9911796707
TMI Blog2019 (3) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... arries no substances since direct expenses sought to be disallowed have nowhere been claimed at assessee’s behest.The Revenue’s first argument fails therefore. Revenue seeks to revive section 14A r.w.r. 8D(2)(ii) proportionate interest disallowance - HELD THAT:- The assessee’s balance sheet reveals that its non-interest bearing funds read figures of ₹ 1,70,302.44 lakhs as against its exempt income investments of ₹ 15,894.02 lakhs and exempt income yielding investment of ₹ 13,650.89 lakhs; respectively. Various judicial precedents, i.e. CIT vs. Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT], CIT vs. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] and CIT vs. Torrent Power Ltd. [2014 (6) TMI 185 - GUJARAT HIGH COURT] hold that impugned proportionate interest expenses disallowance does not apply in the case of non-interest bearing funds turning out to be more than exempt investments. We decline Revenue’s instant second argument as well. Whether only exempt income yielding investments have to be taken into consideration whilst computing administrative expenses disallowance u/s 14A r.w.r. 8D(2)(iii)? - HELD THAT:- Suffice to say, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant issue as well to decline to Revenue’s corresponding substantive ground in both of its appeals. TPA on specified domestic transactions with respect to transfer of power from eligible units to manufacturing units - HELD THAT:- Following the judgment of the Supreme Court in the case of ThiruArooran Sugars Ltd. Vs. CIT [1997 (7) TMI 12 - SUPREME COURT]it is of the considered view that the tariff rates at which the non-eligible units procured power from Electricity Board was the most appropriate and internal comparable rate to benchmark the transfer of power by appellant's CPP to other non-eligible units. The benchmarking exercise conducted by the appellant is found to the appropriate and reasonable and hence no further transfer pricing adjustment is warranted on this count. We adopt learned coordinate bench’s discussion mutatis mutandis to uphold the CIT(A)’s findings deleting the impugned transfer pricing adjustments pertaining to specified domestic transactions in the absence of any distinction on facts or law pin-pointed at revenue’s behest - I.T.A Nos.138 & 139/Kol/2018 & I.T.A Nos.191 & 192/Kol/2018 - - - Dated:- 28-2-2019 - Shri S. S. Godara, JM And Dr. A. L. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. The Revenue s contentions in supporting CIT(A) s directions to this effect stand rejected. The assessee succeeds in both of its appeals in ITA Nos.138 139/Kol/2018. 4. Next come Revenue s grievance seeking to revive entire sum u/s 14A r.w.r 8D disallowance figure of ₹ 6,01, 17,716/- and ₹ 5,39,20,281/-(assessment year wise). We reiterate that both assessment years before us involve identical set of facts. We treat former Assessment Year 2012-13 as the lead Assessment Year therefore the CIT(A) s detailed discussions forming subject matter of challenge of the instant issue read as follows: 05. Grounds no 2 to 5 relate to the action of the Ld. AO in making a disallowance of ₹ 6,01,17,716/- by invoking the provisions of Sec 144 of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962. The impugned matter has been dealt with by the Ld.AO as under: Following the examination of accounts and material brought on record, the following issues were found to deserve specific attention. (i) Expenditure in respect of exempt incomes The acquisition, maintenance, disposal and accounting of investments in shares / securities / mutu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its submission that whereas its own available surplus funds were ₹ 7765.51 lakhs, its total investments on which exempt income has been earned during the year is of ₹ 7,199.01 lakhs. Thus, it implied, all its investments in dividend bearing investments were made solely form its own funds; no borrowed funds were used to acquire such investments, hence no interest payable on borrowed funds were linked to the cost of carrying investments as such. This claim was considered, but is clearly a fallacious generalization. The campany is primarily a leading manufacturing industry, but here it claims that almost 92.7% of its own funds were devoted to acquisition of dividend-bearing investments, leaving its business of ₹ 2000 odd Crores to be funded by borrowing and the remainder of its funds. This improbable claim could not be accepted at face value. The assessee was therefore requested to furnish specifics of allocation of borrowed funds to specific uses, viz. investment, business etc. The assessee replied that it had not taken any specific loans to make investments . This statement, however, does not categorically deny that any disbursement of loan funds may have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the first day and the last day of the previous year. C is the average of total assets as appearing in the balance sheet of the assessee on the first day and the last day of the previous year. In the particular circumstances of the assessee's case for the relevant period, it is seen that i. D is ₹ 11,63,470 constituting of the expenses on brokerage ₹ 6,27,147/-. STT ₹ 4,14,787/- and other charges including stamp duty, service tax, turnover tax etc. of ₹ 1,21,536/-. ii. Whereas A is 9,69,97,971/- (being interest on borrowed funds commonly utilized by investment business purposes, and excluding such interest as indicated above. ) iii. a) Value of investments at the beginning of the year, i.e., as on 01.04.2011 ₹ 804,77,29,000/- (Book value of quoted share investment Rs,798,77,16,000/- + Book value unquoted investment in mutual fund of ₹ 600,13,000/-)[ Excluding debt funds which do not yield tax exempt income] b) Value of investments at the end of the year i.e. as on 31.03.2012 ₹ 819,44,46,250/-( Book value of quoted share investment) Hence B, representing Average investments = (804,77,29,000/- + 819 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning exempt income) were made from non-interest bearing own funds of the assessee and hence no disallowance on account of interest can be made. 2.3.2 Attention in this regard is invited to the following judgments: The Bombay High Court in case of CIT Vs. Reliance Utilities and Power Ltd. [313 ITR 340] The Bombay High Court in case of CITVs. HDFC Bank Ltd. [366 ITR 505] The Gujarat High Court in case of CIT Vs, Torrent Power Ltd, [363 ITR 474] ITAT (Kolkata) in case of Hindustan Motors Ltd. (order enclosed) 2.3.3 Following the aforesaid decisions the ITAT(Kolkata) in assessee's own case (for AY 2008-09, 2009-10, 2010-11) at para 143 held that We are of the view the submission made with regard to availability of own funds in the light of overall funds position without insisting on direct nexus between investments and own funds would be the right approach as held by the Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. If the overall funds position i.e. if own funds are sufficient to cover the investments which are subject to consideration u/s 14A of the Act, then a presumption has to be drawn that the own funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Rule 9D(iii) shall be computed as below: Opening Value of Investments (excluding strategic investment) = ₹ 16,55,28,000/- Closing Value of investments (excluding strategic investment dividend earning investment) = ₹ 8,11,02,677/- Average Value of Investment= 12,33,15,339/- 0.5% of the above= ₹ 6,16,577/- 2.6.2 Now since a sum of ₹ 16,85,257/- was voluntarily disallowed by the assessee in its return no further disallowance u/s 14A is warranted. 2.6.3 Therefore, it is submitted that the entire addition of ₹ 6,01,17,716/- made u/s 14A of the Act may kindly be deleted. 07.DECISION: 1. I have carefully examined the contentions of the Ld. ARs and perused the impugned order passed by the Ld. AO. From the assessment order it transpires that in the computation of income filed with the return, the appellant had suo moto offered disallowance of ₹ 16,85,527/- under Section 14A of the Income-tax Act, 1961. The Ld AO however not being satisfied with the manner in which disallowance u/s 14A was computed by the appellant-company/ invoked and applied Rule BD. The disallowance worked out by the Ld. AO is as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. Reference was also made to the decision of the Income-Tax Appellate Tribunal (Chandigarh) in the case of Asst. CIT v. Spray Engineering Devices Ltd. [2013] l ITR (Trib)-OL 168 (Chandigarh); [2012] 53 SOT 70 (Chandigarh-Trib) wherein it was held that where a business strategy had been adopted by the assessee by way of investment in shares of sick company in order to take over the said company for widening its operation of business, that cannot be held to be investment per se. Reliance was also placed on the decision of the Income-Tax Appellate Tribunal (Delhi) in the case of Interglobe Enterprises Ltd. v. Deputy CIT [2014] 40 CCH 22 (Delhi) wherein it was held that where the assessee had made significant investments in the shares of subsidiary companies which are definitely not for the purpose of earning exempt income but by way of strategic investment those investments have to be excluded for the purpose of arriving at disallowance under rule 8D(2)(iii). Based on the aforesaid decisions it was submitted that no disallowance under section 14A can be made on investments made for strategic business purposes. It was submitted that investment by the assessee in Lanco Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not out of borrowed funds. The assessee has filed the necessary charts in this regard showing own funds and investments. The learned counsel for the assessee has placed strong reliance on the decision of the Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) wherein proposition similar to the one canvassed by the assessee was accepted. 145. We are of the view the submission made with regard to availability of own funds in the light of overall funds position without insisting on direct nexus between investments and own funds would be the right approach as held by the Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom). If the overall funds position i.e., if own funds are sufficient to cover the investments which are subject to consideration under section 14A of the Act, then a presumption has to be drawn that the own funds were used for making investments, We are of the view that it would be just and proper to restore the disallowance under section 14A of the Act to the Assessing Officer for a fresh consideration in the light of the directions given in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue s instant argument carries no substances since direct expenses sought to be disallowed have nowhere been claimed at assessee s behest. The Revenue s first argument fails therefore. 6. The Revenue s second argument seeks to revive section 14A r.w.r. 8D(2)(ii) proportionate interest disallowance of ₹ 2,00,34,065/-. The assessee s balance sheet reveals that its non-interest bearing funds read figures of ₹ 1,70,302.44 lakhs as against its exempt income investments of ₹ 15,894.02 lakhs and exempt income yielding investment of ₹ 13,650.89 lakhs; respectively. Various judicial precedents, i.e. CIT vs. Reliance Utilities and Power Ltd. [313 ITR 340 (Bom)], CIT vs. HDFC Bank Ltd. [366 ITR 505 (Bom)] and CIT vs. Torrent Power Ltd. [363 ITR 474 (Guj.)] hold that impugned proportionate interest expenses disallowance does not apply in the case of non-interest bearing funds turning out to be more than exempt investments. We decline Revenue s instant second argument as well. 7. The Revenue s third argument qua the instant issue is that the CIT(A) erred in law and on facts in holding that only exempt income yielding investments have to be taken into cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.Y.2012-13. This, of course, is a recurrent issue in the case of the assessee. It is seen that in the A.Ys 2003-04 to 2009-10 the subsidy is received by the assessee company was claimed as capital subsidy but the same was not reduced form the cost of asset because of which excess deduction was claimed in these years as well as in succeeding year 2010-11 due to the resulting cascading effect. While issuing the final orders by way of giving effect to the order of DRP for the said years, a chart had been prepared to show excess depreciation claimed in A.Y.2003-04 to 2009-10, A consolidated table is given in Annexure-A to show the excess claim of depreciation to be disallowed, taking into consideration the cascading effect of excess depreciation claimed up to A.Y.2009-10 from 2003-04; and while giving effect to the order of the DRP for A.Y.2010-11, a table is given in Annexure-B to show the excess claim of depreciation by reducing the subsidy received as capital receipt from all the blocks on pro-rata basis. Similarly for A.Y. 2012-13 a table has been prepared and is being attached as Annexure- C to show the excess claim of depreciation by reducing the subsidy received as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to extend financial assistance to entrepreneurs in setting up new units/expanding existing units in the backward areas. 3.3.1 The case of the assessee is also covered by the decision of ITAT(Kolkata) in the following cases: ITAT(Kolkata) in case of Birla Corporation Ltd.[69 SOT 2171 ITAT(Kolkata) in case of DCIT Vs Rasoi Ltd. (ITA N0.1398/Kol/2011)(affirmed by the Calcutta High Court) 3.3.2 Following the aforesaid decisions, the ITAT(Kolkata) in the assessee's own case (for AYs 2003- 04 to 2011-12) at para 68 allowed the claim of depreciation in full, i.e. without reducing the amount of subsidy from the cost of capital assets. In light of the above, since the issue is covered by the decision of the ITAT in its own case, it is prayed that addition of ₹ 3,16,92,148/- made on account of excess claim of depreciation be deleted. 10. DECISION: 1. I have carefully considered the submissions put forth by the ld. ARs of the appellant and the observations made by the ld. AO in the impugned order, I find that this issue has already been decided by Hon'ble ITAT, Kolkata in appellant's own case in I.T. (SS) No. 47 to 60/Kol/2014, 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of commercial production does not mean that the subsidy was given to finance the acquisition of fixed assets only. Under the given circumstances, the amount of subsidy, is not deductible from the actual of the cost under section 43(1) read with Explanation 10 of the Act. 68. The Hon'ble Supreme Court in the case of CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830 (SC) has held that the expression actual cost needs to be interpreted liberally. The subsidy of the nature we are concerned with, does not partake of the incidents which attract the conditions for their deductibility from actual cost . The Government subsidy, it is not unreasonable to say, is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to a percentage of such cost. If that be so, it does not partake of the character of a payment intended either directly or indirectly to meet the actual cost . In the instant case too, the scheme applicable to the assessee's case nowhere specifies that the subsidy was to be utilized for acquisition of fixed assets. The scheme was brought about to encourage and induce the entrepreneurs to move to ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidy was required to be reduced from the actual cost of capital asset in terms of Explanation 10 to Section 43(1) of the Act. The ld. AO accordingly re-computed the WDV of the block of plant machinery depreciation thereon, after reducing the capital subsidy, and therefore disallowed the claim of excess depreciation claimed to the extent of ₹ 3,16,92,148/-. In the oral written submissions, the ld. ARs vehemently argued against such action of the ld. AO. [Unquote] 2. Respectfully following the decision of the Hon'ble ITAT, Kolkata in appellant's own case, the Ld. AO's action of adjusting the capital subsidy of ₹ 14,78,39,227/- from the actual cost of assets under Explanation 10 to Section 43(1) is held to be unjustified in law. Accordingly the disallowance of excess claim of depreciation to the extent of ₹ 3,16,92,148/- is directed to be deleted. Ground Nos.6 to 10 are therefore allowed. 10. It has come on record qua the assessee already succeeded in the instant twin aspects before the Tribunal in Assessment Years 2003-04 to 2011-12. The Revenue is very very fair in not pointing out any distinction on legal as well as factual as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of such AE was marketing of the assessee's products. The AE mainly catered to the assessee and the majority of sales (approximately 90%) effected by the AE were of products purchased from the assessee. The AE made only emergency purchases abroad and was incorporated merely to market the assessee's products. Given such economic interdependence on the AE no adjustment under the transfer pricing provisions in Chapter X was required. 4.2.2 The aforesaid claim finds strength from the following judgments: ITAT(Delhi) in case of Kohinoor Foods Ltd. Vs. ACIT[67 SOT 108] Delhi High Court in case of CIT Vs. Cotton Naturals (I) Pvt. Ltd. [276 CTR 475] ITAT (Ahmedabad) in case of Micro Links Ltd.[157 TTJ 289] ITAT(Delhi) in case of Knorr Bremse India Pvt. Ltd. [56 SOT 349] 4.3.1 Without prejudice to the above, if at all we consider the loan transaction to be an 'international transaction', even then the ALP of 14.41% arrived at by the AO is arbitrary and hence cannot be adopted. The AO in computing the ALP has considered the average cost of borrowed funds to the assessee domestic interest rates and added a spread of 750 basis points to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be equated with a 'loan' and hence no benchmarking exercise was required to be carried out by it in this regard. On examination of the transfer pricing order, it is noted that the Ld. TPO was not in agreement with the contention put forth by the appellant. The Ld. TPO observed that the interest rate on the loans advanced to the AEs should be priced at the cost of funds in the hands of the appellant and appropriate adjustment should be made for the credit risk being borne by the appellant, having regard to the borrower's independent credit rating. The Ld. TPO accordingly computed the ALP interest rate at 14.47% in respect of the loans advanced. The ld. TPO therefore proposed upward adjustment of ₹ 1,83,45,330/-with reference to the loans/advances given by the appellant to its AEs. 3. In the appellate proceedings, the Ld. AR.s of the appellant reiterated the submissions which were made before the Ld. TPO and contended that the advances given to AE was in the nature of shareholder activity and therefore it could not be equated with a 'loan' or a financing arrangement. Alternatively the ld. AR contended that the TPO erred in determining the ALP intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d enterprise as adopted by the Transfer Pricing Officer was irrelevant. Based on the arm's length price so computed, the Transfer Pricing Officer computed arm's length interest rate by following CUP method as 8 per cent. (cost of funds in hands of assessee) plus 7 per cent. (credit spread) based on creditworthiness of the associated enterprise. In doing so, he assigned a credit rating of CC+ or C to the associated enterprise. The Dispute Resolution Panel directed the Transfer Pricing Officer to compute the upward adjustment by applying an arm's length interest rate of 11 per cent., i.e. 8 per cent. plus 3 per cent. (credit spread). Aggrieved by the said direction of the Dispute Resolution Panel, the assessee is in appeal before the Tribunal raising ground No. 4 and the Revenue is in appeal before the Tribunal raising ground Nos. 6 to 9. 73. The first and foremost submission of the learned counsel for the assessee was that the transaction of giving loan by the assessee to its associated enterprise cannot be regarded as an international transaction at all. At the time of hearing the Bench expressed the view that this issue is no longer res integra and has been co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee/ the said view finds strength from the following judgments wherein it has been held that if the loan is made in foreign currency then LIBOR (not domestic lending rates) should be used as a benchmark. ..... 76. In view of the aforesaid decisions, we are of the view that instead of the base rate of 8 per cent, (based on lending rates of banks in India, for commercial borrowing), it would be appropriate to apply LIBOR rate (and not domestic lending rate). We direct accordingly. 77. The next aspect to be considered is as to whether any percentage has to be added over and above the LIBOR rate on account of credit rating of the associated enterprise. The Assessing Officer added LIBOR + 7 per cent. The basis for such addition is that any lender would consider the credit rating of the borrower before lending and Therefore, the assessee when it lends to its associated enterprise should also consider such risk based on the credit rating of the associated enterprise. The risk so assumed should also be considered and the rate of interest that would have been charged by unrelated parties determined to arrive at the arm's length price rate of interest. The Dispute Resolu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions and applying it as uncontrolled transactions. In our view, re-coursing straightaway to CRISIL, which deals in hardcore institutional finance transactions that too with clear commercial object of earning out of loans bereft on other considerations, is wholly inapplicable. There is no dispute on the issue that the real income theory has no application to a fictional working as provided by section 92 but this being part of the Income-Tax Act, the valid consideration for properly assessing a transaction cannot be given a go by. Every fiction, has limits to its application. In view thereof, we hold that the rate of 13.49 per cent. applied solely relying upon a third party opinion by applying on uncontrolled set of trans action is factually not correct and cannot be accepted. 79. The facts of the aforesaid case are identical to that in case of assessee. Thus, following the decision of the Hon'ble Tribunal, it is clear that action of the Transfer Pricing Officer in using data issued by Standard and Poor is clearly bad in law. Consequently the addition of interest rate on account of borrower risk in addition to the LIBOR rate was not justified. We are also of the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowed this tribunal s order(s) in Assessment Years 2003-04 to 2011-12 (supra) in directing the TPO to reduce the impugned corporate guarantee commission @3% to 0.5% as under: 14. Ground Numbering 11 to 17 relate to the action of the Ld.AO/TPO in making an adjustment of ₹ 513243,578/- on account of guarantee transactions. The impugned matter has been dealt with by the Ld. AO/TPO as discussed supra. 15. In respect of this ground, during the course of the appeal, the appellant-company/ Ld. A.Rs for the appellant-company have made the following submissions: Grounds No.17,12,13,15,16 17 : Guarantee transaction with the AE: ₹ 5,32,43,578/- 5.1.1 W.r.t the above, attention of your Goodself is invited to the relevant facts of the case. The assessee during the year had extended guarantees in favour of the AEs (Electrosteel Algeria SPA, Etectrosteel Europe SA, Electrosteet UK Singardo International Pte Limited in respect of working capital loans disbursed by the banks. Since no fee was charged for the same, the Ld AO proposed to compute an Arm's Length guarantee commission @3% and add the same to the income of the assessee. Aggrieved the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TD 132] 5.3.1 Coming to the methodology adopted by the TPO to compute the ALP of the impugned guarantee transaction, it is observed that the same is arbitrary and has no basis whatsoever. 5.3.2 Firstly, he presumed the AE to have a lower credit rating and accordingly estimated its rating to be 'CC' or 'C' (in Standard Poor's rating). The credit rating assigned to AE by the TPO has no basis and neither is he authorized to assign any such rating under the Act. The TPO has no technical qualification to assign any rating to AE nor has he even specified any concrete basis or formula to assign such credit rating. Therefore, his act is arbitrary and not as per law. 5.3.3 Further, relying on a report by the UNCTAD Secretariat he computed the interest rate differential to be 6%, i.e he held that AE saved 6% on its borrowing cost by virtue of the guarantee transaction and further attributed 50% of the benefits to the assessee company i.e 3% by way of guarantee commission. 5.3.4 The report relied upon by the TPO merely discusses the impact of Basel 2, (recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the ld. TPO and contended that the corporate guarantee was not the nature of international transaction and therefore provisions of Chapter X were not applicable in this regard. Alternatively the Ld. ARs contended that the TPO erred in determining the ALP CG Fee at 3%. The Ld. ARs of the appellant submitted that the corporate guarantees should be benchmarked at 0.5%, for which it placed reliance on several judgments including the jurisdictional ITAT, Kolkata in its own case for AYs 2003- 04 to 2011-12. 3. The Hon'ble ITAT, Kolkata in the appellant's own case in I.T. (SS) No. 47 to 60/Kol/2014, 313 and 256/Kol/2015, 66 and 124/Kol/2016 dated 25.11.2016 for AY 2003- 04 to 2011-12 has held as follows: [quote] 83. The first and foremost submission of the learned counsel for the assessee was that the transaction of giving guarantee on a loan availed of by the associated enterprise cannot be regarded as an international transaction at all, At the time of hearing, the Bench expressed the view that this issue is no longer res integra and has been concluded by a decision of the Special Bench in the case of Instrumentarium Corporation Ltd., Finland v. Asst, DIT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. Addl. CIT (ITA No, 5031/M/2012) dated November 13, 2013) (Mumbai-Tribunal) ; (4) Godrej Household Products Ltd. v. Addl. CIT (ITA No. 7369/M/2010) (Mumbai- Tribunal), dated November 22, 2013); and (5) Asst. CIT v. Nimbus Communications Ltd. [2014] 30 ITR (Trib) 349 (Mum) (ITA No. 3664/M/2010) (Mumbai-Tribunal), dated June 12, 2011). 84(C). In the case of Everest Kanto Cylinder Ltd. (supra), the Tribunal while considering an identical issue has held in para 9 as under : 9. Now, coming to the merit of the addition so made, we found that the issue has already been decided by the Tribunal in immediately preceding year in the assessee's own case, wherein charging of 0.5 per cent guarantee commission from associated enterprise was held to be quite near to 0.5 per cent., where the assessee has paid independently to the ICICI bank and charging of guarantee commission at 0.5 per cent. from its associated enterprise was held to be at arm's length. The precise observations of the Bench for the assessment year 2007-08 are as under: 'The universal application of rate of 3 per cent for guarantee commission cannot be upheld in every case as it is large ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. The Safe Harbour Rules prescribing 2 per cent. as the guarantee commission is not relevant as those rules are relevant only to an eligible assessee who opts to be governed by those rules. Accordingly, following the decisions of the Tribunal referred to above, we direct the Assessing Officer/TPO to adopt the 0.5 per cent. as guarantee commission charges in respect of the guarantee provided by the assessee for obtaining the loan by the associated enterprise. Ground No. 3 raised by the assessee is accordingly partly allowed. [Unquote] 4. In view of the above and respectfully following the judgments of the Hon'ble ITAT, Kolkata in appellant's own case, I hold that the ALP determined by the TPO in his order u/s 92CA(3) was excessive and the most appropriate CG fee rate in the facts circumstances of the appellant's case is 0.5%. The Ld. AO/TPO is thus directed to compute the ALP of corporate g;-'tees at 0.5%. These grounds are therefore partly allowed. 14. It is sufficiently clear by now that the assessee s very arguments have been partly accepted through for benchmarking corporate guarantee transaction is issued @ 0.5% commission. We therefore adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate adopted by the assessee). 5.4 Relying on the sale data of power by independent Captive Power Plants to the distribution licensees the TPO arrived at an average rate of ₹ 3.23/unit. In doing so, he considered the rate of ₹ 2.53/unit i.e. the rate at which the power was sold to the Board. However, the given rate was again added to the rate of ₹ 3.23/unit to arrive at an even lower rate of 2.88/unit. Such an action of the TPO reflects his prejudiced mind which is clearly bad in law. 6.1 W.r.t the above, it is pertinent to note here that judgment of Calcutta High Court has been rendered on distinguishable facts. In the case before the High Court the eligible unit was situated in the State of Andhra Pradesh. The State had imposed restrictions on sale of power to outsiders/third parties. The power units thus could have sold power to only distribution licensees/power generators. Under such circumstances, the Hon'ble Calcutta High Court held that in view of such restriction, the price as applicable to sale to distribution companies shall apply. 6.2 However, in the State of West Bengal no such restrictions are imposed on the power units (separate no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... himself for own consumption the profit of the undertaking manufacturing such article or thing has to be based on the market value in preference to the price as recorded by the Assessee in his books. Market Value for the said purpose has been defined to mean the price that such goods or services would ordinarily fetch in the open market. When price of power is subject to statutory controls one cannot ascertain the price such goods or services would ordinarily fetch in the open market because in such circumstances it cannot be said that there is an open market for the goods or services. There are exceptional difficulties in computing the profits and gains of the eligible business by applying the main provisions of section 80-IA(8) and therefore the proviso to section 80-IA(8) would apply and the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. The interests of justice would be met by setting aside the order of the Assessing Officer on the issue and directing the Assessing Officer to determine the profits and gains of the undertaking generating power on a reasonable basis after affording the assessee opportunity of being heard. 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the most appropriate method. Instead the Ld. TPO/AO was of the view that the price at which Electricity Board sold power to distribution licensees was a better parameter to benchmark the specified domestic transaction; i.e. transfer of power by CPP Unit to other non-eligible units of the appellant-company. This manner methodology adopted by the Ld. TPO/AO was following the principles laid down in judgment of the Hon'ble Calcutta High Court in the case of ITC Ltd (supra). The Ld. TPO/AO therefore computed ALP at ₹ 2.88/unit. 2. In the appellate proceedings, the Ld. ARs of the appellant reiterated the submissions made before the Ld. TPO/AO. The ld. ARs pointed out the infirmities and deficiencies in the manner and methodology adopted by the ld. TPO/AO to benchmark the impugned transaction. The Ld. ARs of the appellant placed reliance on the decision rendered by the Hon'ble ITAT, Kolkata in their own case for AYs 2003-04 to 2011-12, wherein the Hon'ble ITAT had distinguished the judgment of the Calcutta High Court in the case of ITC Ltd (supra). The Tribunal held that this judgment was not applicable to the appellant's case. Relying on the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m is mainly carried out by Central Government body PGCIL (Power Grid Corporation of India Limited). To facilitate this process, India is divided into 5 regions : Northern, Southern, Eastern, Western and North Eastern region. Further within every State we have a SLDC (State load dispatch centre). The distribution system is carried out by many distribution companies (DISCOMS) and SEBs (State Electricity Board). There are two tariff systems, one for the consumer which they pay to the DISCOMS and the other one is for the DISCOMS which they pay to the generating stations. The rate at which electricity can be supplied to a consumer by the distribution licensee and the rate at which the generating companies can sell electricity to the distribution licensee are governed respectively by sections 61 and 62 of the Electricity Act, 2003. There is tariff regulatory commission which fixes both the rates for sale and purchase of electricity by the distribution licensee. There is thus an in-built mechanism to ensure permissible profit both to the generating companies and the distribution licensees. 47. The Hon'ble Calcutta High Court in the case ITC Ltd. (supra) had to deal with similar i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Hon'ble Calcutta High Court in the case of ITC Ltd. (supra) will not apply to the case of the assessee. [Unquote] 4. In view of the above and the judgment of the Hon'ble ITAT, Kolkata in appellant's own case, I therefore hold that the ALP determined by the Ld. TPO in his order u/s 92CA(3) in terms of the principles laid down by the Hon'ble Calcutta High Court in the case of ITC Ltd. (supra) was unjustified. Following the judgment of the Supreme Court in the case of ThiruArooran Sugars Ltd. Vs. CIT (supra); I am of the considered view that the tariff rates at which the non-eligible units procured power from Electricity Board was the most appropriate and internal comparable rate to benchmark the transfer of power by appellant's CPP to other non-eligible units. The benchmarking exercise conducted by the appellant is found to the appropriate and reasonable and hence no further transfer pricing adjustment is warranted on this count. The ld. AO/TPO erred in making the downward adjustment with respect to eligible profits u/s 80IA by ₹ 1,92,23,674/- and the same is hereby directed to be deleted. These grounds are therefore allowed. 16. We a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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