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TMI Blog2014 (11) TMI 721X X X X Extracts X X X X X X X X Extracts X X X X ..... ture which is allowable while computing the business income of the company as per provisions of the Act – the order of the DRP is upheld – Decided against revenue. - IT APPEAL NOS. 41 & 132 (HYD.) OF 2014 - - - Dated:- 30-7-2014 - B. RAMAKOTAIAH AND SAKTIJIT DEY, JJ. Nishant Thakkar for the Appellant. P. Somasekhar Reddy for the Respondent. ORDER B. Ramakotaiah, Accountant Member - These cross-appeals by Assessee and Revenue are against the Orders of A.O. under section 143(3) read with section 144C of the I.T. Act, 1961, consequent to the directions of the Disputes Resolutions Panel (in short DRP ), Hyderabad. Assessee has raised 13 grounds, out of which, ground Nos. 1 to 7 pertains to transfer pricing matter in respect of corporate guarantee provided and other grounds from 8 to 13 are on corporate tax matters. Revenue is aggrieved by the relief granted by the DRP and has raised 3 grounds on three issues. 2. We have heard Ld. Counsel and Ld. D.R. in detail and perused the paper books and case law placed on record. 3. Briefly stated, assessee is a global healthcare services company that offers a range of business process outsourcing to commercial and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the transaction being analysed under provisions of section 92C read with section 92A and 92B, DTAA does not come into picture. Accordingly, it rejected the arguments. Assessee in its submission before the DRP also provided the internal CUP by way of bank guarantee provided by Andhra Bank at 0.92% and submitted that in case treating the corporate guarantee as international transaction, the rate adopted by the Andhra Bank should be considered. This objection before the DRP was not considered as the DRP followed its order in earlier year. Accordingly, assessee is aggrieved on the T.P. issue. Among the corporate matters even though two grounds are raised on reducing the data telecommunication charges from the turnover and set off of loss in grounds No. 8 and 9, these were not pressed. Ground No.13 pertain to initiation of penalty proceedings is premature in nature. Therefore, these grounds are rejected. Transfer Pricing Adjustment 5. Assessee raised ground Nos. 1 to 7 on the issue of corporate guarantee provided by the company and the adjustment made by the TPO. Ld. Counsel referring to the facts on record submitted that subsidiary acquired two companies in US as part of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... followed its order for A.Y. 2008-09 wherein we were informed that the matter was also sent back to the TPO on a different issue for fresh consideration. Therefore, the directions of the DRP do not help in analyzing the case. Be that as it may, we are unable to understand how the TPO could arrive at the credit rating of the A.E. at BBB-without there being any analysis on the creditworthiness of the A.E. Moreover, his finding that assessee got benefit by way of creditworthiness and arrived at the difference between domestic bond yield and that of loan availed also cannot be accepted as the domestic yield cannot be compared with the loans in the US and the rates charged there. Had TPO adopted LIBOR rates analyzing the issue, at least there could have been some semblence of comparison. Coordinate Bench in the case of Glenmark Pharmaceutical Ltd. (supra), has analysed the issue elaborately and vide para 24 in that order has accepted the guarantee commission rates adopted by the assessee in that case as at ALP. The order of the Coordinate Bench is as under : 24. Summary: Therefore, there is no dispute on the use of CUP method as most appropriate method to these GC transactions. Contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Guarantee Commission Prices. Further, we find that, unlike in other cases of NIL corporate guarantee commission, the present assessee has charged the GC Rate of 0.53% and 1.47% from its AEs. Therefore, in our opinion, these rates are competent given the facts of the present case qua the rates discussed and approved by the Tribunal in adjudicating the other cases relating to the Guarantee commission transactions benchmarked using the CUP method. Therefore, the TPO's comparables are 'IUPs' i.e., Incomparable Uncontrolled Prices, Therefore, we are of the opinion, the GC rates of 0.53% and 1.47% benchmarked by the assessee are fair and reasonable and they should be accepted without any modification. Therefore, we dismiss the TPO's CUP and order deletion of the additions made by the AO on account of Transfer pricing provisions. In the result, the order of the CIT(A)ITPO/AO on the TP adjustments is set aside. Thus, the grounds 1 to 5 are allowed as above . 7.1 Since TPO/A.O. did not analyse the issue properly and the DRP also has not applied his mind to the objections raised by the assessee, we are of the opinion that this matter has to be set aside to the TPO to ana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of the assessee decided in its favour by stating as under : 6.2. We have examined the submissions made by the assessee. The issue of deduction of ESOP expenditure have been subject matter of the decision of Hon'ble ITAT, Special Bench (Bangalore) in the case of M/s. Biocon India Ltd. vs. CIT and decision of Hon'ble Madras High Court in the case of M/s. PVP Ventures Ltd., (TC(A).No.1023 of 2005) whereby the Hon'ble High Court have upheld the judgment of Madras Tribunal which held that ESOP expenditure is a revenue expenditure which is allowable while computing the business income of the company as per provisions of the Act. The same view is also taken by the Hon'ble ITAT, Special Bench, Bangalore in the case of M/s. Biocon India Ltd. Respectfully following the above decisions we direct the A.O. not to disallow ESOP expenditure of ₹ 1,23,75,896/-. 13. Since the DRP followed not only the Special Bench decision but also decision of Madras High Court in the case of PVP Ventures Ltd., (supra) we do not see any reason to interfere with the directions of the DRP. Ground No.1 is accordingly rejected. 14. Ground No.2 is as under : The Ld. DRP erred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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