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TMI Blog2018 (1) TMI 662X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of the assessee itself, the revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the Board of Directors and assume the role to decide how much s reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits. The IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look the matter from their own viewpoint but that of a prudent businessman. Thus as relying on the assessee's own case we are inclined to delete impugned additions - Decided in favour of assessee. No granting TDS credit - Held that:- As per the assessee, the AO had granted credit of ₹ 1. 94 crores only. We direct the AO to make verification about the claim made by the assessee and give credit accordingly. Ground no. 4 is also restored back to the file of the AO for fresh adjudication. - ITA Nos. 1774 /Mum/2016 And ITA No. 1820/Mum/2016 - - - Dated:- 3-1-2018 - Shri Rajendra, A.M. And Amarjit Singh, J.M For The Revenue : Shri Saurabh Deshpande-DR For The Assessee : Shri Rajan Vora, Hemen Chanda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CG was subsequently adjusted with National Bank Dubai for AED 18 million, that the total CG outstanding in the books was ₹ 62. 88 crores, the assessee has not charged any guarantee fee. The TPO directed it to explain as to why CG Fee should not be calculated for the TP purposes. He also called for various details from the assessee in that regard. After considering the same and the case laws relied upon by it, the TPO held that CG was an international transaction, that the nature of guarantee was financial guarantee and same was explicit in nature, that the guarantee was provided to AE to give in turn guarantee to the lender bank of step-down-overseas-subsi - diary to borrow funds, that the step-down-subsidiary could get a loan facility from the bank that the guarantee conferred a benefit in form of reduced interest rate, that the AE. s credit rating equal the rating of the parent entity. Applying the yield method for benchmarking the IT. s and adopting the values from debt equity ratio, he determined the % of the CG fee as under : Particulars Indian Corp bond rates Credit rating of Guarantor (i. e. the assessee) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nally, the DRP held that GC fees @1. 75%, in respect of unsecured financial guarantees, issued by the assessee, would be appropriate to benchmark the IT. s. It directed the AO to modify the amount accordingly. 2.3. During the course of hearing before us, the Authorised Representative (AR) stated that the identical issue was deliberated upon and decided by the Tribunal on 04/01/2017(ITA/500/ Mum/2015-A. Y 2010-11). The DR contended that facts of the Everest Kanto relied upon by the ITAT were not similar to the facts of the case, that there was no internal bench- marking, that CG was frozen at 0. 5% without any basis. He relied upon the case of Mahindra Mahindra Ltd. , for the A. Y. 2007-08 (ITA/7999/Mum/2011, dated 08/06/2012) wherein 3% CG was considered at arm s length. In the rejoinder, the AR stated that case of Mahindra Mahindra was decided in 2012, that in the subsequent year it was considered (ITA/269/M/2014, dated 15/03/2017)and CG fee @ 0. 5% was taken. The AR also relied upon case of Everest Kanto Cylinders Limited which was approved by the Hon ble Bombay High Court in I. T. Appeal No. 1165 of 2013, dated 08/05/2015 and Glenmark Pharmaceuticals(62SOT79)which was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enchmarking by TPO before DRP and raised various contentions in his support but rejecting the same, DRP affirmed the stand of TPO. Aggrieved, the assessee is in appeal before us. 4. 2 The initial contention of the Ld. Senior counsel for assessee [AR], Sh. Rajan Vora was that the said transaction was not an international transaction but fairly conceded that in view of amendment in Section 92B and jurisdictional Bombay High Court judgment in CIT Vs. Everest Kento Cylinders Ltd. 378 ITR 57, the said transaction constitutes international transaction. On merit, is was stated that the CG has been provided to its AE under overall financing structuring arrangement where over and above the share capital invested, funds were provided and CG was also given. Moreover, the assessee was not in the business of financing / giving guarantees and the same has been given solely for its own benefit to protect its goodwill, reputation and expand its business operations abroad and to safeguard its economic and strategic business relationship with its AE. Hence, CG without charging commission was at Arm s Length considering overall financing arrangement. Further, the credit rating of both the entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be restricted to 0. 50% on CG given by the assessee. First ground of appeal is decided in favour of the assessee, in part. 3 . Second ground of appeal is about disallowance of interest u/s. 36(1)(iii) of the Act, amounting to ₹ 2. 36 crores. It was brought to our notice that identical issue was dealt by the Tribunal while deciding the appeal for AY. 2010-11(supra). We are reproducing the relevant portion of the order: 5.1 Ground Nos. 14 to 16 assails interest disallowance u/s 36(1)(iii) for ₹ 492. 15 Lacs. DCIT noted that the assessee claimed interest expenditure of ₹ 690. 95 Lacs u/s 36(1)(iii) whereas it has advanced certain interest free loans to its subsidiary companies, the details of which are as follows:- No. Name of the Concern Balance As on 31/03/2010 (Rs. In Lacs) 1. Laqshya Digital Media Pvt. Ltd. 6201. 84 2. Laqshya OOH Media Pvt. Ltd 21. 07 3. Laqshya Hyderabad Airport Media Pvt Ltd. 3979 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion to MSME . The balance amount mainly represents Interest on Service Tax. This being the factual position, we conclude that amount of ₹ 15. 20 Lacs has wrongly been disallowed by DCIT. 5. 3 Further, DCIT has computed interest of ₹ 198. 80 Lacs on Term Loan whereas, as per the above break-up the same stood at ₹ 248. 17 Lacs giving rise to further difference of ₹ 49. 37 Lacs. At this juncture, it would be prudent to take up the matter on merits. 5. 4 The Ld. AR has contended that assessee and its AE are into same line of business viz. display / hoardings advertisement. The separate subsidiaries have been floated for the purpose of business exigencies and getting business contracts and licenses at various places. To achieve the common objective, quasi-equity has been introduced in these concerns as a part of overall financial arrangement. A major portion of these loans have been converted into equity in subsequent years. Subsidiaries have carried out common business and have not made any further investments. These subsidiaries are engaged in the business of providing out of home advertising solutions, through media assets across the verticals, bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shareholder s Fund 249. 00 Fixed Assets 27. 45 Loan Funds 64. 22 Investments 12. 60 Loans Advances 143. 23 Net Current Assets 4. 82 Profit Loss A/c 125. 12 Total 313. 22 313. 22 It can be observed that against Share Holders funds of ₹ 249. 00 crores, the loans advances stood at ₹ 143. 23 Crores out of which impugned interest free loans are ₹ 102. 02 Crores and hence owned funds are sufficient to cover the said loans. It is well settled by catena of judgments that in such a scenario, it is to be presumed that the investment made in subsidiary were out of own funds and not out of borrowed funds. Hon ble jurisdictional Bombay High Court in CIT Vs. HDFC Bank Ltd. (supra) have observed that if assessee s capital, profits reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maining unmatched in form 26 AS. In our opinion, the matter need further verification. We direct the AO to afford a reasonable opportunity of hearing to the assessee and decide the issue afresh. Ground no. 3 is partly allowed. 5. Fourth ground is about no granting TDS credit of ₹ 1. 95 crores. As per the assessee, the AO had granted credit of ₹ 1. 94 crores only. We direct the AO to make verification about the claim made by the assessee and give credit accordingly. Ground no. 4 is also restored back to the file of the AO for fresh adjudication. 6. Fifth ground of appeal deals with levy of interest u/s 234B of the Act. As the levy of interest is consequential, so we are not adjudicating the same. 7 . Last ground of appeal is about initiation of penalty u/s. 271(1)(c) of the Act. In our opinion the issue is premature, hence, we dismiss the same. ITA/1774/Mum/2016: 8. Solitary ground of appeal, raised by the AO, is about reducing the rate of GC from 2. 75 % to 1. 75%. While deciding appeal of the assessee we had (paragraphs 2 to 2. 4) dealt with the issue. Accordingly, we decide the ground against the AO As a result appeal filed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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