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TMI Blog2008 (11) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... ced on record. The ld. DR relied on the impugned order. 4. After considering the rival submissions and perusing the relevant material on record we observe that the Special Bench of the Tribunal in the case of ITO v. Daga Capital Management (P.) Ltd. [2008] 26 SOT 603 (Mum.) has dealt with such issue. We set aside the impugned order and direct the Assessing Officer to decide this issue afresh in accordance with the view taken by the Special Bench in the afore-noted case of Daga Capital Management (P.) Ltd. (supra) along with the order passed by the Tribunal in assessee's own case. However it is made clear that if any of the observations contained in the order of the Tribunal passed in assessee's own case are found to be in conflict with those of the Special Bench, then the decision taken by the Special Bench will prevail. 5. Ground No. 3 of the assessee's appeal is against not allowing of deduction under section 33AC on the interest amount of Rs. 2,10,79,785. The learned counsel for the assessee candidly conceded that the Tribunal in assessee's own case in assessment years 2000-01 and 2001-02 has dismissed similar ground, following the view taken by the Tribunal in assessee's own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for bar boat rentals to Essar International Limited USD per day Rounded off Interest on loan of USD 29,57,500 @ 8% 236,600 657 657 Depreciation on USD 38,50,000 Basis 5 years % 770,000 2104 2110 Dividend payable to ESL on investment of USD 10,00,000 @ 10% 100,000 273 274 Total Lease rentals per day 3,034 3,041 Rounded off to 3,100 Lease rentals payable for this year at USD 3100 per day for 366 days 1,134,600 Per month 94,550 9. The learned A.R. stated that the Addl. Commissioner of Income-tax, Transfer Pricing erred in reducing US $ 274 per day from the said working given to him which led to the making of the addition in dispute. He referred to the relevant portion of Rule 10B for contending that the deduction made by the Addl. CIT Transfer Pricing was not in conformity with the "cost plus method" as per the mandate of the relevant rule. He further submitted that EIL was a 100 per cent subsidiary company of the assessee and the entire income receivable from such subsidiary company was liable to tax in the shape of dividends in the hands of the assessee-company. On a pertinent query the learned A.R. admitted that no dividend was paid or proposed by EIL in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of the international transaction with the uncontrolled transaction is required to be judged with reference to various factors which includes specific property transfer or services provided in either transactions and the functions performed etc. Her claim was that the assessee was not justified in relying on the rate of ship which was not at all comparable. She further submitted that the onus was upon the assessee to show the really comparable case being one in which the ship was of around 22 years old. Arbitrary adoption of the hire rate of ship less than 10 years of age and then allowing ad hoc deduction for working out the arm's length price for hiring of ship which was 22 years old, was not permissible. She supported the impugned order by submitting that the Addl. CIT, Transfer Pricing was justified in reducing the US$ 274 from the rental per day, which was a provision for dividend, in going by the calculation made available to him on the cost plus method. In her opinion the authorities below had rightly made and confirmed the addition. 11. We have heard the rival submissions and perused the relevant material on record. The Finance Act, 2002 substituted sections 92 to 92 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 25 per cent of the rate as prescribed in Clarkson Report on the ground that the ship hired by it was 22 years old. There is absolutely no material worth the name by which we can justify the reduction at 75 per cent due to age factor of the ship. If at all the assessee was to rely on the Clarkson Report, it was incumbent upon it to bring on record some comparable case in which the age of the ship was around 22 years to make it comparable uncontrolled transaction. How 25 per cent of the rate for 10 year old ship can be said to be a comparable uncontrolled transaction for 22 years old ship is anybody's guess. In principle we are agreeable, with the assessee's contention that the adjustment in the price is permissible as per sub-rule (a)(ii ) of rule 10B(1). But keeping into consideration such a vast age gap of the two ships, we are not inclined to hold that the ad hoc deduction of 75 per cent will bring the case within the adjustable range. 13. The next submission of the ld. AR is that the same rate of hire charges was paid in the preceding year, which has been accepted in the assessment made under section 143(3) and resultantly the same rate should not be brought with in the shado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned by an associated enterprise must be compulsorily-distributed in the shape of dividends. Such associated enterprise may distribute only part of its income in the form of dividend or it may not distribute any dividend at all. It is for that company to decide whether it intends to distribute dividend or not. Moreover the associated enterprise is liable to tax in its own capacity independent of the taxation of the other enterprise. Since there was no receipt of any dividend in the year in question from EIL, the contention that there will be double taxation and hence the provisions of transfer or pricing should not be applied, is not capable of acceptance. 15. Be that as it may, we are not agreeable with the proposition that if the assessee-company has received dividend from the associated enterprise, then to that extent, no addition on account of transfer pricing provisions is possible. Firstly only the transactions with the associated enterprise are brought within the purview of transfer pricing provisions. The definition of the associated enterprise as per section 92A makes it explicitly clear that one enterprise is considered as associated enterprise of the other if one holds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under section 10A or 10AA or 10B or under Chapter VI-A in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section. We, therefore, reject this contention. 17. Having come to the conclusion that the working of the assessee at arm's length price as per CUP Method does not merit acceptance, then the immediate question arises that how such price should be determined. The assessee submitted an alternate working before the Addl. CIT Transfer Pricing on the cost plus method, which was accepted by the authority in principle. The part of the working under that method insofar as it relates to interest on loan and depreciation is concerned was not disputed. Without taking recourse to any other method for the determination of arm's length price, the Addl. CIT, Transfer Pricing, accepted the assessee's working as per cost plus method, as tabulated above except for reducing the claim of the dividend on the ground that no dividend was in fact received by the assessee. In such a situation, it becomes apparent that the cost plus method, with which the Addl. CIT Transfer Pricing proceeded, cannot be substituted with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as provision for dividend instead of the normal gross profit mark-up for the purposes of determination of arm's length price under section 92C of the Act. This ground is accepted. 18. The first ground of the Revenue's appeal is towards allowance of depreciation of ship "Nand Neeti" and also hire charges amounting to Rs. 1,82,55,527 as revenue expenditure. 19. Both the sides are agreeable that the facts and circumstances of this ground are similar to those decided by the Tribunal in assessee's own case in earlier years. The copies of the orders for the assessment years 1995-96 to 1999-2000 and 2000-01 have been placed on record. The relevant discussion has been made in para 18 of the order for assessment year 1995-96 onwards. We. therefore, uphold the impugned order and dismiss this ground of appeal. 20. Ground No. 2 is against the allowance of depreciation on capitalization of foreign exchange fluctuation in respect of foreign currency loans taken for acquisition. Here also both the parties are agreeable that the Tribunal has decided this issue in earlier years in favour of the assessee. We find the relevant discussion in paras 19 to 22 of the order for the assessment year 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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