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TMI Blog2016 (5) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... 7- 08, held that commission chargeable for guarantee commission by the assessee to its associated enterprises should be taken at 0.5 per cent. as the arm's length price. Thus, respectfully following the judicial precedence which is based on the same facts applicable in this year also, we direct the Assessing Officer to take 0.5 per cent. as guarantee commission to be chargeable from associated enterprise in computing the arm's length price. Disallowance under section 40(a)(ia) - Held that:- The payee has furnished the return of income under section 139 and has taken into account such sum for computing the income in such return of income and has paid taxes then, the assessee cannot be treated as assessee-in-default within the meaning of section 201(1) and, accordingly, the assessee shall be deemed to have deducted the tax and, accordingly, no disallowance under section 40(a)(ia) can be made. Such a provision has been brought in the statute to curb the mischief and, therefore, it has to be reckoned as curative in nature and should be given retrospective effect. Accordingly, the Assessing Officer is directed to clarify this issue and grant the relief to the assessee. On the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Assistant Commissioner of Income-tax, Range 11(1), Mumbai (Assessing Officer ('the AO)') in pursuance of the direction issued under section 144C(5) of the Act by the learned Dispute Resolution Panel-II, Mumbai (DRP) on the following amongst other grounds : 1. The transfer pricing proceedings initiated by the Assessing Officer under section 92CA(1) of the Act are without any jurisdiction and ought to be quashed. 2. On the basis of the facts and in the circumstances of the case and in law, the learned Assessing Officer in pursuance of the direction given by the learned Dispute Resolution Panel erred in assessing the income of the appellant at ₹ 59,66,67,420. 3. The learned Dispute Resolution Panel erred in not directing the Assessing Officer to delete the transfer pricing adjustments proposed by the Transfer Pricing Officer ('the TPO'), as he failed to follow the provisions of section 92A(3) of the Act, hence, the transfer pricing adjustments are bad in law and the appellant's international transactions should be accepted at the arm's length as per section 92 of the Act. 4. On the basis of the facts and in the circumstances of the case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer in pursuance of the direction given by the learned Dispute Resolution Panel erred in making the addition of ₹ 12,33,521 being estimated at 10 per cent. of the total expenditure incurred on food, equipment hire, etc., by the appellant. The whole of the expenditure is incurred for the purpose of the business of the appellant. 2. At the outset, learned senior counsel, Dr. K. Shivram submitted that ground Nos. 1, 3 and 10 are general in nature, hence, the same are not pressed. The assessee has also filed a separate letter dated October 29, 2015, stating that, these grounds are not pressed. Accordingly, these grounds are dismissed as not pressed. 3. Regarding ground No. 4, which is on account of adjustment of ₹ 27,05,83,190 on account of the arm's length price determination of international licence revenue receivable from associated enterprise, the learned senior counsel, submitted that, after the order of the Dispute Resolution Panel dated December 31, 2013, the Dispute Resolution Panel has passed a corrigendum, vide order dated March 12, 2014, whereby the Dispute Resolution Panel has deleted the addition relying upon the Tribunal order for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s case for the assessment year 2004-05 has held that charging of interest on a loan is different from charging interest on bills raised for services rendered and has deleted the adjustment. However, the learned Transfer Pricing Officer after detail analysis held that in a third party situation, such a loan would not have been given without charging interest and the transaction is otherwise also covered under the purview of international transaction as defined in section 92B, therefore, it needs to be benchmarked and arm's length price has to be determined. After taking into account all the factors, he held that the effective rate of interest would be 14.5 per cent. and since it is an unsecured loans, therefore, 3 per cent. should be added extra ; and, accordingly, he computed the arm's length price interest to ₹ 208,57,971 at 17.5 per cent. The Dispute Resolution Panel, however, directed to restrict the adjustment after calculating the interest based on SBI PLR rate of 12.2 per cent. 7. We find that this issue had come for consideration before the Tribunal in the assessment years 2007-08 and 2008-09. The Tribunal had taken note of the fact that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... US$ 3 million to ICICI Bank, UK, for a term loan given by the bank in the relevant year for financial facility to M/s. Nimbus Communications Worldwide Ltd., Mauritius ; (ii) US$ 20,22,472 to ICICI Bank, UK, for a term loan given by the bank in the relevant year for financial facility to M/s. Nimbus Sports International Pte Ltd., Singapore ; (iii) US$ 8.9 million as corporate guarantee on behalf of its associated enterprise, NSI, in connection with its media rights agreement with BCCI. This is to meet all rights and obligations of the associated enterprise in case it cannot fulfil its duties. The assessee exposes itself to certain risks for which it has not received any compensation. An independent third party would not expose itself to such risk without adequate compensation ; or on the other hand would have taken some sort of guarantee given by the third party for the guarantee given by it, and such counter-guarantee was not obtained in this case. (iv) US$ 10 million worth of loan notes were issued by its associated enterprise, NSI, to third parties. The same were underwritten by the assessee. The assessee exposes itself to certain risks for which it has not receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be applicable with retrospective effect. 2. Without prejudice to the above, the learned Commissioner of Income-tax (Appeals) also failed to appreciate that to the extent of ₹ 6,92,49,161, the appellant has not debited the expenditure to the profit and loss account and not claimed deduction of the same. Hence, the question of disallowance under section 40(a)(ia) does not arise. 12. Learned senior counsel, Dr. K. Shivram, filed a detailed note with respect to non-applicability of TDS provision for the alleged advertisement commission paid to the advertising agencies. However, he submitted that here in this case the payees have already been assessed to tax and have paid taxes on the said amount and, therefore, in view of the proviso inserted in by the Finance Act, 2012, to section 40(a)(ia), such a disallowance cannot be made. Now, there are umpteen decisions, wherein, it has been held that the said proviso is clarificatory in nature, therefore, the amendment should be held to be applicable with retrospective effect. The list of some of the decisions are as under : (i) Rajeev Kumar Agarwal v. Addl. CIT [2014] 34 ITR (Trib) 479 (Agra) ; [2014] 149 ITD 363 (Agra) ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom April 1, 2013, provides that, if the assessee has failed to deduct the tax in accordance with Chapter XVII-B then he cannot be treated as assessee-in-default under the first proviso to section201(1) and in such a case it shall be deemed as the assessee has deducted and paid the tax and, consequently, no disallowance under section 40(a)(ia) can be made. In the decisions relied on by learned counsel, it has been held that such an amendment is curative and clarificatory in nature and, therefore, it has to be given retrospective effect. Now, there is a Delhi High Court judgment in the case of CIT v. Ansal Land Mark Township P. Ltd. (I. T. A. No. 160 of 2015 order dated August 26, 2015) [2015] 377 ITR 635 (Delhi), wherein the hon'ble High Court has held that the said proviso is directory and curative and has retrospective effect from April 1, 2015. Thus, we hold that if the payee has furnished the return of income under section 139 and has taken into account such sum for computing the income in such return of income and has paid taxes then, the assessee cannot be treated as assessee-in-default within the meaning of section 201(1) and, accordingly, the assessee shall be deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. CIT reported in [2012] 347 ITR 272 (Del) and drew our attention at paragraphs 24 and 25. Thus, the disallowance as made by the Assessing Officer should be confirmed. 19. After considering the rival submissions and on a perusal of the impugned orders, we find that there is no dispute that all the investments have been made in the subsidiary company as the strategic investment so as to get controlling interest in such subsidiaries. The investment was not made for earning of any dividend income. Besides this, the dividend income itself is ₹ 7,24,508, therefore, disallowance under section 14A cannot be more than the exempt income especially in view of the decision of the hon'ble Delhi High Court in the case of Cheminvest Ltd. v. CIT [2015] 378 ITR 33 (Delhi), wherein, the hon'ble High Court has held that, if there is no dividend income, then there cannot be any corresponding disallowance. On the same principle, if the dividend income is ₹ 7.24 lakhs, then the disallowance cannot be more than that. Accordingly, we hold that such a huge disallowance of ₹ 2,21,51,600 is uncalled for and therefore, we direct the Assessing Officer to restrict the disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment of notional interest on the outstanding debit balance in the account of FSI, it is seen that this is a recurring issue in the assessee's case, wherein the Tribunal has dealt and discussed this issue in detail. In the appeal for the assessment year 2007 08 in I. T. A. No. 6816/Mum/2010, order dated August 7, 2013, the Tribunal has dealt and discussed this issue after observing and holding as under : '7. As regards ground No. 3(d), the learned representatives of both the sides have agreed that the issue involved therein relating to the addition made on account of notional interest payable by Nimbus Sport International P. Ltd. on outstanding trade balances with the assessee is squarely covered in favour of the assessee by the order of the Tribunal dated June 12, 2013 (supra) passed in the assessee's own case for the assessment year 2005-06 wherein a similar issue was decided by the Tribunal in favour of the assessee for the following reasons given in paragraphs 19 and 20 of its order : 19. We have heard the arguments of both sides and also perused the relevant material available on record. The learned counsel for the assessee has submitted that a similar i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of international transaction', i.e., any other transaction having a bearing on the profits, incomes, losses or assets of such enterprises, does not apply to a continuing debit balance, on the given facts of the case, for the elementary reason that there is nothing on record to show that as a result of not realising the debts from the associated enterprises, there has been any impact on profits, incomes, losses or assets of the asses see. In view of these discussions, in our considered view, a continuing debit balance per se, in the account of the associated enterprises, does not amount to an international transaction under section 92B in respect of which the arm's length price adjustments can be made. The factum of payment has to be considered vis-a-vis terms of payment set out in the transaction arrangement and not in isolation with the commercial terms on which the transaction in respect of which payment is, according to the Revenue authorities, delayed. In any event, even when an arm's length price is made in respect excessive credit period allowed under the comparable uncontrolled price method, stated by the Transfer Pricing Officer, the comparable has to be du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er had adopted the interest at 2.19 per cent. LIBOR on balances which exceeded 30 days, but the LIBOR rate was relevant only in the case of lending or borrowing of funds and not in the case of commercial overdues. It was held that even if the continuing debit balances of associated enterprises could be treated as 'international transactions' under section 92B, the right course of applying the comparable uncontrolled price method, in the case of non-charging of interest on overdue balances, would have been by comparing this not charging of interest with other cases in which the assessee had charged interest on overdues with independent enterprises (internal comparable uncontrolled price) or with the cases in which other enterprises had charged interest in respect of overdues in respect of similar business transactions with independent enterprises (external comparable uncontrolled price). Since no such exercise had been carried out in the case of the assessee for the assessment year 2004-05, the Tribunal held that the impugned addition was not sustainable. In the year under consideration also, no such exercise has been carried out by the Transfer Pricing Officer and since the ..... 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