9911796707
TMI Blog2020 (1) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... s are in the nature of salaries, travelling, advertisement and other incidental expenses - Held that:- following the earlier decision [ 2015 (11) TMI 1792 - ITAT MUMBAI] , decided in favor of assessee. Exchange Gain/Loss in valuation of outstanding Foreign Exchange Forward Contracts - Held that:- The ld. CIT(A) appreciated the contentions of the assessee and directed that this sum should be taxed only in the year in which the said forward contracts gets matured i.e. in A.Y.2003-04. The ld. CIT(A) also directed the ld. AO to grant deduction, being the loss arising on account of valuation of outstanding forward contracts as on 31/03/2001 as the same is to be allowed even as per analogy of the ld. AO. - Order of CIT(A) sustained. Transfer pricing adjustment - Correspondent Banking Activities - Held that:- when services are rendered free of charge to the AE by the assessee and similarly AE also provided reciprocal services free of charge to the assessee, there cannot be any reason for doubting the said transaction or make any transfer pricing adjustment thereon as both the assessee as well as the AEs are part of global conglomerate. The assessee had considerably benefitted out of earni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no question of further fee that is required for the assessee in respect of continuing ECBs. We find that the ld. CIT(A) had categorically observed that HSBC India does not assume any risk in respect of continuing ECBs compared to the nature of service rendered by them.- No additions. X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure involved cannot be regarded as Head Office expenses as the employees were employed in India, initially the payment might have been made by the Head Office but the liability was that of the appellant and therefore, there is no reason to disallow the salaries paid to the expatriate employees. However, in A.Y. 2001-02, it has been held that there is merit in the AO's contention that the payments have been made overseas by the head office and there is no indication of any settlement of account, which would show that the liability incurred by the head office has been passed on the assessee bank and the expenses have been incurred outside India and are in the nature of head quarter expenses covered by section 44C of the Act. It was further observed that in the earlier years, the claim of the appellant had been consistently allowed but in the year under consideration, since the appellant has not been able to prove that the payments were made to expatriate officers for rendering services wholly and exclusively for the purpose of business in India and the relevant tax on their salaries though paid overseas were offered for taxation in India in their hands, the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.2004, the appellant stated before the AO that the claim for deduction for aggregate salary paid to expatriates outside India may be considered at ₹ 14,09,77,9917- and claim was not made of 50% of offshore salary of Mr. Ashok Bhatia Chief Technology Officer India [₹ 65,33,714/-] and offshore salary of Mr. Peter Valentine Senior Manager [₹ 95,50,348/-]. As regards Mr. Ashok Bhatia, it was stated before the TPO [para 5.3 of the order] that Mr. Ashok Bhatia has played an oversight role in Middle East and 50% of his total remuneration was stated to be for services rendered to AEs. As regards Mr. Peter Valentine, there is no explanation as to why his offshore salary should not be included in the claimed deduction. The complete salary [including offshore salary] is stated to be included in F no. 16 of the two officers. Therefore, the appellant's reliance on the F no. 16 and contention that part of the salary was paid overseas does not prove that the offshore salary claim was for services rendered by the 16 expatriate employees in India and was allowable as a deduction in computing the income of the Indian branch as it was incurred wholly and exclusively for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to disallowance of expenses incurred for mobilization of deposits from non-resident Indian to the tune of ₹ 4,54,65,934/-. During the course of assessment proceedings, the assessee explained before the ld. AO the details of expenditure incurred on mobilization of NRI deposits. The assessee submitted that these expenses were incurred by their head office and since the deposits were retained in the books of Indian branch, the related expenses incurred thereon are also debited to the Indian branch. The assessee has specifically submitted that these expenses are in the nature of salaries, travelling, advertisement and other incidental expenses incurred by the team of officers of the bank in the Middle East, UK, USA, Singapore and Hong Kong for mobilizing deposits from NRIs. It was pleaded that this expenditure has been incurred wholly and exclusively for the purpose of banks Indian operations. It was specifically mentioned that this expenditure was incurred for specific purpose of deposits mobilization and rendering related services to its customers and are not in the nature of general administration expenses and also not in the nature of common expenditure allocable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 2001-02 disallowing the claim of expenses on account of NRI deposit mobilisation on the ground that they are not subject to verification, the disallowance of the claim of ₹ 4,54,65,934/- in A.Y.2002-03 is confirmed. Ground uo.3 is dismissed. 3.1. Aggrieved the assessee is in appeal before us. 3.2. We have heard rival submissions and perused the material available on record. We find that this issue was subject matter of adjudication by this Tribunal in assessee's own case for A.Y.2000-01 in ITA No.2680/Mum/2004 dated 20/11/2015, among other years, wherein the Tribunal held as under:- "62. After considering the rival contentions of the parties, on perusal of the records as well as orders of the Tribunal in assessee's own case including the cases relied upon, we find that that the facts of the case relied upon by the assessee and case in hand are similar. The order relied upon by the assessee is dated 22.2.2006 and the present appeal pertains to the assessment year 1999-2000, and even today the revenue could not bring any material contrary to constrain to take a different view. Therefore, respectfully following the order of the Tribunal in assessee's own case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal in nature and hence, cannot be allowed as a deduction. The ld. AO remained silent in his order with regard to the alternative claim of the assessee for allowing deduction of ₹ 15,16,14,000/- in respect of very same loss which was disallowed in the earlier year had to be granted as deduction during this year as the contracts had been settled during the year under consideration. 4.2. The assessee submitted that the sum of ₹ 14,46,27,000/- represent foreign exchange gain arising out of valuation of outstanding forward contracts as at the end of the year as on 31/03/2002 and that the same were credited to profit and loss account and offered to tax. The assessee pleaded that by going by the same analogy of the ld. AO, the said foreign exchange gain of ₹ 14.46 Crores also would become notional in nature and cannot be brought to tax. The ld. CIT(A) appreciated the contentions of the assessee and directed that this sum of ₹ 14,46,27,000/- should be taxed only in the year in which the said forward contracts gets matured i.e. in A.Y.2003-04. The ld. CIT(A) also directed the ld. AO to grant deduction of ₹ 15,16,14,000/- being the loss arising on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o submitted the details of availability of own funds at its kitty to the tune of ₹ 870 Crores and 1790 Crores to drive home the point that it was flooded with interest free funds to make various investments in tax free securities and bonds. In other words, the assessee pleaded that the interest free funds available with the bank was over ₹ 2650 Crores as against total investment in tax free bonds made to the extent of ₹ 284 Crores. The ld. AO observed that the total investments made by the assessee were ₹ 89,48,13,717/- in securities and assumed the average cost of funds at 6.45% and applied the said percentage on the investments of ₹ 89.48 Crores and arrived at the disallowance of expenditure u/s.14A of the Act in the sum of ₹ 5,77,15,485/- (₹ 89,48,13,717/- x 6.45%) and disallowed the same in the assessment. The ld. CIT(A) upheld the action of the ld. AO. 5.1. Aggrieved, the assessee is in appeal before us. 5.2. We have heard rival submissions and perused the material available on record. We find from page 99 of the paper book comprising of letter dated 21/03/2005 filed by the assessee before the ld. AO wherein it has been categorically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments made to clubs. The ld. AO observed that assessee had not furnished the break-up of these expenses and also brought no evidence to lead that the said expenditure is incurred for the purpose of business. Accordingly, the ld. AO resorted to disallow 50% of the total expenditure as not incurred for the purpose of business in the sum of ₹ 42,41,728/-. 6.1. The ld. CIT(A) observed that the break-up of expenses are as under:- Membership and subscription - ₹ 25,92,410/- Entrance Fees - ₹ 41,95,000/- Other Payments - ₹ 16,96,047/- Total ₹ 84,83,457/- 6.2. The ld. CIT(A) by placing reliance on the decision of the Hon'ble Jurisdictional High Court in the case of OTIS Elevators Company India Ltd. reported in 195 ITR 682 held that membership, subscription and entrance fees are business expenditure and accordingly directed the ld. AO to allow the deduction for the same. With regard to other payments made to clubs in the sum of ₹ 16,96,047/-, the ld. CIT(A) reduced the estimated disallowance to 20% thereon. 6.3. Aggrieved, both assessee as well as revenue are in appeal before us. 6.4. We find that this issue is already covered in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said provision is not made on account of any contingent liability. The ld. AO without giving any finding simply dismissed the claim of the assessee and disallowed the sum of ₹ 3,91,61,437/- in the assessment. The assessee submitted before the ld. CIT(A) as under:- "34. During the appellate hearing, it has been stated that the credit card holders are entitled to one reward point on every purchase of ₹ 100/-; the credit card holder needs a threshold of 250 points to redeem the bonus point; these points are valid for two years from the date of enrolment to the reward points programme; the programme is available to all card holders. It has been stated that since the Indian branches of the bank did not have an existing bonus point programme at that point of time, the provisioning has been done as per the guidelines from its head office in Hong Kong which is based on international experience and provision was made at the rate of 0.70% of the card holder effective June, 2001 and prior to that the provision was 1%. The bonus points on the basis of 'estimated eligible purchases' [80%] multiplied by estimated cost per unit' [0.91%] multiplied by the 'estimated r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly submitted that this decision is distinguishable since it was held there in that 'what should be certain is the incurring of the liability' which as discussed above, is not the position in the present case. The AO is justified in making the disallowance of the claim of provision on account of bonus point on credit cards of ₹ 3,91,61,437/-. Ground no. 10 is dismissed. 7.4. Aggrieved the assessee is in appeal before us. 7.5. The ld. DR vehemently relied on the order of the lower authorities. We have heard rival submissions. We find that this issue was subject matter of adjudication of this Tribunal in assessee's own case for the A.Y.2001-02 in ITA No.4424/Mum/2005 and CO No.84/Mum/2006 and ITA No.4670/Mum/2005 dated 20/11/2015 wherein it was held as under:- 85. The ld. DR reiterated the same contentions as made before the ld.CIT(A) and relied on the order of AO. 86. The ld.Counsel for the assessee submitted that the ld.CIT(A) has passed well reasoned order by considering all aspects of the matter and prayed that the ground raised by the revenue be confirmed. In support of this contentions he placed reliance on the following decisions : a) ACIT V/s M/s Shopper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipts thereon. Accordingly, the ld. AO brought to tax a sum of ₹ 24 lakhs in the assessment on account of deferred guarantee commission. Before the ld. CIT(A), the assessee submitted as under:- "40. The appellant has relied on the order of the CIT(A) in its own case for A.Y.2001-02 as well as the CIT(A)'s order in the case of Abu Dhabi Commercial Bank Ltd. for A.Y.98-99. The appellant has also furnished sample copies of the agreements for guarantee entered into by the bank during the previous year relevant to A.Y.2002-03 and has stated that from the agreements, it will be noted that there is no clause for refund of guarantee commission in case it is revoked before the date of maturity but on a case to case basis, in respect of big relationship customers, the bank refunds a portion of the guarantee commission relating to the unexpired period after obtaining special internal approvals." 9.1. The ld. CIT(A) upheld the action of the ld. AO by observing as under:- "41. I have carefully considered the appellant's submissions. In the appellant's case for A.Y.2001-02, the CIT(A) considered the finding in the appellate order of Abu Dhabi Commercial Bank Ltd. for A.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard rival submissions. The ld. DR vehemently relied on the order of the ld. AO. We find that this issue has already been adjudicated by this Tribunal in assessee's own case in ITA No.4424 and 4670/Mum/2005 for A.Y.2001-02 dated 20/11/2015 wherein this Tribunal by placing reliance on the decision of Hon'ble Calcutta High Court in the case of CIT vs. Bank of Tokyo reported in 71 Taxmann.com 85 had deleted the addition made by the ld. AO. The relevant observations of this Tribunal for A.Y.2001-02 are reproduced as under:- "98. The ld. DR relied on the decision of the AO and also contented the facts of the issue as mentioned before the ld. CIT(A). 99. The ld. AR submitted the facts and contended that the ld. CIT(A) has considered the issue and decided in favour of the assessee. He submitted that the findings of the ld.CIT(A) are in consonance of the law and, he therefore prayed that the findings of the ld.CIT(A) be upheld. He also contended that an identical issue had come up before the various Courts and they have decided the issue in favour of assessee. Accordingly, he placed reliance on the following case law: a) BNP Paribas SA (Bombay HC) (2013) (32 Taxman.com 276); b) CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of Section 40A(9) of the Act. The assessee explained before the ld. AO that it was only for administrative convenience that the expenditure is incurred by making payments to staff cultural committee and that the expenditure was not in the nature of provision as contemplated u/s.40A(9) of the Act. The assessee pleaded before the ld. CIT(A) that this issue is covered in its favour by the orders of the Tribunal for the A.Y.1984-85 to 1987-88 and the orders of the ld. CIT(A) for A.Y.1996-97 to 2001-02. The ld. CIT(A) following the orders in assessee's own case for earlier years as stated supra deleted the disallowance. We find that this issue has already been decided in assessee's favour for A.Y.2001-02 among other years vide order dated 20/11/2015, wherein it was held as under:- "90. The ground No.4 taken by the revenue pertains to deletion of disallowance of ₹ 14,99,000/- incurred on library subsidy, contributions to staff cultural committee and recreation club. 91. We have already discussed similar ground of revenue's appeal and vide paragraphs 21 to 28 of this order for the assessment year 1999-2000, we have dismissed ground taken by revenue therein. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/- and accordingly disallowed the same in the assessment. Before the ld. CIT(A), the assessee submitted that this issue was already decided in its favour for the A.Yrs. 1998-99 to 2001-02 wherein the disallowance of ₹ 1 lakhs alone was sustained and remaining sums were deleted. The ld. CIT(A) restricted the disallowance to ₹ 1 lakh by following the earlier orders in assessee's own case. 12.1. Aggrieved, the revenue is in appeal before us. 12.2. We have heard rival submissions. The ld. DR vehemently relied on the order of the ld. AO. We find that this issue has already been decided in assessee's own case for the A.Y.2001-02 in ITA No.4424/Mum/2005 dated 20/11/2015 among other assessment years wherein it was held as under:- "92. The next issue raised by the revenue in this appeal pertains to deletion of disallowance of ₹ 2,37,21,174/- in respect of entertainment expenses. 93. This ground being identical and no change in facts to that of Ground No.5 for the assessment year 1999-2000, we take similar view as taken therein vide para No.30 to 35 of this order. Accordingly, we dismiss Ground No.5 taken by Revenue." 12.2.1. Respectfully following the same, the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , credit review / due diligence of the customers to ascertain the creditworthiness and monitoring the risk profile of the customers, 0 assistance in executing foreign currency loan / ECB transactions, debts syndication etc., marketing of derivative products for which, the benefit is derived by the overseas branches/ HO. If such services are rendered, please give the details of such services, the functional analysis and the amounts received for such services" 14.2. The assessee vide reply dated 20/12/2004 submitted before the ld. TPO submitted as under:- The Correspondent Banking Division (INM IB') of HSBC India manages with Non-bank Financial Institutions ('FIs') like insurance companies, Management companies, and securities houses as well as banks in India. Indian Fis INM IB's efforts vis-a-vis Indian FIs includes marketing of loans, payments and cash ent facilities, guarantee and other products offered by HSBC India These if and when sold by HSBC India results in revenue streams like float income, guarantee commission, fee income as a result of payment and cash lent facilities etc. This revenue is booked by HSBC India and is also offered to income tax It m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005 submitted that the statement showing details of derivative products marketed by them were already furnished before the ld. TPO vide submission dated 28/01/2005 which included both the deals originated during the F.Y.2001-02 and also cancelled /unwound derivatives. 14.4. On without prejudice basis, the assessee submitted the following information in respect of correspondent banking activities before the ld. TPO as under:- Particulars Total Cost Estimated costs for correspondent banking activity (50% of total costs) Direct costs of employees providing support for correspondent banking as well as engaged in providing services to Indian banks (refer our letter dated 20 December 2004) ₹ 8,842,381 ₹ 4,421,190 General administration costs allocated to above direct costs (refer our letter dated 20 December 2004) ₹ 5,683,700 ₹ 2,841,850 Head Office expenses allocated @17.5% of administration costs (based on the ratio of Head office expenses debited to P & L operating expenses (excluding employee costs) ₹ 994,648 ₹ 497,324 Total costs ₹ 15,520,729 ₹ 7,760,364 14.5. The assessee vide letter dated 21/03/2005 submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank to overseas associated enterprises. We request you to appreciate that provision of the above support is merely incidental to our normal business operations, i.e. corporate and consumer banking. We invite your attention to the Transfer Pricing Guidelines issued by the OECD, which state that there is no need to charge mark-up in cases where the equivalent market price of the service is not greater than the costs incurred by the service provider in rendering that service. This could be the case where the service is not part of the main business activity of the service provider, but is offered incidentally as a benefit to the related party (para 7.33 and 7.34 of the guidelines). Without prejudice to our above contention, we submit that in any case a mark-up should not be loaded on the Head Office expenses proposed to be allocated to the marketing support provided in respect of correspondent banking activities and support provided by bank's employees to overseas associated enterprises as there is no value addition by the branch, with respect to the Head Office costs allocated on an overall basis by the Head office. 4. Without prejudice to our contention that no mark-up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecovery purposes. Accordingly, contention of the assessee is rejected. (e) The contention of the bank that the companies referred by this office as comparables are not functionally comparable to the marketing activities undertaken by the bank is also not acceptable, because (f) The marketing services provided by the bank are in respect of the products offered by the foreign branches. Such products, if sold results into very high income to the associated entities. The services are rendered by highly qualified experts in the financial market. These are the traders/marketers, who are paid very high salaries. The assets used is one of the important factor which requires to be considered while analyzing the comparability of uncontrolled transaction with the international transaction. A search was conducted by this office for the companies who are engaged in the financial consultancy services, business consultancy services and other consultancy services and the companies which were earning more than 75% of the income from fee based activity were identified for FAR analysis. After considering the Directors Report and Notes to Accounts of the companies, the companies mentioned in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices, similar to that rendered by the bank for the very specific financial products, the margins earned by such independent enterprise would be much higher. Considering the above, the contentions of the bank are rejected and operating margin on cost of 22.91% is used for computing the Arm's Length Price. The Arithmetic Mean of the Net Cost Plus Mark-up is worked out at 22.91% and the same is adopted for computing the Arm's Length Price of this transaction. The total cost attributable of corresponding banking activity is ₹ 15,520,729/-. After applying a mark-up of 22.91% on costs, the Arm's Length Price of this transaction is computed at ₹ 19,076,528/- as against Nil. Due to this, an upward adjustment of ₹ 19,076,528/- is required to be made to the income of the assessee." 14.9. With the aforesaid observations, the ld. TPO made an upward adjustment of ₹ 1,90,76,528/- to the ALP in respect of correspondent banking activities of the assessee. 14.10. While applying TNMM, the ld. TPO aggregated the entire direct, indirect cost of the correspondent banking department of the assessee along with head office expenses to calculate the cost base an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vostro accounts of HSBC India to banks domiciled outside India, The assessee does not pay any amount to overseas HSBC branches for such marketing services. It is also pertinent to note that as a result of various services of overseas HSBC branches, as above, assessee had earned float income of ₹ 1.97 Crores on the interest free balances maintained by the Indian banks which have maintained Vostro account with the assessee. This fact is not disputed by the revenue before us. Hence, it could be safely concluded that the assessee and the overseas HSBC offices being a part of the HSBC group derived reciprocal benefits and thus the non-charging of costs for providing the incidental marketing support services to overseas HSBC entities would not cause any prejudice to the interest of the assessee as well as the revenue. 14.12.2. Further, the total cost of INM IB division is only ₹ 1.55 Crores, whereas the income earned from the activity performed by INM IB division is ₹ 4.48 Crores (including income from Indian FI and ₹ 1.97 Crores- float income from Vostro account). Even if only the float income from Vostro Account is considered, still the assessee has earned a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. AR placed reliance on the decision of Co-ordinate bench decision of this Tribunal in the case of Det Norske Veritos A/S. v. Additional Director of Income Tax reported in 67 taxmann.com 16 (Mumbai Tribunal) wherein it was held that if the main international transactions have been benchmarked, then incidental transaction cannot be considered as a standalone transaction and an adjustment to that effect cannot be made independently. 14.15. We find that with regard to allocation of cost and mark up thereon, the ld. AR argued that the ld. TPO and the ld. CIT(A) erred in considering the head office expenses for arriving at the cost base. It was submitted that only indirect costs are attributable to the activities should have been considered as concerned employees perform the work in the Indian business of the assessee and they do not use any significant additional facility to provide marketing support in respect of correspondent banking activities. Further, there is no reason for allocating head office expenses to the costs incurred for rendering services as the head office expenditure allocated to India is for the purpose of main line of banking business undertaken by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e vide letter dated 21/03/2005 further submitted that with regard to allocation of costs of expatriates / Indian employees rendered services to AEs as under:- Name designation Total Remuneration proportionate remuneration for services rendered to AEs (A) Allocated it direct costs n eluding Head office allocation @ (B) Fully loaded costs (A) + (B) Ashok Bhatia Head Information Technology -India & Middle East 18,199,614 9,099,807(50% of total costs) 6,870,354 15,970,161 Christopher R Trench Manager Group Audit India 10,455,398 : 1,726,281 (based on actual time spent) 3,029,623 4,755,904 Chandrashekar Sawant Manager Service Quality Training 2,605,241 356,882 {based on estimated time spent) 269,446 626,328 R L Gopalkrishnan Asst Manager Internal Audit 2,060,904 340,274 (based on actual time spent) 597,181 937,455 Pramod Maveli Executive Internal Audit 879,337 156, 144 (based on actual time spent) 270,523 426,667 Total 22, 716, 515 15.4 The assessee submitted that these employees normally rendered the services from India only. In case of travel, the travel expenses, boarding and lodging expenses are borne by the respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration while making TP adjustment as it would lead to double disallowance. In any case, these employees render liasoning and coordination of services at group level as a mere incidental activity and the same need not be even considered as separate international transaction warranting any benchmarking thereon. As we have already held, that the main banking transactions carried out by the assessee have been accepted to be at ALP, the incidental activities cannot be separated and benchmarked independently. Hence, the transfer pricing adjustment made in this regard by the ld. TPO in respect of role of certain employees of the bank for the A.Y.2002-03 is directed to be deleted. Accordingly, the ground Nos. 11.1. to 11.4 raised by the assessee for the A.Y.2002-03 are allowed. 16. Ground No.12 raised by the assessee for A.Y.2002-03 is with regard to charging of interest u/s.234D of the Act which is consequential in nature. The ld. AO is hereby directed to re-compute the same based on the fact of actual refunds granted to the assessee. 17. The revenue has raised the solitary ground on the transfer pricing issue with regard to deletion of transfer pricing adjustment of ₹ 10,80,22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared with HSBC India. In respect of continuing transactions, after disbursal of the ECBs, the Indian Branch undertake the normal monitoring of the accounts and follow up with the customers. For these services, the assessee is not receiving any compensation from the foreign branches who have advanced the ECBs to the customers of Indian Branches. 17.4. The ld. TPO observed that the arm's length price in respect of services rendered for continuing ECB transactions is required to be worked out because the overseas branch is helped by a local branch for the documentation, collecting fees, ensuring smooth and timely payment of interest etc., and credit review and monitoring of performance, monitoring of breach of covenants, monitoring of assets, co-ordination with other banks, lenders to clients under syndication and preparation of watch list report. 17.5. The ld. TPO observed that for the activity relating to origination and marketing of foreign currency loans, provided by foreign branches of the banks, the uncontrolled transactions are not available, as the same service are not being provided by any Indian entity to unrelated party, similarly the foreign branches of the foreign bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uting the Arm's Length Price, however, if either net interest or fee is shared with Indian Branch, it may not be the sharing at arm's length, for the following reasons : (a) The fee as well as the interest charged in the ECB Transactions depends on the convenience of the two parties to the transactions. The client would agree to pay a higher fee with less interest rate or vice versa because the loan disburser is concerned with the value received in the transaction and not the split thereof. (b) The income streams from ECBs would be the interest margin, commitment fees or any similar charges paid by the borrower and booked in overseas branch books. If a particular split from either interest or fee is used for computing the arm's length price, it might lead to shifting of consideration for the ECBs, from fee to interest or vice versa. 17.8. The Arm's Length Price in respect of the services rendered for continuing ECB transactions is also required to be worked out as the bank is rendering the services which are discussed above. 17.9. The compensation for such services is required to be computed at Arm's Length. In the present case, by using the data availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding, the other contentions raised by the appellant are not being examined. The AO is directed to delete the adjustment of ₹ 10,80,225/-. Ground no. 19 is allowed." 17.11. Aggrieved, the revenue is in appeal before us. 17.12. We have heard rival submissions. At the preliminary facts stated hereinabove remained undisputed and hence, the same are not reiterated herein for the sake of brevity. It is not in dispute that assessee had received Debt Syndication Fees of ₹ 67,68,620/- together with 50,000 USD as its fee / commission income for enabling the Indian customers to avail ECBs from its overseas branches. The said receipt of fee / commission income has been accepted to be at arm's length. Hence, there is no question of further fee that is required for the assessee in respect of continuing ECBs. We find that the ld. CIT(A) had categorically observed that HSBC India does not assume any risk in respect of continuing ECBs compared to the nature of service rendered by them. This categorical finding has not been controverted by the revenue before us. Hence, we hold that no transfer pricing adjustment in respect of the services rendered by HSBC India in respect of continuin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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