9911796707
TMI Blog2014 (9) TMI 610X X X X Extracts X X X X X X X X Extracts X X X X ..... 1OB(4) of the Act specifically provides for deduction from the total income of an assessee of the profits and gains 'derived by' the export oriented undertaking in the previous year, which implies that any income received by the undertaking shall be entitled for deduction under Section 1OB of the Act; ii. That the expression 'derived by' used in Section 1OB of the Act implies that the said undertaking should be recipient of said profit and gains as against the expression 'derived from' the undertaking, which means that the profit and gains should have direct source from the activities of the said undertaking to become eligible for the deduction; iii. the decisions in Appellant's own case for earlier AYs including other legal precedents so sought to be relied to hold this ground against the Appellant Company have failed to appreciate that either the said decisions have been delivered in context of provisions other than Section 1O of the Act which have used the expression 'derived from' as against 'derived by' in Section 1OB and/or in case if some of the decision so relied which have considered provisions using expression similar to Section 1OB have either been set aside by the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case and in law, the Ld. CIT(A) erred in rejecting the Arm's Length price ('ALP') determined by the Appellant Company by benchmarking the international transaction of interest income received by the Appellant Company on loans advanced to Tricom Document Management mc, an US based wholly owned subsidiary and thereby Associated Enterprise ('AE') of the Appellant Company; 2. He failed to appreciate and ought to have held that: i. the rate of interest of 'LIBOR + 300 basis point' as determined as ALP by the Ld. CIT(A) was not correct and in violation of the Comparable Uncontrolled Price ('CUP') Method as provided in Section 92C read with Rule 1OB of the Income-tax Rules, 1962; ii. the CUP Method requires that the controlled transaction of rate of interest charged on loan advanced by the Appellant to its AE should be compared with the rate of interest on loan advanced among independent parties in comparable circumstances; iii. the comparison made by the Ld. CIT(A) to benchmark the aforesaid international transaction by considering the rate of interest on a transaction of loan availed in London Markets was unjustified; iv. the loan was advanced by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such prices; and iii. the US Fed and LIBOR rate of interest considered for benchmarking the aforesaid international transaction is also an average rate of comparable uncontrolled interest at which various panel banks are willing to borrow or lend interbank offers; 3. In view of the above, the Appellant Company prays that the AD be directed to provide relief under Section 92C (2) of the Act before making any transfer pricing adjustment in determination of ALP for the impugned international transaction. Ground V 1. Without prejudice to Grounds referred in above, on facts and circumstances of the case and in law, the Ld. CIT(A) erred in not computing the correct total income by not providing deduction of donation paid of Rs. 10,48,837 under Section 80G of the Act, under normal provisions of the Act. 2. He failed to appreciate and ought to have held that: i. deduction under Section 80G was restricted to only Rs. 25,525/-, as against the Appellant Company is entitled to deduction of Rs. 5,10,500/-; ii. Without doubting the authenticity of the donation so made by the Appellant Company; the deduction under Section 80G was restricted to Rs. 25,525/-; and iii. the necessary suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related parties would be the Arm's length interest in relation to the interest free loans I advanced to the AE and that the safest comparables, which can be taken as Arm's Length interest rate in such a case would be the interest on FD with the bank for a term equivalent to the term for which the loans given to the AEs?" v. "The appellant prays that the order of the CIT (A) on the above grounds be set aside and that of the A.O. be restored." Grounds of Assessee's Cross Objections: Without prejudice to Grounds of Appeal as filed on 13 January 2014, with the Registrar, ITAT in the Respondent's Appeal No. 322/M/2014 for the captioned Assessment Year GROUND I 1. On facts and circumstances of the case and in law, the Ld. CIT(A) as well as AO erred in determining the Arm's Length price ('ALP') of the international transaction of interest income received by the Respondent Company on loans advanced to Tricom Document Management Inc, an US based wholly owned subsidiary and thereby Associated Enterprise ('AE') of the Respondent Company, by benchmarking the said international transaction with a rate of interest of 'LIBOR + 300 basis points' and 'average domestic rate of interest of aroun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal dated 3/05/2013 in ITA No.8058/Mum/2011, ITA No.8540/Mum/2011, ITA No.8597/Mum/2011 & CO No.225/Mum/2012. The relevant observations of the Tribunal are as under: 5. The second dispute which is relevant only to the appeal filed by the assessee is regarding the allowability of deduction u/s 10B in respect of interest income. The assessee is a 100% Export Oriented Unit (EOU) registered under Software Technology Park Scheme for the development and export of computer software. The assessee had earned interest income of Rs. 2,89,29,208/- and had also claimed deduction u/s 10B in respect of interest income. The assessee had submitted that the interest income was derived from the business activity of the eligible unit and that it had consistently offered such income as Profit and gains of business and profession. The AO, however, did not accept the contentions raised. It was observed by him that deduction u/s 10B was allowable in respect of profit and gains derived from a 100% export oriented undertaking from the export of article or things or computer software. But in this case interest income had not been derived from export of article or things or computer software. The AO plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble under the head "income from other sources". This issue is also stated to be covered by the aforementioned decision of the Tribunal in assessee's own case, wherein it has been held that interest income has rightly been assessed under the head income from other sources. However, Tribunal has directed the AO to allow the expenses incurred for earning interest income and reference can be made to the following observations of the Tribunal. 7.1 As regards the netting of income the AO had denied the claim of netting following the judgment of Hon'ble High Court of Bombay in case of CIT (A) Vs. Asian Star Co.( 326 ITR 56) in which it has been held that while computing deduction, the gross receipts and not the net receipts are required to be taken into account. However, the said decision of High Court has not been held by the Hon'ble Supreme Court in case of Associated Capsules Ltd. (343 ITR 89) in which it has been held that the net receipts are required to be adopted. The assessee has also raised dispute about the nature of interest income which it had not declared as business income and which has been assessed by AO as income from other sources. We find, from perusal of para 5 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t considering the size of business and credibility of the AE the loans were available at mark up of 200 to 250 basis point over the bench mark federal rate which translated into interest rate of 7 to 7.5% per annum. Therefore, it was submitted that applying CUP method which was most appropriate in the situation, the interest borrowed by the assessee at the rate of 7.5% per annum was at arms length. The TPO, however, did not accept the contentions raised. It was observed by him that under the CUP method the interest charged from unrelated party in similar situation would be the arms length interest and, therefore the issue was the interest set at which the assessee would have advanced money to independent 3rd party in India by lending such surplus money. The TPO noted that the assessee had charged interest at the rate of 15 to 18% from other parties within India and, therefore, the assessee would have earned more interest had it not advanced money to the subsidiary but to an independent 3rd party. TPO, therefore, held that the average rate of interest charged from the other parties i.e. 16.5% would be the arm's length interest rate in this case and accordingly made adjustment of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Cotton Naturals (I) Pvt. Ltd. Vs. DCIT in 5855/Del/2012 in which the Tribunal accepted the plea of the assessee that LIBOR rate was the most suitable bench mark for judging the arm's length price of interest. The learned CIT (DR) on the other hand referred to the decision of Tribunal in case of Aurion Pro. Solutions Ltd. Vs. ACIT in ITA no. 7892/M/2011 in which the Tribunal in para 8.11 observed that the interest earned by the assessee by advancing the said amount to unrelated parties would be the arm's length interest. In relation to the advances given to the AE the Tribunal observed that arm's length interest rate in such a case would be the interest rate on FD with the banks for a term equivalent to the term for which the loans were given to the AE. The learned AR for the assessee in the reply pointed out that the Tribunal in case of Aurion Pro Solutions. Ltd. Vs. ACIT (Supra) had finally in para 8.13 followed the view taken by the other bench of Tribunal that LIBOR rate was most suitable for bench marking the interest on loans to the AE. 4. We have perused the records and considered the rival contentions carefully. The dispute is regarding transfer pricing adjustment mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the parties, we find that Ld. CIT(A) has just referred and followed the aforementioned decision of the Tribunal which has already been reproduced above. In this view of the situation, it is found that the issue has been decided by Ld. CIT(A) in accordance with the order of the Tribunal in assessee's own case for immediate preceding assessment year. Therefore, respectfully following the aforementioned decision of Tribunal, we decline to interfere in the findings recorded by Ld. CIT(A) and this ground of the Revenue as well as assessee are dismissed. It may also be mentioned here that the decision referred to in the grounds of appeal filed by the Revenue was duly considered by the Tribunal in its earlier order. 6. Apropos Ground No.IV of assessee's appeal, it was submitted by Ld. AR that AO may be directed to give appropriate relief as per the first proviso to section 92C(2) in case the recomputed adjustment falls within the safe harbour. In this view of the situation after hearing both the parties, we direct the AO to consider this relief to the assessee as per law after recomputing the TP Adjustment in accordance with decision of Ld. CIT(A), which has been confirmed in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
