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TMI Blog2013 (9) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... ch transactions have to be considered and examined independently in order to determine the arm’s length price - Decision in case of Assistant Commissioner of Income-tax - 11(1)Versus Nimbus Communications Ltd. [2013 (9) TMI 204 - ITAT MUMBAI] followed - Decided in favour of assessee. Arm's length price - The assessee did not charge any interest on overdue payments - After a period of time of normally 30 days, would be the expected normal arm's length price - The quantification of notional interest was done by adopting interest at 2.19 % LIBOR on overdue amount beyond 30 days - A continuing debit balance, in our humble understanding, is not an international transaction per se, but is a result of the international transaction - What can be examined on the touchstone of arm's length principles is the commercial transaction itself, as a result of which the debit balance has come into existence, and the terms and conditions, including terms of payment, on which the said commercial transaction has been entered into - It appears that the TPO has adopted interest @ 2.19% LIBOR on balances which exceed 30 days, but LIBOR rate is relevant only in the case of lending or borrowing of funds, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in appellant's case for the immediate preceding A.Y. 2005-06 wherein the CIT(A) has held that the rate of 0.25% commission in place of 1.5% was appropriate. 3. The learned A.O erred in making overall adjustment of notional interest of Rs.4,29,095/- in respect of following A.E.s on the ground that appellant had not charged or short-charged interest. 4. Sr. No. Particulars Amount(Rs.) a) M/s Nimbus Communications Worldwide, Ltd. 39,569/- b) Nimbus Media Pvt.Ltd. for granting advance of Rs.1,00,255/- 7,919/- c) Nimbus Communication Limited- British Virgin Islands for granting loan of Rs.37,11,950/- 1,82,103/- d) Nimbus Sport International P. Ltd. on outstanding trade balance of Rs.37,71,342/- without appreciating the fact that in A.Y. 2003-04 in the case of appellant ITAT had deleted the addition of RS.3,13,043/- on this point. 1,99,504/- Total adjustment Rs.4,29,095/- 4. The learned Assessing Officer erred in disallowing an amount of Rs.11,85,990/- under Rule 8D of the Income-tax Act, 1961 holding the said expenses has been incurred on earning exempted income. He also failed to take into account that part of the dividend income is received from foreign companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me market. As explained further, a tax payer seeking to enter a new market or expand (or defend) its market share might temporarily incur higher costs and hence achieve lower profit levels than other taxpayers operating in the same market. In our opinion, the relevant facts of the present case do not indicate that there was any such business strategy adopted by the assessee in not charging commission in respect of guarantees issued for its Associated Enterprises. As a matter of fact, there is nothing to suggest that any such business strategy was adopted by the assessee with specific intention or motive and the case has been sought to be made out merely on the basis of commercial expediency by claiming that the assessee was benefited as a result of giving the guarantees in the form of commercial benefits secured for future. In our opinion, such commercial expediency cannot be equated with business strategy, which is specific and well laid out. As rightly held by the ld. CIT(A), a financial loan guarantee is a commitment entered into by the assessee company with a third party lender of its Associated Enterprises which obliges the assessee company to cover the risk of default by its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ete Carrefour (supra). We, accordingly modify the impugned order of the ld. CIT(A) on this issue and direct the A.O. to recompute the commission for guarantee given by the assessee to its Associated Enterprises @ 0.5% being the arm's length price. Ground No. 1 of Revenue's appeal is thus partly allowed whereas ground No. 2 of assessee's appeal is dismissed". 5. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Y. 2005-06, we respectfully follow the order of the co-ordinate Bench of this Tribunal for A.Y. 2005-06 and direct the A.O. to restrict the TP adjustment by recomputing the commission for guarantee given by the assessee to its AEs at 0.5% being the arm's length price. Ground No. 2 of the assessee's appeal for A.Y. 2006-07 is partly allowed. 6. At the time of hearing before us, the ld. counsel for the assessee has not pressed ground No. 3(a), (b) & (c) of the assessee's appeal. The same are accordingly dismissed as not pressed. 7. As regards ground No. 3(d), the ld. representatives of both the sides have agreed that the issue involved therein relating to addition made on account of notional interest pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance has come into existence, and the terms and conditions, including terms of payment, on which the said commercial transaction has been entered into. The payment terms are an integral part of any commercial transaction, and the transaction value takes into account the terms of payment, such as permissible credit period, as well. The residuary clause in the definition of 'international transaction', i.e. any other transaction having a bearing on the profits, incomes, losses or assets of such enterprises, does not apply to a continuing debit balance, on the given facts of the case, for the elementary reason that there is nothing on record to show that as a result of not realizing the debts from associated enterprises, there has been any impact on profits, incomes, losses or assets of the assessee. In view of these discussions, in our considered view, a continuing debit balance perse, in the account of the associated enterprises, does not amount to an international transaction under section 92 B in respect of which ALP adjustments can be made. The factum of payment has to be considered vis-à-vis terms of payment set out in the transaction arrangement, and not in isolation wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances which exceeded 30 days, but LIBOR rate was relevant only in the case of lending or borrowing of funds and not in the case of commercial overdues. It was held that even if the continuing debit balances of Associated Enterprises could be treated as "international transactions" u/s 92-B, the right course of applying the CUP method, in the case of non-charging of interest on overdue balances, would have been by comparing this not charging of interest with other cases in which the assessee had charged interest on overdues with independent enterprises (internal CUP) or with the cases in which other enterprises had charged interest in respect of overdues in respect of similar business transactions with independent enterprises (external CUP). Since no such exercise had been carried out in the case of the assessee for A.Y. 2004-05, the Tribunal held that the impugned addition was not sustainable. In the year under consideration also, no such exercise has been carried out by the TPO and since the addition was made by adopting interest at LIBOR rate, we hold, respectfully following the order of the Tribunal in assessee's own case for A.Y. 2004-05, that the impugned addition of Rs. 12,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee's appeal is accordingly treated as partly allowed for statistical purpose. 11. In appeal for A.Y. 2007-08, the assessee has raised the following grounds:- "1. The learned Assessing Officer erred in assessing the income at Rs. 11,58,61,620/- in place of Rs.8,71,81,798/- declared by the appellant. 2.(a) The learned Assessing Officer erred in making adjustment of Rs.1,17,69,300/- on a/c. on appellant giving a corporate guarantee to the A.E.s for obtaining bank loans. (b) The learned Assessing Officer failed to appreciate that giving of a corporate guarantee to A.E.s has been as a measure of commercial expediency and there is no loss to the appellant as it is not the business of appellant to give a corporate guarantee for others. (c) Without prejudice to the above, while the appellant contends that no adjustment is required to be made on the facts and circumstances of the case, the learned A.O. erred in not considering the decision of CIT(A) in appellant's case for the immediate preceding A.Y. 2005-06 wherein the CIT(A) has held that the rate of 0.25% commission in place of 1.5% was appropriate. 3. The learned A.O erred in making overall adjustment of notional interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest payable to assessee by its AE on outstanding trade balances is similar to the one involved in assessee's appeal for A.Y. 2006-07 which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2006-07, we delete the addition of Rs. 22,78,937/- made by the A.O. and confirmed by the ld. CIT(A) on account of notional interest payable to the assessee by its AE on outstanding trade balances. Ground No. 4 of the assessee's appeal for A.Y. 2007-08 is accordingly allowed. 16. As regards the issue raised in ground No. 5 relating to the disallowance made by the A.O. and confirmed by the ld. CIT(A) u/s 14A read with Rule 8-D of the Income Tax Rules, 1962, it is observed that the same is similar to the one involved in assessee's appeal for A.Y. 2006-07 which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2006-07, we restore the issue relating to the disallowance u/s 14A of the Act to the file of the A.O. for deciding the same afresh as per the same direction as given in A.Y. 2006-07. Ground No. 5 of the assessee's appeal is accordingly treated as partly allowed for statis ..... 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