Bench of the ITAT has in a number of cases including M/s. EIH Ltd. vs. DCIT 2018 (1) TMI 1372 - ITAT KOLKATA followed the same principles. Hence the order of the Ld. CIT(A) on this issue is upheld and Ground No. 1 of the revenue is dismissed Adjustment of interest on a loan issue by AE - HELD THAT - In subsequent FYs balance 0.4% of the FCCBs were also converted to equity. Hence, it stands established that cost investment in 6.5% bonds is 1% as opposed to 6.5% worked out by the TPO. Thus, 100% of the FCCBs were converted to equity when the order of TPO was passed i.e. 31.10.2011. In view of the above discussion and the fact that the ALP rate of 13.95% computed by the TPO cannot be compared with that charged by the assessee from its AE, we uphold the deletion of the addition by the ld. CIT(A) and dismiss this ground as well as the appeal of the Revenue. Additional depreciation - @ 20% u/s 32(1)(ii) on the plant and machinery including electrical installations acquired during the year - HELD THAT - 20% u/s 32(1)(ii) of the Act, on the plant and machinery including electrical installations acquired during the year - Electrical installation was a part of the plant machinery newly installed. Section 32(1)(iia) of the Act specifically mentions those items of plant and machinery on which additional depreciation could not be claimed. In view of the above submission, it stands clear that electrical installation is not a prohibited item. In the present case, there is no dispute that the assessee is engaged in the manufacturing of low ash metallurgical coke Employees contribution towards PF - We find that the ld. CIT(A) has followed the judgement of the Hon ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT and judgement of the jurisdictional High Court in the case of ACIT vs. M/s. Vijay Shree Ltd. 2011 (9) TMI 30 - CALCUTTA HIGH COURT and in the case of CIT, Central II vs. M/s. R.E.I. Agro Ltd. 2013 (12) TMI 1517 - CALCUTTA HIGH COURT and deleted the disallowance. We find no infirmity in the same. Computation of book profit u/s 115JB of the Act with respect to disallowance u/s 14A Rule 8D - HELD THAT - This issue as to whether the disallowance u/s 14A r.w. Rule 8D of the Act has to be made while computing book profits u/s 115JB of the Act is covered by the decision of the special Bench of the ITAT (Delhi) in the case of ACIT vs. Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI wherein it was held that The computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w. Rule 8D of the Income Tax Rules 1962. Respectfully following the same we uphold the order of the ld. CIT(A) and dismiss this ground of the Revenue. Transfer pricing adjustment on bank guarantee commission - For the AY 2009-10 the very same issue was adjudicated by us, at ground no. 1 of this order. We have held that the transaction in question is not an international transaction as defined in Section 92B of the Act. Consistent with the view taken therein, we uphold the deletion of the transfer pricing adjustment by the ld. CIT(A) for the very same reasons given for the AY 2009-10. Transfer pricing adjustment on loan advanced to AE - TPO made a Transfer pricing adjustment of interest receivable amounting to ₹ 34,46,885/-. Similar issue was dealt by us for the earlier year as ground no. 2. We have held that international transaction involving cross-border loan to AE can be benchmarked against LIBOR. The RBI Circular states that the range from 1-2% for LIBOR is reasonable for advancing loans. Interest rate of LIBOR 2% can be held as an arm s length rate of interest. As the assessee has charged an interest higher than LIBOR 2%, the ld. CIT(A) has held that the same is at arm s length and deleted the adjustment. We find no infirmity in this order. Even otherwise the loan transaction can be benchmarked against the credit facilities provided to the AE by SBI, Sidney. Though the credit facilities were guaranteed by the assessee, such guarantee did not have any bearing on the facilities and rate of interest charged by the bank. Hence, this rate is an independent benchmark. When this benchmark is applied to the facts, no adjustment is called for. Thus for these reasons this ground of the Revenue is dismissed.
Issues Involved:
1. Transfer pricing adjustment on account of Guarantee Commission fees. 2. Transfer pricing adjustment on account of interest on loan advanced to AE. 3. Transfer pricing adjustment on account of interest on bonds. 4. Additional depreciation on electrical installations. 5. Disallowance of PF contribution by employees. 6. Disallowance u/s 14A r.w. Rule 8D while computing book profits u/s 115JB. 7. Transfer pricing adjustment on account of bank guarantee commission. Detailed Analysis: 1. Transfer Pricing Adjustment on Account of Guarantee Commission Fees: The Tribunal addressed the issue of transfer pricing adjustment made under Section 92CA(3) of the Income Tax Act on account of Guarantee Commission fees. The CIT(A) had concluded that the transaction in question was not an international transaction as defined under Section 92B of the Act, relying on the judgment of the Delhi Bench of ITAT in Bharti Airtel Ltd. vs. ACIT and other cases. The Tribunal upheld this view, noting that similar issues had been resolved in favor of the assessee in previous years and other cases, concluding that corporate guarantees do not inherently fall within the ambit of 'international transactions' under Section 92B. 2. Transfer Pricing Adjustment on Account of Interest on Loan Advanced to AE: The Tribunal examined the adjustment made by the TPO, who had benchmarked the interest rate at BBSY + 750 basis points. The CIT(A) found that the interest rate charged by the assessee (BBSY + 2.5%) was at arm's length, supported by comparisons with similar transactions and judicial precedents. The Tribunal upheld the CIT(A)'s finding that LIBOR could be used as a benchmark for such transactions, and that the interest rate charged by the assessee was higher than LIBOR + 2%, thus justifying the deletion of the adjustment. 3. Transfer Pricing Adjustment on Account of Interest on Bonds: The CIT(A) noted that the bonds issued by the AE were convertible to equity and that the TPO's computation of an ALP rate of 13.95% was hypothetical and not based on actual transactions. The CIT(A) observed that a major portion of the bonds had been converted to equity, and thus the interest rate of 6.5% was at arm's length. The Tribunal upheld this view, agreeing that the TPO's adjustment was not sustainable. 4. Additional Depreciation on Electrical Installations: The Tribunal addressed the issue of whether electrical installations qualified as 'Plant and Machinery' for the purpose of claiming additional depreciation under Section 32(1)(iia). The CIT(A) found that the electrical installations were integral to the manufacturing process and thus qualified for additional depreciation. The Tribunal upheld this finding, noting that the definition of 'Plant' under Section 43 is inclusive and that electrical installations are essential for the manufacturing process. 5. Disallowance of PF Contribution by Employees: The CIT(A) had deleted the disallowance made by the AO under Section 36(1)(va) r.w.s. 2(24)(x) of the Act, following the judgments of the Supreme Court in CIT vs. Alom Extrusions Ltd. and the Calcutta High Court in ACIT vs. M/s. Vijay Shree Ltd. The Tribunal found no infirmity in this decision and upheld the deletion. 6. Disallowance u/s 14A r.w. Rule 8D while Computing Book Profits u/s 115JB: The Tribunal referred to the decision of the Special Bench of ITAT (Delhi) in ACIT vs. Vireet Investments Pvt. Ltd., which held that the computation under clause (f) of Explanation 1 to Section 115JB(2) should be made without resorting to Section 14A r.w. Rule 8D. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's ground. 7. Transfer Pricing Adjustment on Account of Bank Guarantee Commission: For the AY 2009-10, the Tribunal had already adjudicated that the transaction in question was not an international transaction as defined in Section 92B. Consistent with this view, the Tribunal upheld the deletion of the transfer pricing adjustment by the CIT(A) for the AY 2010-11. Conclusion: The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s orders on all counts, including the deletion of transfer pricing adjustments, additional depreciation on electrical installations, and disallowances related to PF contributions and Section 14A while computing book profits under Section 115JB.
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