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TMI Blog2015 (10) TMI 2376X X X X Extracts X X X X X X X X Extracts X X X X ..... ections in our earlier year. The learned Authorized Representative for the assessee pointed out that though in the earlier, there was discrepancy in the picking up of figure interest receivable from associate enterprises, but in the year under appeal, there is no such issue. Decided in favour of assessee. Disallowance of additional depreciation under section 32(1)(iia) of the Act on items of fixed assets - Held that:- We direct the Assessing Officer to allow the additional depreciation under section 32(1)(iia) of the Act on trolley and industrial fans - Decided in favour of assessee in part Deduction claimed on account of payments to PF / ESCI - Held that:- Perusal of the details tabulated in assessment order reflect that the payments have been made by the assessee within a delay of few days and much before the due date of filing the returns. Following the ratio of CIT Vs. Ghatge Patil Transports Ltd. (2014 (10) TMI 402 - BOMBAY HIGH COURT ), we hold that the assessee is entitled to the claim of deduction in this regard. Accordingly, we direct the Assessing Officer to disallow the addition - Decided in favour of assessee - ITA No.573/PN/2014 - - - Dated:- 24-9-2015 - MS. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer had made reference to the Transfer Pricing Officer (TPO) for determining arm's length price of purchases and services availed by the assessee company. The TPO vide its order passed under section 92CA(3) of the Act noted that the Prime Lending Rate of State Bank of India advanced rate varied between 12.25% to 13.75% i.e. at an average rate of 12.94%. However, the assessee for the year under consideration had charged interest @ 4.75% from its associate enterprises on the loan advanced to the associate enterprises. The TPO also noted that similar transfer pricing adjustment on advancement of loan to the associate enterprises was proposed in assessment year 2008-09, which has been upheld by the Dispute Resolution Panel (DRP)-II, Mumbai, vide directions dated 21.09.2012. In view thereof, the TPO proposed an adjustment of ₹ 5,84,35,230/-. The DRP in view of its earlier order relating to assessment year 2008-09 upheld the proposed adjustment in the international transaction. The Assessing Officer in the final assessment order passed under section 143(3) r.w.s. 144C of the Act made an addition of ₹ 5.84 crores on account of arm's length price of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pean business acquisition. However, the said loan was partially converted into a soft loan from the assessee company to the Netherland Company. In view of the said transactions, the assessee entered into transactions with its AE with regard to disbursement of loan to AE and the repayment of loan by the AE. Further, international transactions on account of interest receivable from AE and conversion of share application money into money by the AE company were the other transactions carried on by the assessee with its AE. The assessee benchmarked the transaction by resorting to CUP method. The assessee furnished its return of income declaring total income at ₹ 15,14,72,558/-. The Assessing Officer noted that during the year under consideration, the assessee had entered into international transaction for over 15 crores with its AE. The Assessing Officer after going through the report in Form No.3CEB was of the view that the case needs to be referred to the Transfer Pricing Officer (in short TPO) for determining arm s length price of the services availed by the assessee company. Consequently, reference was made under section 92CA of the Act for computing arm s length price. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,41,74,661/-. 6. The assessee had benchmarked its international transaction taking interest rate charged @ international rate of the disbursing bank i.e. Citi Bank. This benchmarking was adopted at foreign currency Citi Bank rates. The TPO observed that the transaction in question was not of similar nature. The loan given to AE in the currency of that country is not a foreign currency demand with AE, because the loan given to the AE is in foreign currency of that country and thus loan is not in foreign currency for the AE. Further the AE cannot be credited to have the credibility akin to that of National Bank of that country. Accordingly benchmarking adopted by assessee is not found to be acceptable. The assessee was thus requested to show cause as to why the lending rate for the purposes of comparability following CUP method be not taken at Banking Prime Lending Rate (BPLR), for the year ended March 31 st , 2008. The assessee failed to furnish any reply or furnish any TP Study report. Since the assessee had converted the share capital into loan to AE by passing resolution on 25.01.2008, the TPO observed that the assessee also submitted a timeline and events chart and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... third party situation, the assessee would never lend money to an unrelated entity end in any such case at the rate not less than BPLR. In normal circumstances if such advance has to be given to any unrelated entity, the rate of interest chargeable would be significantly higher than the BPLR. However, as such higher rate of interest more than BPLR is neither ascertainable nor determinable; it is considered suitable to benchmark this international transaction with benchmark rate of interest taken as BPLR. Accordingly, based or the rate of BPLR of the State Bank of India which is a premier bank, the rate at 12.25% for the bank, for the year ended 31 st March, 2008 is taken as a benchmark rate. Accordingly, the differential quantum of interest on the loan to advance to the subsidiaries by the assessee, worked out at ₹ 4,41,74,661 is added to the value of international transaction towards provision of interest receivable from the AE, to arrive at the Arm's Length Price of this international transaction. It may also be noted that at LIBOR + rates of 6.79%, benchmarking of the assessee company is not at an ALP. At this rate the assessee should have charged at least ₹ 4, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Length Price adjustment. The learned Authorized Representative for the assessee further pointed out that the lending was made at LIBOR+ rates. Further, the reliance was placed on the following decisions by the learned Authorized Representative for the assessee. a. Siva Industries Holdings Ltd. v. ACIT, Chennai [2011] 11 taxmann.com 404 (Chennai) b. Tech Mahindra Limited [2011] 12 taxmann.com 132 (Mum) c. Hinduja Global Solutions Ltd. [2013] 35 taxmann.com 348 (Mumbai Trib.) d. Wipro Ltd Vs. DCIT ITA No:624 1178/Bang/2007 Dated:31.10.2008 for the AY 2003-04 10. The learned Departmental Representative for the Revenue pointed out that the finding of DRP at page 4 was that the assessee had invested its own funds and borrowed funds. Further, it was pointed out by the learned Departmental Representative for the Revenue that the Transfer Pricing was to be done when compared with the international transactions. It was argued by the learned Departmental Representative for the Revenue that no person would charge something less than the cost. Our attention was drawn to the page 17 of the TPO order wherein, LIBOR + rates equal to the rate of 6.79%. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the year ending 31.03.2008 was 6.79%. The TPO tabulated the transactions of granting of loan and the interest charged by the assessee and computed the proposed adjustment as under:- (Amt. in Rs.) Description Varroc European Holding BV Netherlands [A] Loan advanced / Balance of loan at the year ending 31.03.2008 Rs.59.43 Crs. (figures as per the financials) [B] Base charge adopted by the assessee LIBOR [C] Base charge adopted by the assessee to benchmark the transaction However, rate charged by the assessee = 4.75% [D] Bank Prime lending rate (BPLR) of SBI as on 31.03.2008 12.25% [E] RATE CHARGED BY THE ASSESSEE 4.75% [F] Interest charged by the assessee Rs.2,86,27,089 [G] Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of share application money which were later converted into loan on the advice of European Consultants. On such advance made to its associated enterprises, the assessee had charged interest @ 4.75%. While benchmarking the international transactions what has to be seen is the comparison between related transactions i.e. where the assessee has advanced money to its associated enterprises and charged interest then the said transaction is to be compared with a transaction as to what rate the assessee would have charged, if it had extended the loan to the third party in foreign country. Once there is a transaction between the assessee and its associated enterprises in foreign currency, then the transaction would have to be looked upon by applying the commercial principles with regard to the international transactions. In that case, the international rates fixed being LIBOR+ rates would have an application and the domestic prime lending rates would not be applicable. The assessee has further explained that it had raised the loan from Citi Bank on international rates for the purpose of investment in the share application money of its associated enterprises, which in turn was partly conve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was noticed that the average of the LIBOR rate for 1-4-2005 to 31-3-2006 is 4.42 per cent and the assessee had charged interest at 6 per cent which was higher than the LIBOR rate, no addition on this account was liable to be made in the hands of the assessee. In the circumstances, the addition made by the Assessing Officer on this count was deleted. 17. The Mumbai Bench of the Tribunal in DCIT Vs. Tech Mahindra Ltd. (2011) 12 taxmann.com 132 (Mum.) held that where there is a choice between the interest rate of currency other than the currency in which transaction had taken place and the interest rate in respect of the currency in which transaction has taken place, the latter should be adopted. Where the transaction is between the assessee and its associated enterprises in foreign currency and the transaction is international transaction, then the transaction would have to be looked upon by applying commercial principles in regard to international transactions. 18. Similar principle has been laid down by the Mumbai Bench of the Tribunal in Hinduja Global Solutions Ltd. Vs. ACIT (2013) 35 taxmann.com 348 (Mumbai Trib.). 19. In the entirety of the above facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transaction entered into by the assessee with its associate enterprises, following the directions in our earlier year. The learned Authorized Representative for the assessee pointed out that though in the earlier, there was discrepancy in the picking up of figure interest receivable from associate enterprises, but in the year under appeal, there is no such issue. Accordingly, we allow the ground of appeal No.1 raised by the assessee as indicated above. 10. The issue in ground of appeal No.2 raised before is in relation to the disallowance of additional depreciation under section 32(1)(iia) of the Act on items of fixed assets. 11. The learned Authorized Representative for the assessee at the outset pointed out that the issue in the present appeal is identical to the issue before the Tribunal in preceding year, wherein additional depreciation under section 32(1)(iia) of the Act was claimed on list of items and the Tribunal had directed that the said additional depreciation is allowable only on trolley and industrial fans. 12. The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below. 13. We have heard the riv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Table 1895287 554356 250868 334491 167245 83622 334491 4 Dispenser 288738 0 43309 57746 38873 14436 57746 5 Cooler 683161 142313 110123 146831 73415 36707 146831 6 TV Music system 33870 32181 5080 6774 3387 1693 6774 7 Freeze / Refrigerat or 16640 12267 3415 4554 2277 1138 4554 8 Handicam 111416 66991 21736 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of the Trolley is ₹ 16.01 lakhs and ₹ 20.78 lakhs. Keeping in mind the nature of asset and functional test, we find no merit in the order of Assessing Officer in this regard and direct the Assessing Officer to consider the same within block of Plant Machinery and allow the depreciation and additional depreciation on the same. 28. The next items were Air-conditioner, TV Music System and Industrial Fan. The Air-conditioner is Plant Machinery on which the depreciation at higher rate is allowable. However, no additional depreciation on the same is allowable since the same cannot part take the machinery used for manufacturing activities. Further, TV Music System is an electronic item on which higher rate of depreciation is allowable. However, no additional depreciation is allowable on such TV Music System. The Industrial Fan being utilized as part of the manufacturing activity, was entitled to the claim of higher depreciation and also additional depreciation on Plant Machinery. 29. Next items considered by the Assessing Officer were the Water Cooler, Dispenser, Refrigerator, Handicam, Projector and Scanner. All these items are electronic items and are t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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