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2021 (4) TMI 245 - AT - Income TaxAddition made u/s. 69 on account of Transfer Pricing (TP) adjustment - Additions on the basis of letters written by one of the employees - contention of Revenue is that the assessee was part of consortium that had extended loan to Tata Tea UK - HELD THAT - In the present case, the reason for invoking provisions of section 69 of the Act germinates from the contents of letters dated 27/07/2011 and 06/09/2011 written by one of the employee indicating that the assessee has extended loan of GBP 37.50 million as per part of syndicate and the participation/commitment fee of GBP 1,50,000 has been received by the assessee. Apart from the said letters, there is no other material on record to corroborate that the assessee in any manner participated in extending loan facility to Tata Tea UK as part of consortium/syndicate. In the first place the AO has failed to take note of the fact that the contents of letter on the basis of which addition u/s. 69 of the Act was made, were retracted by way of affidavit. Further, the addition cannot be made solely on the basis of phraseology of the submissions made during proceedings. There has to be substantive evidence on record to corroborate with the statements. The findings of the TPO and the Assessing Officer in draft assessment order that the assessee has advanced loans from undisclosed sources is merely based on surmises and conjunctures. It is a well settled legal proposition that suspicion, howsoever strong, cannot take place of evidence. Except from the letters referred above there is no material to back the observations made by the TPO/AO. On the contrary, the assessee has furnished various documents to substantiate that the assessee was not part of syndicate that has extended loan facility to Tata Tea UK, however, the same have been ignored by the TPO and the assessing officer while passing the draft assessment order. In the absence of any cogent evidence, the Revenue has failed to discharge its onus while alleging that there was an outflow of funds from India by assessee or receivables from Rabobank London have been squared off for diversion of funds to syndicate for advancing loan to Tata Tea UK. Assessee cannot be expected to prove negative. The onus is on the Department to substantiate that the assessee has advanced amount to Rabobank London for loan to Tata Tea UK or assessee's funds have been diverted in any manner to fund part of said loan. We find that the TPO and the assessing Officer in draft assessment order has placed reliance solely on the letters furnished by an employee of the assessee without there being any corroborative evidence for making addition u/s. 69 Second limb of presumption is that the commitment charges received by the assessee are in fact, part of interest income on the loan advanced - The assessee is remunerated for the services rendered by way of share in upfront fee, participation/commitment fee. The share in participation/commitment fee at some percentage (0.40%) of the credit allocation of GBP37.5 million was the method of remunerating the assessee for the functions performed. Since, we have already held that the assessee had not participated in extending loan facility to Tata Tea UK through the consortium in any manner whatsoever, the remuneration received by the assessee in lieu of the services rendered cannot be termed as interest income of the assessee from the alleged advancing of loan. The aforesaid income received by the assessee has already been offered to tax, this fact has not been disputed by the Revenue. We find no merit in ground No. 1 and 2 raised by the Revenue in appeal, the same are dismissed, accordingly. Addition in respect of interest paid on External Commercial Borrowings (ECB), payment of guarantee fee and service fee - Addition made primarily for the reason that the assessee has not been able to establish need for the services and the benefit derived from the said services - HELD THAT - In the instant case the assessee has borrowed funds from Rabobank Hong Kong to finance its working capital requirements. The interest paid to Rabobank Hong Kong on ECB has been reflected in the books. Tax has been duly deducted on the payment of interest. Similarly, in respect of guarantee fee and service fee the assessee has been able to substantiate that the payments have been made for the purpose of assessee's business. The TPO cannot sit in the judgment whether these expenses were necessary for conducting the business or whether any benefit has been derived from the expenditure so incurred. The requirement of the law is that the expenditure should have been incurred 'wholly and exclusively' for the purpose of business. This fact has not been disputed by the Assessing Officer. We find no merit in ground No. 3 and 4 of the appeal by the Revenue, hence, dismissed.
Issues Involved:
1. Deletion of addition on account of Transfer Pricing (TP) adjustment of GBP 37.5 million (?297 crores). 2. Deletion of addition on account of unexplained investment under Section 69 of the Income Tax Act, 1961. 3. Deletion of addition on account of interest on external commercial borrowing (ECB). 4. Deletion of addition on account of guarantee fee, service fee, and interest on ECB paid to the holding company. Detailed Analysis: 1. Deletion of Addition on Account of TP Adjustment of GBP 37.5 Million (?297 Crores): The Revenue contended that the assessee was part of a consortium that advanced a loan to Tata Tea (GB) Ltd., UK, and received a participation/commitment fee of GBP 37.5 million. The Department based its argument on letters dated 27/07/2011 and 06/09/2011 from the assessee's representative, which were later retracted. The Tribunal found that the assessee was not part of the consortium but only facilitated the deal and was remunerated for originating the transaction. The Tribunal held that the addition under Section 69 was based on surmises and conjectures without substantive evidence and dismissed the Revenue's grounds. 2. Deletion of Addition on Account of Unexplained Investment Under Section 69: The Tribunal examined various documents, including confirmations from Rabobank London and other communications, which substantiated that the assessee did not extend any loan to Tata Tea UK. The Tribunal concluded that the addition under Section 69 was unjustified as the Revenue failed to provide corroborative evidence. The Tribunal emphasized that suspicion cannot replace evidence and dismissed the Revenue's grounds. 3. Deletion of Addition on Account of Interest on ECB: The Revenue argued that the assessee failed to establish the necessity and benefit of the ECB loan. The Tribunal noted that the assessee had availed the ECB loan for business purposes, complied with TDS provisions, and benchmarked the transaction using the CUP method. The Tribunal held that the TPO's role is limited to determining the arm's length price and cannot question the commercial expediency of the transaction. The Tribunal upheld the DRP's findings and dismissed the Revenue's grounds. 4. Deletion of Addition on Account of Guarantee Fee, Service Fee, and Interest on ECB: The Revenue contended that the assessee did not provide evidence of a cost-benefit analysis or benchmark analysis for the guarantee fee, service fee, and interest on ECB. The Tribunal found that the assessee had substantiated the payments with relevant agreements and documents. The Tribunal reiterated that the TPO cannot question the necessity or benefit derived from the transactions. The Tribunal upheld the DRP's findings and dismissed the Revenue's grounds. Additional Judgment for A.Y. 2007-08: The Revenue's appeal for A.Y. 2007-08 was based on the same issues as A.Y. 2006-07. Since the Tribunal dismissed the grounds for A.Y. 2006-07, the appeal for A.Y. 2007-08 was also dismissed. The assessee's cross objections were dismissed as not pressed. Conclusion: The appeals of the Revenue for A.Y. 2006-07 and 2007-08 and the cross objections filed by the assessee for A.Y. 2007-08 were dismissed. The Tribunal upheld the DRP's findings and found no merit in the Revenue's contentions. The order was pronounced in the open court on March 26, 2021.
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