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TMI Blog2015 (12) TMI 1406X X X X Extracts X X X X X X X X Extracts X X X X ..... ms, to the AE could be an arm’s length transaction - Decided in favour of assessee. Adjustment on account of interest on outstanding interest receivable from AE - Held that:- In the present case, however, ALP adjustment by way of charging interest is in respect to delay in payment of interest itself, and APL determination of interest is also before us. While dealing with the preceding ground of appeal, we have already held that the loan arrangement with Exim Bank is a valid internal CUP for this international transaction as well, and, therefore, even the question as to whether the delayed payment of interest will invite compounding of interest can be addressed in the light of the terms of the internal CUP. For this limited purpose, the matter is restored to the file of the Assessing Officer. Whatever be the rate of interest and terms applicable in a materially similar situation of delay in payment of interest to Exim Bank will apply mutatis mutandis in this fact situation as well.- Decided in favour of assessee for statistical purposes. Determining the ALP of the Guarantee fee @ 2% of the Guarantee amount extended by the appellant on behalf of its AE - DRP/AO/TPO rejecting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e but before the due date of filing the return of income - Held that:- Respectfully following the esteemed views of Hon’ble jurisdictional High Court in assessee’s own case, and in the light of undisputed factual position to the effect that the payments were made before the due date of filing of income tax return, we uphold the grievance of the assessee and direct the Assessing Officer to delete this disallowance - Decided in favour of assessee Depreciation on goodwill - Held that:- A petition dated 16th April 2015 seeking admission of additional evidence in support of this grievance, and contended that “on becoming aware of the decision of Hon’ble Supreme Court in the case of CIT vs SMIF Securities Limited (2012 (8) TMI 713 - SUPREME COURT ), the assessee has raised a ground in respect of allowability of deduction for goodwill” and prayed that the same may be adjudicated on merits. A reference is also made to Hon’ble Supreme Court’s judgment in the case of NTPC Ltd Vs CIT (1996 (12) TMI 7 - SUPREME Court) in support of the contention that this issue can be raised even at this stage. We are of the considered view that the matter should be remitted to the file of the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan of INR 1454,18,75,000 to its directly owned Amsterdam based subsidiary, namely Advanta Holdings BV, and has earned an interest income of ₹ 11,07,32,951 in respect of the same. The assessee has claimed this transaction at arm s length price, by applying internal CUP analysis, on the strength of comparable borrowings by the assessee from Exim Bank. While the assessee has charged interest rate of LIBOR plus 300 points, the assessee has borrowed from Exim Bank on LIBOR plus 250 points. As, according to the assessee, entire advance is out of the IPO proceeds received in the Netherlands, there are no direct costs involved in this transaction. It was in this backdrop that the loan transaction was stated to be at an arm s length price. 7. When this matter came up for examination before the Transfer Pricing Officer, the approach adopted by the assessee was held to be incorrect. The TPO was of the view that since the assessee was the tested party, the right comparable would be a similar loan granted by the assessee to unrelated parties in similar situation as the subsidiaries. It was also emphasized that the loan transaction was an unsecure transaction and that no security was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee did raise an objection before the Dispute Resolution Panel but this objection was rejected on the basis of following reasoning adopted by the DRP: 6.6 Thus the tested party, i.e. Advanta India Pvt Ltd, is located in India and the economic conditions prevailing in India are the relevant factors that have to be taken into account for benchmarking the interest rates. Hence, the yield on corporate bonds has to be taken as benchmark. After careful consideration of the assessee s submissions, we are of the view that the TPO has rightly computed the arm s length price in respect of interest payment and interest receivable. We decline to interfere with the TPO approach and confirm the order of the TPO. Accordingly, this ground is rejected. 9. The Assessing Officer thus proceeded to make the arm length price adjustment of ₹ 3,01,99,896, in respect of interest on loan to Advanta Holdings BV, aggrieved by which the assessee is in appeal before us. 10. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 11. Learned representatives have fairly agreed that the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which the repayment is to be made. The same principle should apply . 14. Clearly, therefore, the views of the TPO, which are diametrically opposed to the views expressed by the coordinate benches, cannot meet our approval. In any event, in our considered view, in the context of the ascertainment of the arm s length price, it is wholly irrelevant as to what should be opportunity cost of the funds advanced to the AEs, as is the foundation of the impugned ALP adjustment. The ascertainment of ALP is not aimed at finding out as to what the assessee could have earned in a particular business situation, and, such an exercise would anyway amount to sitting in judgment about how should an assessee conduct his business. On the first principles, all that the ALP adjustment seeks to do is to neutralize the impact of intra AE relationship in any international transaction with the AEs. That object can be achieved by substituting the price at which such a transaction has been entered into with the AEs with the hypothetical price at which the same transaction would have been entered into with an independent entity. What the assessee has actually done cannot be called into question in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank is offering the foreign currency loan to the assessee at a particular price, it is reasonable to proceed on the basis that the foreign currency loan, on similar terms, to the AE could be an arm s length transaction. In the case of VVF Ltd Vs DCIT [(2010) TII 04 ITAT (Mum TP)] and dealing with a materially similar situation, a coordinate bench of this Tribunal had held that, The financial position and credit rating of the subsidiaries will be broadly the same as the holding company, and, therefore, the precise rate at which the ICICI Bank has advanced the foreign currency loans to the assessee company can be adopted at arm s length price of interest free loans advanced by the assessee company to its foreign subsidiaries . Even as we are alive to the fact that the observations about similar credit rating of the holding and subsidiary companies may not hold good in all situations, we are in considered agreement with the views so expressed by the coordinate benches in the cases of Bharti Airtel Ltd (supra) and VVF Ltd (supra), and, respectfully following these views, uphold the grievance of the assessee. The ALP adjustment of ₹ 3,01,99,896 is, accordingly, deleted. 17. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king only the first 6 months for the year as due period (the payment are made in the 2nd half), the interest on this interest due of ₹ 55 million amount to ₹ 29 lacs (see Table 2). The total interest due is ₹ 10298982. This is the arm s length price of the interest receivable from the AE whereas the taxpayer has not charged any interest on the amounts due. 20. The assessee did raise an objection before the DRP but without any success. The Assessing Officer thus proceeded to make an ALP adjustment of ₹ 1,02,98,982 as above. The assessee is aggrieved and is in appeal before us. 21. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 22. Learned counsel for the assessee has primarily relied upon decision of this Tribunal in the case of Nimbus Communication Ltd Vs ACIT [(2011) 43 SOT 295 (Bom)], and contended that interest on outstanding balance could not be charged by way of ALP adjustment. That decision, however, is of little assistance to the cause of the assessee since that was a case in which the outstanding balances were in respect of the ordinary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternational transaction as well, and, therefore, even the question as to whether the delayed payment of interest will invite compounding of interest can be addressed in the light of the terms of the internal CUP. For this limited purpose, the matter is restored to the file of the Assessing Officer. Whatever be the rate of interest and terms applicable in a materially similar situation of delay in payment of interest to Exim Bank will apply mutatis mutandis in this fact situation as well. 24. Ground no. 3 is thus allowed for statistical purposes. 25. In ground no. 4, the assessee has raised the following grievance: On the facts and in the circumstances of the case and in law, the learned DRP/AO/TPO erred in determining the ALP of the Guarantee fee @ 2% of the Guarantee amount extended by the appellant on behalf of its AE by rejecting the internal Comparable Uncontrolled Price ( CUP ) submitted by the Appellant and instead considering external data. 26. Coming to the material facts relating to this ground of appeal, the relevant material facts are as follows. During the relevant previous year, the assessee had issued a guarantee of US $ 2,000,0000, on behalf of its Arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas the TPO has charged 2% arm s length price, which, according to us, in is order . It was in this backdrop that the Assessing Officer proceeded with ALP adjustment of ₹ 16,00,000 in respect of the corporate guarantee commission. The assessee is not satisfied and is in appeal before us. 27. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 28. Learned counsel s basic contention is that this issue is covered, in favour of the assessee, by decisions of the coordinate benches in the cases of Bharti Airtel Limited Vs ACIT [(2014) 63 SOT 113(Del)] and Redinngton India Ltd Vs JCIT [[2014] 49 taxmann.com 146 (Chennai)]. In the case of Bharti Airtel Limited (supra), the coordinate bench, speaking through one of us, had observed as follows: 24. we consider it appropriate to begin by dealing with the fundamental question as to whether issuance of corporate guarantees, which donot involve any costs to the assessee, can indeed be subjected to the arm s length price adjustment. We find that Section 92(1) provides that, (a)ny income arising from an international transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e; (c) capital financing, including any type of long -term or short -term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; (d) provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date; (ii) the expression intangible property shall include - (a) marketing related intangible assets, such as, trademarks, trade names, brand names, logos; (b) technology related intangible assets, such as, process patents, patent applications, technical documentation such as laboratory notebooks, technical know -how; (c) artistic related intangible assets, such as, literary w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... location or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. 4. Section 92B (2), covering a deeming fiction, provides that even a transaction with non AE in a situation in which such a transaction is de facto controlled by prior agreement with AE or by the terms agreed with the AE. 26. Let us now deal with the Explanation, inserted with retrospective effect from 1st April 2002 i.e. right from the time of the inception of transfer pricing legislation in India, which was brought on the statute vide Finance Act, 2012. 27. This Explanation states that it is merely clarificatory in nature inasmuch as it is for the removal of doubts , and, therefore, one has to proceed on the basis that it does not alter the basic character of definition of international transaction under Section 92 B. Clearly, therefore, this Explanation is to be read in conjunction with the main provisions, and in harmony with the scheme of the provisions, under Section 92 B. Under this Explanation, five categories of transactions have been clarif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bit of expression international transaction . This aspect of the matter is further highlighted in clause (e) of the Explanation dealing with restructuring and reorganization, wherein it is acknowledged that such an impact could be immediate or in future as evident from the words irrespective of the fact that it (i.e. restructuring or reorganization) has bearing on the profit, income, losses or assets of such enterprise at the time of transaction or on a future date . What is implicit in this statutory provision is that while impact on profit, income, losses or assets is sine qua non , the mere fact that impact is not immediate, but on a future date, would not take the transaction outside the ambit of international transaction . It is also important to bear in mind that, as it appears on a plain reading of the provision, this exclusion clause is not for contingent impact on profit, income, losses or assets but on future impact on profit, income, losses or assets of the enterprise. The important distinction between these two categories is that while latter is a certainty, and only its crystallization may take place on a future date, there is no such certainty in the former ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in which a guarantee default takes place and, therefore, the enterprise may have to pay the guarantee amounts but such a situation, even if that be so, is only a hypothetical situation, which are, as discussed above, excluded. One may have also have a situation in which there is a receivable or any other debt during the course of business and yet these receivables may not have any bearing on its profits, income, losses or assets, for example, when these receivables are out of cost free funds and these debit balances donot cost anything to the person allowing such use of funds. The situations can be endless, but the common thread is that when an assessee extends an assistance to the associated enterprise, which does not cost anything to the assessee and particularly for which the assessee could not have realized money by giving it to someone else during the course of its normal business, such an assistance or accommodation does not have any bearing on its profits, income, losses or assets, and, therefore, it is outside the ambit of international transaction under section 92B (1) of the Act. 33. In any event, the onus is on the revenue authorities to demonstrate that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplete details about the guarantees issued by the assessee, nor has he offered any assistance whatsoever in ascertaining the arm s length price of the corporate guarantee issued by the assessee. In view of these discussions, as also bearing in mind entirety of the case, we deem it fit and proper to remit the matter to the file of the TPO for the limited purposes of ascertaining the arm s length price of the corporate guarantee issued by the assessee. The assessee is directed to fully cooperate by furnishing necessary information and inputs to the TPO and assist in expeditious disposal of the remanded matter. As the matter is being remitted to the file of the TPO for adjudication de novo, we consider it appropriate to give liberty to the assessee to raise such legal and factual arguments as the assessee may deem appropriate. With these directions, while the ALP adjustment is upheld in principle, the quantification of ALP adjustment is restored to the file of the TPO for adjudication de novo in accordance with the law, by way of a speaking order and after giving yet another opportunity of hearing to the assessee. 33. Ground no. 4 is thus allowed for limited statistical purposes in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In ground no. 8, termed as ground no. 4 of the corporate tax grounds, the assessee has raised the following grievance: On the facts and in the circumstances of the case and in law, the learned DRP/AO erred in disallowing an amount of ₹ 5,20,47,822/- under section 40(a)(ia) of the Act on account of non-deduction of tax at source on procurement and processing charges. 39. The relevant material facts are like this. During the course of the assessment proceedings, the Assessing Officer noted that the assessee had paid amounts in excess of ₹ 50,000 per person per year, without deduction of any tax at source, in respect of the seed procurement and processing charges. The AO was of the view that the payments, having been made in violation of the tax deduction at source obligations of the assessee, are disallowable under section 40(a)(ia). The DRP also agreed with this approach of the AO. However, as learned representatives fairly agree that this issue is also covered, though in favour of the assessee this time, by decisions of the coordinate benches, in assessee s own case, for the assessment years 2005-06 and 2007-08. In these decisions, it is held that the payments d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, the relevant material facts are as follows. During the course of the assessment proceedings, the Assessing Officer noted that the assessee had acquired the business of Golden Seeds Pvt Ltd for a consideration of ₹ 1.55 crores, and, it was in this respect that the assessee had claimed depreciation of ₹ 38,75,000. The claim of the depreciation, however, was not pressed during the assessment proceedings. However, the assessee wishes to pursue this claim now. He has filed a petition dated 16th April 2015 seeking admission of additional evidence in support of this grievance, and contended that on becoming aware of the decision of Hon ble Supreme Court in the case of CIT vs SMIF Securities Limited (348 ITR 302), the assessee has raised a ground in respect of allowability of deduction for goodwill and prayed that the same may be adjudicated on merits. A reference is also made to Hon ble Supreme Court s judgment in the case of NTPC Ltd Vs CIT (229 ITR 383) in support of the contention that this issue can be raised even at this stage. 48. Having heard the rival contentions and having perused the material on record, we are of the considered view that the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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