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TMI Blog2017 (1) TMI 1519X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - Additions deleted - Decided in favour of assessee. Grant of TDS credit 1,64,11,584/- after verifying the physical TDS certificates and grant refund, to which assessee is entitled. Both grounds of assessee’s appeal stand allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... nal transaction and hence no benchmarking thereof has been done by the assessee but the same got rejected by TPO by noticing amendment made by Finance Act, 2012 which has specifically taken 'Corporate guarantee' in the ambit of definition of 'international transaction' w.e.f. 01/04/2002. On merits, it was contended that credit rating of both guarantor and guarantee was the same i.e. CARE BB+ (Is). However, TPO after analyzing the financials and risk profiles of the both companies was not convinced with the explanation of assessee and rejected the same. Thereafter, TPO proceeded to compute the ALP by adopting External 'CUP' method on the basis of 'yield approach' on unsecured bonds corresponding to credit rating of two entities after considering following judgments of foreign courts:- i. General Electric Capital Canada Inc. V. The Queen (Tax court of Canada 2009 TCC 563) ii. Container Corporation Vs. Commissioner (Tax court of USA 134 TC No. 5 2010) TPO adopted 5 years annualized average yield data obtained from CRISIL. The TPO assigned rating of CARE BB+ to assessee company and CARE B+ to its AE i.e. one notch below the assessee. After making suitable adjustments for these rati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tings and hence no TP adjustment thereof is called for, with which we are not convinced as had that been the position, there would have been no requirement to provide the said guarantee. The assessee considering the same to be a benefit to its AE, had proposed to charge guarantee fees of 0.5%. Hon'ble Bombay High Court in CIT Vs. Everest Kento Cylinders Ltd. (supra) has affirmed guarantee adjustment of 0.50% as upheld by the Tribunal. In various other judicial pronouncements, CG has been benchmarked in the range of 0.20% to 0.50%. Therefore, keeping in mind the overall facts and circumstances of the case, we restrict TP adjustment against bank guarantee to 0.50% on CG given by the assessee. Further, we are of the considered opinion that CG stood in force at all time and the assessee was contingently liable for the Gross amount of CG provided to its AE notwithstanding the amount of actual loan availed by the AE and further, AE, at all times, got insulated to the extent of guarantee provided by the assessee and therefore, the adjustment has to be calculated on Gross value of CG provided by the assessee. We direct so. This ground is partly allowed. 5. Disallowance of Interest u/s 36( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y where we find that out of 'Other interest' of ₹ 15.20 Lacs, assessee had already made suo-moto disallowance of ₹ 11.23 Lacs comprising of 'Interest on TDS' and 'Interest provision 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . in Crores) Assets Amount (Rs. in Crores) Shareholders' 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 reserves and surplus were higher than the investment in tax free securities then it would have to be presumed that investment made by assessee would be out of interest free funds available with the assessee. Further, we find that the assessee and its subsidiaries are in the same line of business and the said loans are out of commercial expediency. The funds advanced to subsidiaries have been use ..... X X X X Extracts X X X X X X X X Extracts X X X X
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