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TMI Blog2018 (11) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... ions as accepted by the assessee in its TP study and the statutory provisions mandates that the income from such transactions is to be computed on the principle of arm's length price irrespective of the fact that no such income has actually accrued to the assessee. This being so, the argument of principles of commercial expediency or notional income or revenue neutrality as raised before us fails since as long as the transaction is an international transaction within the framework of law, the computation of income there-from has to be on the basis of arm's length principle. Applicable interest rate - AR has supported the argument that the same should be benchmarked at LIBOR - admission of additional evidence - Held that:- Since additional evidences have been placed before us for the first time which are germane to the adjudication of the issue and the fact as to the currency in which the loan was granted and the currency in which it was repayable is not quite certain, the issue requires re-appreciation by lower authorities. For the aforesaid limited purpose, the matter stand remitted back to the file of AO / TPO with a direction to the assessee to provide requisite details & inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciled by the assessee - Held that:- Upon due consideration of factual matrix, we find that onus to reconcile the entries was on assessee. Since impugned order was passed on 31/01/2017, Ld. AO is directed to re-appreciate the entries in Form 26AS and re-adjudicate the same in the light of the confirmations / any other evidences received after the date of the impugned order. This ground stand allowed for statistical purposes. Short Grant of TDS Credit - Held that:- As per Ld. AR’s submissions, complete TDS reconciliation has already been filed before lower authorities. AO is directed to verify the same and grant TDS credit as per law which has accrued to the assessee during impugned AY. This ground stand allowed for statistical purposes. - I.T [TP]. A. No.1984/Mum/2017 - - - Dated:- 14-11-2018 - SHRI SAKTIJIT DEY, JM AND HON BLE SHRI MANOJ KUMAR AGGARWAL, AM For The Assessee : Rajan R. Vora, Hemen Chandariya And Pranay Gandhi, Ld. AR s For The Revenue : Ajit Pal Singh Daia, Ld. JCIT-DR ORDER Per Manoj Kumar Aggarwal (Accountant Member) 1.1 Aforesaid appeal by assessee for Assessment Year [AY] 2012-13 contest the final assessment order dated 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee given to LMI (Mauritius) 1,41,30,000 2 Adjustment on loan given to AE (for interest not received) 12,72,09,970 Total Adjustment 14,13,39,970 Incorporating the same, draft assessment order was passed on 16/03/2016. Besides these adjustments, the draft assessment order has proposed disallowance u/s 14A for ₹ 2.58 Lacs and interest disallowance u/s 36(1)(iii) for ₹ 214.05 Lacs. The interest disallowance as proposed was net of interest disallowance of ₹ 194.10 Lacs suomoto disallowed by the assessee u/s 43B in the computation of income. 2.2 The assessee contested the additions / adjustments as proposed in the draft assessment order before Ld. DRP vide directions u/s 144C(5) dated 13/12/2016 wherein the assessee got marginal relief since Transfer Pricing [TP] adjustment were reduced to ₹ 13.98 Crores as against ₹ 14.13 Crores as proposed in the draft assessment order whereas the other disallowances / additions have been confirmed. Giving effect to the aforesaid directions of Ld. DRP , the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtly allowed. The Ld. AO is directed to modify the final assessment order to that extent. 5.1 The second issue of TP adjustment stem from the fact that the assessee, under contractual terms, had granted certain loan to one of its Associated Enterprise [AE] namely Laqshya Media International, Mauritius [LMI] for the purpose of further lending to step down subsidiaries and for acquiring the shares of overseas entities by the aforesaid AE . The amount of loans granted to LMI in earlier years for the purpose of further lending aggregated to ₹ 77.76 Crores and fresh loans granted during the impugned AY aggregated to ₹ 1.16 Crores. Thus the outstanding loans against LMI on this account stood at ₹ 78.92 Crores. The loan was sanctioned vide Board Resolutions dated 10/02/2009 14/04/2009 and Loan Agreement dated 17/06/2009 for the purpose of lending in various step down subsidiaries at rate of interest of 14% per annum. The above loans were mainly used to provide further loans to step down subsidiary namely Right Angle Media, Dubai [RAM] through another subsidiary namely Gulf Media Holding, Mauritius. The entity RAM, being ultimate user of the fund, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since, upon perusal of loan agreement, it was concluded that the loan was repayable in Indian currency and therefore, the Indian rate was to be applied to benchmark the same. Finally, the stand of Ld. TPO got confirmed which was incorporated in the final assessment order passed by Ld. AO. Aggrieved, the assessee is in further appeal before us. 5.4 The Ld. AR, submitted that ALP of these transactions was to be computed as Nil since the outstanding loans were nothing but nonperforming assets / stressed assets for the assessee. Our attention is drawn to the fact that the loans as well as accrued interest was finally written-off in the books in subsequent AY and therefore, the additions thereof in impugned AY was not justified. It was submitted that there was complete disclosure of the impugned transactions in books of accounts as well as in the notes to the account and the assessee made provision of 50% of the value of loans and investments made in LMI and 100% of interest accrued on loan to LMI during the year and therefore, charging the interest in the books and thereafter writing-off the same would have been tax neutral. It was also submitted that the aforesaid transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gument of principles of commercial expediency or notional income or revenue neutrality as raised before us fails since as long as the transaction is an international transaction within the framework of law, the computation of income there-from has to be on the basis of arm's length principle. This conclusion or our draws strength from the ratio of decision of Kolkata Tribunal (Special bench) rendered under similar circumstances in Instrumentarium Corporation Limited Vs. ADIT [71 Tamxann.com 193] wherein Hon ble Bench held as under:- 37. In our considered view, the commercial expediency of a loan to subsidiary is wholly irrelevant in ascertaining arm's length interest on such a loan. There is indeed no bar on anyone advancing an interest free loan to anyone but when such transactions are covered by the international transactions between the associated enterprise, Section 92 of the Act mandates that the income from such transactions is to be computed on the basis of arm's length price. The judicial precedents relied by the assessee, such as in the case of SA Builders Ltd. (supra), in support of the proposition that interest free advance to the subsidiary, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Ltd. [ITA 1584/Kol/2009 Kolkata Tribunal] The Ld. AR submitted that the assessee had advanced loans in foreign currency i.e. US Dollars and therefore, the benchmarking was to be done at LIBOR in terms of above judicial pronouncements. To support the same, additional evidences in the shape of outward remittance advices issued by the bank and other documents has been placed on page numbers 633 to 646 of the paper book. In contrast to this, Ld. DRP at para 3.26.1 of its directions, upon perusal of loan agreement, had opined that the loan was repayable in Indian Currency and therefore, the same was to be benchmarked as per Indian rates in terms of judgment of Hon ble Delhi High Court rendered in Cotton naturals India Pvt. Ltd. [supra]. Since additional evidences have been placed before us for the first time which are germane to the adjudication of the issue and the fact as to the currency in which the loan was granted and the currency in which it was repayable is not quite certain, the issue requires reappreciation by lower authorities. For the aforesaid limited purpose, the matter stand remitted back to the file of Ld. AO / TPO with a direction to the assessee to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal in assessee s own case for AYs 2010-11 2011-12, the impugned additions of ₹ 214.05 Lacs stand deleted. The suo-moto disallowance of ₹ 194.10 Lacs as made by assessee while computing its income remain intact since the same has been added back in terms of the provisions of Section 43B. This ground raised in this regard, stand allowed to the extent as discussed hereinabove. 7.1 The next issue pertains to disallowance u/s 14A. The assessee has earned exempt dividend income of ₹ 85,136/- from certain mutual funds. The assessee s opening closing investments stood at ₹ 12.60 Crores ₹ 22.79 Crores respectively. The Ld. AO, applying Rule 8D(2)(iii) has computed disallowance @0.5% on average investments which came to ₹ 2,58,300/-. The same has also been added back while arriving at Book Profit u/s 115JB for the computation of Minimum Alternative Tax [MAT] . The addition, upon confirmation by Ld. DRP, is under appeal before us. 7.2 The Ld. AR has pleaded that only those investments which has yielded exempt income during the impugned AY were to be considered for the purpose of computation of disallowance and further, the adjustment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Essar Teleholdings Ltd. [ITA No. 438 of 2012, dated 07/08/2014] CIT Vs. Bengal Finance Investments Pvt. Limited [ITA No. 337 of 2013 dated 10/02/2015]. Therefore, respectfully following the catena of judgment in assessee s favour, we hold that adjustment of disallowance u/s 14A was not required to be made in Book Profits for the purpose of Section 115JB. 7.5 The grounds raised in this regard stand allowed in terms of our above order. 8. The root of next issue lie in the fact that certain incomes as reflected in Form 26AS were not found to be credited in the Profit Loss Account and the income to the extent of ₹ 1.02 Lacs could not be reconciled by the assessee. The Ld. DRP directed Ld. AO to make further enquiries from the parties confirmed. Since no response was received from the concerned parties till the date of impugned order, the addition thereof was made in the hands of the assessee. The Ld. AR has pleaded that the additions are not warranted and raised an alternative plea that the credit of TDS against those payment should be granted to the assessee. Upon due consideration of factual matrix, we find that onus to reconcile the entries was on assessee. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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