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TMI Blog2018 (3) TMI 1766X X X X Extracts X X X X X X X X Extracts X X X X ..... :- Once assessee had charged rate of interest more than the LIBOR rate, there could be no question of any Transfer pricing adjustment. Nevertheless, how the ld. TPO had arrived at the LIBOR rate of 0.95% is not clear. LIBOR rate for assessment year 2006-07 was 4.42% whereas what was considered by the ld. TPO as LIBOR rate for the impugned assessment year is 0.95%. We are therefore of the opinion that ld. Assessing Officer/TPO has to revisit the issue to fix the correct LIBOR rate, before deciding whether any adjustment for Arms Length Pricing is required. We set aside the orders of the lower authorities on the Arms Length Price adjustment, if any, required on interest on OFCD, and remit it back to the file of the ld. Assessing Officer/ld. TPO for consideration afresh in accordance with law. Disallowance u/s.14A - AO clearly expressed his dissatisfaction on the suo-motu disallowance made by the assessee as expenditure incurred for earning exempt income - HELD THAT:- Invocation of Section 14A of the Act r.w.r. 8D of the Rules, in our opinion, cannot be faulted. Nevertheless, none of the lower authorities had verified the claim of the assessee that its investments were all in wholl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Grounds 4 5 are on upward adjustment of ₹ 3,75,50,666/- towards interest on investments made by the assessee through Optionally and Fully Convertible Debentures (OFCD) in its Associated Enterprise. 3. Ld. Counsel for the assessee submitted that the issue regarding corporate guarantee had come up before this Tribunal in assessee s own case for assessment years 2009-10 and 2010-11 in ITA Nos.1039 1074/Mds/2014,and 706/Mds/2015. Contention of the ld. Authorised Representative, was that this Tribunal in its order dated 07.10.2016 in ITA Nos.1039, 1074/Mds/14 and 706/Mds/2015 had held that there could be no upward adjustment on commission for providing corporate guarantee to Associated Enterprise, since providing corporate guarantee not an international transaction. Ld. Authorised Representative also relied on the decision of Delhi Bench of the Tribunal in the case of Bharti Airtel Ltd vs. Adl. CIT , (2014) 39 CCH 415, that of Ahmadabad Bench of the Tribunal in the case of Micro Ink Ltd. vs. Addl. CIT, 157 ITD 132 and that of co-ordinate Bench in the case of Redington (India) Ltd. vs. JCIT, (2014) 40 CCH 527. 4. Per contra, ld. Departmental Representati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.5 Revenue s appeal in ITA No.1074/Mds./2014 for assessment year 2009-10 has been filed late by 3 days. Condonation petition has not been filed by Department. Before us, the ld.D.R explained the reasons for delay in filing the appeal due to administrative reasons. Reasons explained by the ld.D.R are justified and hence, delay is condoned and appeal admitted. 14. The facts of the issue are that TPO has made an adjustment of ₹ 8,24,42,500/- as commission income, for the same amount for the same guarantee in the case of Siva Ventures Ltd., which was a wholly owned subsidiary of the assessee and is now merged with the assessee, resulting in double taxation, while passing the Transfer pricing order u/s.92CA(3) of the Act. The DRP observed that the Panel cannot given direction on an objection which is not part of Application in Form 35A filed by the assessee. Therefore, the Panel did not give any direction on this issue. Against this, both the parties are in appeal before us. 15. We have heard both the parties and perused the material on record. This issue came up for consideration before this Tribunal in the Case of Redington India Ltd. Vs. JCIT i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Pvt. Ltd. v. Addl.CIT (24 Taxmann.com 21) have held that TNMM applied on an entity-wide basis is the most appropriate method for Benchmarking transactions that are not independent of the business carried on by an assessee. The learned senior counsel submitted that the adjustment made against the corporate guarantee may be deleted. Accordingly this ground is decided in favour of the assessee and against the Revenue. Co-ordinate Bench had followed the decision of Bharti Airtel Ltd (supra). That apart, in the case of Redington (India) Ltd (supra) again decided by a Co-ordinate Bench, the issue whether providing corporate guarantee to Associated Enterprise, could be considered as an international transaction had come up. What was held at paras 5 6 of its is reproduced hereunder:- 5. We have considered the rival submissions on either side and also perused the material available on record. We have carefully gone through the decision of the Delhi Bench of this Tribunal in Bharti Airtel Ltd. [2014] 2 ITR (Trib)-OL 475 (Delhi). This Tribunal found that the corporate guarantee issued for the benefit of the associated enterprise does not involve any co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee in its Associated Enterprise, which carried an interest of 2% as not at Arm s Length. According to the ld. Authorised Representative, the ld. TPO had considered the LIBOR rate of 0.95% and added such LIBOR rate to 2% interest applicable on OFCD and erroneously took 2.95% as the Arms Length Interest rate. Contention of the ld. Authorised Representative was that if the LIBOR rate of 0.95% was considered, assessee s rate of interest of 2% being more than such rate, it was at Arms Length. According to him, no reason was given by the ld. TPO for adopting 2% plus LIBOR rate as the Arms Length rate of interest chargeable on OFCD. As per the ld. Authorised Representative, the ld. DRP has confirmed the upward adjustment without properly appreciating the submissions made by the assessee. Reliance was placed on the decision of Co-ordinate Bench in assessee s own case in ITA No.2148/Mds/2010, dated 20.05.2011 for assessment year 2006-07. 7. Per contra, ld. Departmental Representative submitted that OFCD cannot be considered as equivalent to equity. According to him, it was only a debt. Contention of the ld. Departmental Representative was that even the conversion rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,16,23,701 365 4,66,44,959 1,50,21,258 TOTAL 1,50,21,258 Though the ld. TPO had given a clear finding that LIBOR rate applicable for interest was 0.95%, he had adopted the Arms Length interest rate as 2.95%. No reason whatsoever has been given by the considered the interest rate at LIBOR plus 2%. Though adoption of LIBOR as the appropriate rate cannot be faulted, in our opinion ld. TPO erred in adopting 2+ LIBOR. At this juncture it is apposite to have a look at para 11 of the decision of this Tribunal in assessee s own case for assessment year 2006-07 in ITA No.2148/Mds/2010, dated 25.05.2011. 11. We have considered the rival submissions. A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of 0% optional convertible preferential shares. Thus it IS noticed that the funds . raised by the assessee company for giving the loan to India Telecom Holdings Ltd., Mauritius, which is its Associated Enterprises and which is the subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer without expressing any dissatisfaction as to why assessee s own disallowance of ₹ 17,90,085/- was incorrect. According to him, there was no compliance with Section 14A of the Act. As per the ld. Authorised Representative, whole of the investments made by the assessee, were in subsidiaries wholly owned by it. According to him, ld. Assessing Officer did not exclude those investments which did not yield any exempt income, while working out the disallowance u/s.14A of the Act. In any case, as per the ld. Authorised Representative, disallowance u/s.14A of the Act had to be restricted to the amount of exempt income which came to ₹ 3,94,70,844/- only. Reliance was placed on the judgment of Hon ble Apex Court in the case of Godrej and Boyce Manufacturing Company Ltd vs. DCIT, 394 ITR 449 that of Hon ble Jurisdictional High Court in the case of Redington (India) Ltd vs. Addl. CIT, (2016) 97 CCH 219 that of Hon ble Delhi High Court in the case of Joint Investments Pvt. Ltd vs. CIT, 372 ITR 694, that of Special Bench decision of the Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd, 165 ITD 27 and that of Co-ordinate Bench decision in the case of M/s. EIH Associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our opinion, cannot be faulted. Nevertheless, none of the lower authorities had verified the claim of the assessee that its investments were all in wholly owned subsidiaries and investments which did not yield any exempt income had to be excluded, for the purpose of computing the disallowance u/s.14A of the Act. Ld. Assessing Officer also did not have the benefit of the judgment of Hon ble Delhi High Court in the case of Joint Investments Pvt. Ltd (supra) when he was considering the issue. In the fitness of the things, we are of the opinion that disallowance, if any, required under Section 14A of the Act needs a fresh look by the ld. Assessing Officer. We set aside the orders of the authorities below and remit the issue back to the file of the ld. Assessing Officer for consideration afresh in accordance with law. Ground No.6 to 11 of the assessee are partly allowed for statistical purpose. 13. Vide its ground No.12, grievance raised by the assessee is on a disallowance of ₹ 101,96,34,654/- made u/s.14A of the Act, while computing its book profits for applying Section 115JB of the Act. 14. Ld. Authorised Representative submitted that this issue was square ..... X X X X Extracts X X X X X X X X Extracts X X X X
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