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TMI Blog2016 (1) TMI 853X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee in part. Benchmarking of corporate guarantee related taxes - Held that:- We direct the AO to restrict the adjustments to 0.5% as upheld by the Hon‟ble High Court in the case of Everest [2015 (5) TMI 395 - BOMBAY HIGH COURT] Adjustment on account of share premium - Held that:- Adjustment made on account of ‘share premium’ and ‘interest’ charged on account of ‘under charged premium amount’ does not attract the TP provisions. - Decided in favour of assessee. Disallowance made u/s 14A read with Rule 8D - Held that:- Issue remanded for reconsideration consedring the case of the assessee that the assessee has not earned any dividend income or exempt income during the year and therefore, the said provisions of section 14A of the Act do not attract.- Decided in favour of assessee for statistical purposes. Disallowance in respect of the Annual Information Report (AIR) qua reconciliation - Held that:- The onus is on the Assessing Officer to inform the assessee giving all the details as to on, on what issue, the reconciliation is required, how that entry relates to the assessee etc. How any assessee can reconcile an entry or transaction which does ot pertains to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crs (rounded of). AO considered the relief granted by the DR in respect of the adjustments made to the share premium transaction. Therefore, net addition made by the AO in the assessment is only ₹ 59,06,445/- against the TPO‟s suggested adjustment of ₹ 1,13,10,586/-. Issue wise adjudication is taken in the following paragraphs. 4. The first issue relates to the adjustment on account of interest free loans given to the AEs. Briefly stated relevant facts in this regard are that the assessee granted loans in foreign currency to AEs. Assessee charged 15% rate of interest in respect of the loans given to CNK Australia and CNK Dubai. In respect of the loan Cox and Kings, Singapore P Ltd (CNK Singapore), the assessee has not charged any interest. Therefore, the TPO suggested the adjustments in this regard and considered internal comparables ie CNK Australia and CNK Dubai and applied 15% rate of interest on the loan given to the CNK Singapore. During the TP proceedings, assessee gave concession on this issue and submitted that the PLR of Singapore @ 0.91% + 200 points may be considered for adjustment, and this concession works out to ₹ 2,49,260/-. It is the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee in foreign currency. In such agreed circumstances, thrusting of SBI-PLR is not appropriate in benchmarking the exercise. Further, he also relied on various judgment of the Hon‟ble Bombay High Court in the case of Tata Autocomp Systems Limited (ITA No.1320 of 2012) and judgment of the Delhi High Court in the case of Cotton Natural (India) Pvt Ltd (ITA No.233 of 2014) (Del. HC) for the proposition that in ALP matters while benchmarking the interest issues, the LIBOR of the country should be considered for ALP interest in case of foreign currency loans. Further, he also cited various coordinate Bench decisions in support of their argument and to demonstrate that the benchmarking cannot be done based on the LIBOR. In such case, the suo moto adjustments proposed during the TP proceedings by the assessee, which works out to 2,24,260/- should be considered. 6. On the other hand, Ld DR for the Revenue dutifully relied on the order of the AO and the directions of the DRP. 7. We have heard both the parties and perused the orders / directions of the Revenue Authorities as well as the cited precedents and the also the relevant material placed before us. On perusal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion @ 0.5% is now approved by Hon‟ble Bombay High Court in the case of Everest Kanto Cylinders Ltd (ITA No.1165 of 2013) (Bom. HC). Ld AR also submitted that assessee shall not press on the other arguments, if the transactions of guarantee commission is benchmarked @ 0.5% considering the discussion in the case of Everest Kanto Cylinders Ltd (supra). 11. On the other hand, Ld DR relied heavily on the orders of the AO / TPO / DRP. 12. On hearing the arguments of the Ld AR without prejudice to the other, we find that guarantee commission transactions are being benchmarked @ 0.5%. For the sale completeness of this order, we proceed to extract para 4.35, 4.36 and 4.37 of the paper book-III at pages 527 / 528, which is as under:- 4.35. It is submitted that the interest rates provided by the CRISIL are based on the analysis of Indian market and cannot be applied to transactions effected in other geographical territories. The Ld TPO / DRP have not appreciated the fact that in case guarantee commission is to be imputed based on the interest rates, then the same should be interest rates charged by third party banks to CNK Australia and not the rates provided by the CRISIL. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering the significance of the said paras 2 and 3 of the Tribunal‟s order (supra) and for the sake of completeness of this order, the said paras are extracted as under: 2.Effective ground of appeal is about transfer pricing adjustment of ₹ 122.62 crores.During the assessment proceedings the AO found that 1,00,000 shares of the face value of ₹ 10 each were issued by the assessee to MSC Ship Management (Hong Kong) Ltd. of which the assessee was a wholly owned subsidiary, that the assessee had issued in three tranches totalling to 13,37, 553 shares and realised ₹ 3,67,59,192/- (Rs.1,33,75,530/- as share capital and ₹ 2,33,83,662/- as premium).The AO made a reference to the Transfer Pricing Officer(TPO) who held that a 3 ITA Nos.1666 1739/M/2014 MSC Crewing Services P. Ltd. premium of ₹ 1187.0005 per share(aggregating ₹ 1,58,76,76,118)ought to have been charged and proposed an addition of ₹ 1,56,42,92,456/- being the difference between what should have been charged according to him as a premium. Premium actually charged by the assessee, amounting to ₹ 2.33 Crores was treated as a receipt on capital account. The TPO also to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid valuation done under the Capital Issues (Control) Act, 1947 at ₹ 8,519/- and on that basis shortfall in premium to the extent of ₹ 45,256/- per share resulted into total shortfall of ₹ 1308.91 crores. Both the AO and the TPO on application of the Transfer Pricing provisions of the Act held that this amount of ₹ 1308.91 crores was income. As a consequence of the above, said amount of ₹ 1308.91 crores was required to be treated as deemed loan given by the assessee to VTIHL and periodical interest thereon was to be charged to tax as interest income of ₹ 88.35 crores in the AY.2009-10.According to the assessee, the Act did not tax inflow of capital into the country nor did it create any legal fiction to treat such alleged shortfall in capital receipt on issue of equity shares by an Indian company to its non-resident holding company, as income. It was also argued that there could be no question of treating the alleged shortfall as a deemed loan or taxing the alleged deemed interest on a deemed loan. It was contended that that provisions of chapter X had no application in cases where no income was arising from an International Transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come . It is no doubt an inclusive definition. However, a capital receipt is not income under section 2(24) unless it is chargable to tax as capital gains under Section 45. It is for this reason that under section 2(24)(vi) that the Legislature has expressly stated, inter alia, that income shall include any capital gains chargeable under section 45. Under Section 2(24)(vi), the Legislature has not included all capital gains as income. It is only capital gains chargeable under Section 45 which has been treated as income under Section 2(24). If the argument of the Department is accepted then all capital gains whether chargeable under section 45 of not, would come within the definition of the word income under section 2(24). Further, under section 2(24)(vi) the Legislature has not stated that any capital gains will be covered under the word income. On the contrary, the Legislature has advisedly stated that only capital gains which are chargeable under Section 45 of the Act could be treated as income. In other words, capital gains not chargeable to tax under section 45 fall outside the definition of the word income in section 2(24) of the Act. It is true that section 2(24) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above it is very clear that adjustment made on account of share premium and interest charged on account of under charged premium amount does not attract the TP provisions. Considering the same as well as respectfully following the above decision of the Tribunal, we allow this issue in favour of the assessee. Accordingly, relevant grounds raised by the assessee in this regard are allowed. 16. Fourth issue relates to disallowance of ₹ 65,64,655/- made u/s 14A read with Rule 8D of the IT Rules, 1962. In this regard, it is the case of the assessee that the assessee has not earned any dividend income or exempt income during the year and therefore, the said provisions of section 14A of the Act do not attract. If fact, the same was submitted before the AO but relying on the judgment of the Bombay High Court in the case of Godrej Boyce Co Pvt Ltd (328 ITR 81) (Bom), AO applied the provisions of Rule 8D of the IT Rules, 1962 and made disallowance. On appeal, DRP confirmed the AO‟s decision. Aggrieved, assessee raised the issue before the Tribunal. Before us, Ld Counsel for the assessee reiterated the submissions made before the lower authorities and relied on vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concile the tour sales merely on the basis of the extracts of the AIR statement. Further, he relied on the decisions of the Tribunal in the case of M/s. ANS Law Associates vs. ACIT (ITA No.5181/M/2012 and another decision in the case of Aegis Limited in ITA No.1213/M/2014, which are relevant for the proposition that the additions made only on the basis of AIR information are not sustainable. In any case, the onus is on the AO to prove that the assessee had not reported any transaction and is in receipt of income from a particular source. 18. After hearing both the parties and on perusal of the factual matrix of the case as well as on perusal of the decisions cited by the Ld AR, we are of the opinion that the onus is on the Assessing Officer to inform the assessee giving all the details as to on, on what issue, the reconciliation is required, how that entry relates to the assessee etc. How any assessee can reconcile an entry or transaction which does ot pertains to him. Therefore, the onus is on the AO to inform the same. Considering the same and the finding of the Assessing Officer that no exhaustive exercise of reconciliation is undertaken by him during the assessment, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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