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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 ..... rise. Grounds 4 & 5 are on upward adjustment of Rs. 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 Representative submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment 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 Rs. 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 in ITA No.513/Mds./2014 dated 07.07.2014 for assessment year 2009-10 wherein h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 cost to the assessee and does not have any bearing on the profit, income or loss of assets of the assessee, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entative, 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 was not fixed upfront nor any a fixed method or formula mentioned. As per the ld. Departmental Representative, there was a clear violation of FDI R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. 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 subsidiary company, is out of the funds of the assessee company. It is not borrowed funds. The assessee has given the loan to the Associated Enterprises in US dollars. The assessee is also receiving interest from the Associated Enterprises in Indian rupees. Once the transaction between the assessee and the Associated Enterprises is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it LIBOR rate which has to be considered while determining the arm's length interest r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 Associated Hotels Ltd. vs. DCIT, (ITA Nos.1673, 1674 & 1919 & 1920/Mds2015). 11. Per contra, ld. Departmental Representative submitted that ld. Assessing Officer in the draft assessment order dated 30.12.2016 clearly expressed his dissatisfaction on the suo-motu disallowance of expenditure relatable to the exempt income, made by the assessee. Further according to her, there was nothing on record to show what were the investments which yielded exempt income and whether the investments were made in fully owned subsidiaries. Viz-a-viz restriction of disallowance to the exempt income, ld. Departmental Representative relying on Circular No.5/2014, dated 11.02.2014 of CBDT, submitted that even when there was no income which was exempt under the Act, a disallowance u/s. 14A of the Act could be made. 12. We have considered the rival contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. Vide its ground No.12, grievance raised by the assessee is on a disallowance of Rs. 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 squarely covered in favour of the assessee by virtue of decision of Special Bench in the case of Vireet Investment Pvt. Ltd (supra). 15. Ld. Departmental Representative did not advance any argument on this issue. 16. We have perused the orders and heard the contentions. What was held by the Special Bench of the Tribunal in case of Vireet Investment Pvt. Ltd (supra) at para 6.22 is reproduced hereunder:- ''6.22 In view of above discussion, we answer the question referred to us in fvour of assessee by holding that the computation under clause(f) of Explanation 1 to Section 115JB (2) is to be made without resorting to the computation as contemplated u/s.14A read with Rule 8D of the Income Tax Rules, 1962''. Special Bench had followed the judgment of Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT, (2015) 378 ITR 33. Considering the above decision of the Special Bench, we are of the opinion th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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