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TMI Blog2020 (1) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... pted that banks were informed about the withdrawal of the corporate guarantee on 7/8/2013 which is after the date of the previous year under consideration. Therefore authorities below are quite correct in holding that in the eyes of law corporate guarantee was in existence and could be validly invoked against the assessee. The above view is also corroborated by the fact that the balance sheet of the assessee as on 31/3/2013 mentioned the corporate guarantees on behalf of subsidiaries under the head contingent liabilities and commitments . Furthermore, even information to the RBI for the aforesaid withdrawal was communicated in the next financial year in the month of August. Adjustment to Interest on Loan given to AE - HELD THAT:- As decided in own case [ 2018 (11) TMI 864 - ITAT MUMBAI ] assessee has advanced loan pursuant to loan agreements / arrangements to its AE and was entitled to certain rate of interest. These loan transactions as entered into by the assessee with the AE squarely falls within the ambit of Section 92(1) / 92B as an international transactions as accepted by the assessee in its TP study and the statutory provisions mandates that the income from such transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground: 1. Adjustment of ₹ 88,80,000/- pertaining to providing of Corporate Guarantee (CG) To Associated Enterprise (AE) 2. Adjustment of ₹ 12,98,09,060/- pertaining to Interest on Loan given to AE Part II- Corporate grounds: 1. Disallowance of Interest under section 36(1)(iii) of the Act. 2. Disallowance under section 14A read with Rule 8D of ₹ 5,13,050/- and also section 115JB adjustment in this regard. 3. Mismatch in Form 26AS data 4. Short grant of TDS credit of ₹ 1,95,103/- 5. Penalty under section 271(1)(c) of the Act. 4. Brief facts of the case are that Laqshya Media Private Limited (LMPL) is a specialist out of home advertising company engaged into the business since the year 1997. The assessee entered into following international transaction during the financial year 2012-13 with its associated enterprises AEs :- Sr.No. Nature of transaction Amount (Rs.) Method adopted by assessee 1 Interest free loan given During the year Other method 2 ₹ 1,90,91 ,655/- earlier years ₹ 92,38, 10,856/- Other method 3 Fees for technical services ₹ 1,09,07,956/- Cost plus method 4 Reimbursement of expenses ₹ 5,77,387/- Other method Total 95,43, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee are considered but the same were not to be accepted, due to following facts. Details of corporate guarantee given by the assessee to AE :- 1 Name of the AE Laqshaya Media International (Mauritius) 2 Country of the AE Mauritius 3 Bank name and country Not Applicable as the Corporate Guarantee given to AE and not to the Bank 4 Currency AED (Arab Emirates Dirham) 5 Interest rate at which the loan was taken by the AE Not Applicable as the loan taken by the step down subsidiary M/s. Right Angle Media FZ LLC 6 Exchange rate during the year ₹ 14.80 (as on 31.03.2013) 7 Whether any security was given by the assessee company to the lender bank? Not applicable as the assessee company has issued the Corporate Guarantee to its AE and not to the lender bank of step-down subsidiary 8 Whether any security was taken by the assessee company from the AE? No 9 Whether the AE has taken any loan from the third party / bank without corporate guarantee? AE has not taken any loan from third party. But AE as used set corporate guarantee in turned provide guarantee to HSBC Midlist Ltd., Dubai and National Bank of Dubai, Dubai for due payment of term loan availed by right angel media F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year and further during the year it has provided ₹ 1,90,91,655 to AE but it has not charged any interest. 10. The assessing officer obtained response from the assessee in this regard however, he held that the same was not acceptable and he computed the interest receivable on outstanding loan issued by the assessee to its AE at ₹ 12,98,09,060 benchmarking the same by adopting cup method. The observations of the Transfer Pricing officer in this regard are as under:- At the outset, the decisions relied by the assessee not charging of interest on loan, citing the reason that it is not an international transaction cannot be accepted as per the provisions of section 92B of the Act, due to the fact that non-charging of interest has direct impact on the income of the assessee. Further, in the earlier years, the assessee itself has benchmarked the interest receivable on the above loan transactions @13 to 14% interest rate and offered the same as income. It is further seen from the annual accounts of Laqshva Media International Mauritius, for year ending 31/03/2013. the Company has received interest of USD 24,63.219 from the loans advanced to Gulf Media holding @ 15% per annu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the same as income, which has been accepted by the Revenue to be at ALP. Accordingly, for this year as well, the rates as per the agreement of the assessee are considered appropriate to determine the ALP of the Interest to be received on the loan advanced. 5.17.5 The details of loan outstanding at the year end 31.03.2012 is as under : Sr No Nature of transactions Details of AE Amount (Rs.) Status 1 Loans Laqshya Media International, Mauritius Loans granted during the year ₹ 1,90,91,655/- Outstanding Loans granted in earlier years ₹ 92,38,10,850/- Outstanding 5.17.6 Accordingly, the interest receivable on the above outstanding loan issued by the assessee to its AE is benchmarked as per CUP method as under : Sr.No Amount of loan Interest Rate as per the original agreement Interest receivable (Rs) 1 76,81,00,940 14% 10,75,34,132 2 15,57,09,915 13% 2,02,42,289 3 1,90,91,655 14% 20,32,638 Total 942902505 Total 12,98,09,060 5.18 The ALP interest on loan advanced by assessee to its AE is determined at ₹ 12,98,09,060/-. Accordingly, the above amount of ₹ 12,98,09,060/- is treated as adjustment against the total income of the assessee of the current year against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that assessee has not discharged its onus to benchmark the transaction and since direct cup was not available with the TPO, he has adopted an indirect cup by obtaining the rates of guarantees given by the Indian banks. The DRP also referred the TPO has given due consideration to the jurisdictional High Court order in the case of Everest canto cylinder Ltd versus DCIT 378 ITR 57 wherein following was held In the matter of guarantee commission, the adjustment made by the TPO were based on instances restricted to the commercial banks providing guarantees and did not contemplate the issue of a Corporate Guarantee. No doubt these are contracts of guarantee, however, when they are Commercial banks that issue bank guarantees which are treated as the blood of commerce being easily encashable in the event of default, and if the bank guarantee had to be obtained from Commercial Banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing Corporate Guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that though the assessee has claimed that its statutory auditors had removed the mention of corporate guarantees from its Final Accounts, the same is not correct. The Balance Sheet of the assessee as at 31/03/2013 mentions the corporate guarantees on behalf of subsidiaries under the head 'Contingent Liabilities and Commitments'. It noted that it is also relevant to note that the DRP for AY 2011-12 and 2012-13 have also dismissed similar arguments of the assessee on the issue of corporate guarantee. Hence, it concluded that the objection no.1 of the assessee is dismissed. 14. On the issue of assessee s objection relating to adjustment of ₹ 13,98,09,060/- made by the Transfer Pricing officer on account of interest chargeable on interest free loans given to AE s the Dispute Resolution Panel referred to the order of DRP for assessment year 2012-13. Finding itself in agreement with its earlier decision it rejected the objections raised by the assessee. Aggrieved with the transfer pricing adjustment assessee is in appeal before the Tribunal. 15. Adjustment pertaining to provision of corporate guarantee to AE Learned counsel of the assessee reiterated the contentions as made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities below are quite correct in holding that in the eyes of law corporate guarantee was in existence and could be validly invoked against the assessee. The above view is also corroborated by the fact that the balance sheet of the assessee as on 31/3/2013 mentioned the corporate guarantees on behalf of subsidiaries under the head contingent liabilities and commitments . Furthermore, even information to the RBI for the aforesaid withdrawal was communicated in the next financial year in the month of August. 18. In the background of aforesaid discussion in our considered opinion, the view taken by the ITAT, as above, is fully applicable and we concur with the same as we find that facts are identical. We order accordingly. 19. Adjustment pertaining to interest on loan to AE Learned counsel of the assessee reiterated the submissions that no adjustment on account of interest on loan to AE is warranted. He made various submissions in this regard. However learned counsel fairly accepted that ITAT in assessee s own case own case for AY 2012-13 in ITA No. 1984/Murn/2017 dated 14 November, has decided as under: 5.6 We have carefully considered the submissions and relevant material on re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which assessee has deep interest, are justified on the grounds of commercial expediency are in the context of the question whether such a use of borrowed funds can be said to be for the purposes of business, and, accordingly, whether interest on borrowings for funds so used can be allowed as a deduction in computation of business income of the assessee. That is not the issue here, and these judicial precedents on the commercial expediency, therefore, have no relevance in computation of arm's length price of loan given to an associated enterprise. Similarly, learned counsel's contention that a notional income cannot be taxed, and reliance on Shoorji Vallabhdas Co. 's case (supra) in this regard, is wholly misplaced because that proposition is in the context of tax laws in general, whereas, transfer pricing provisions, being anti abuse provisions with the sanction of the statute, come into play in the specific situation of certain transactions with the associated ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 provide requisite details information to substantiate the claim. This ground stand partly allowed for statistical purposes. 4.8 Further, against the said order, Appellant had filed the Miscellaneous Application (MA) with the Hon'ble IT AT to make the certain rectification in the above order passed by the Hon'ble Tribunal. The Hon'ble Tribunal passed the order for the MA on 12th March 2019 (Refer page no 339 to 343 of paper-book) which is duly served to the assessee as well as to the department wherein the Hon'ble ITAT while giving directions to calculate the ALP within the framework of law keeping in view the principle laid down in para 5.6 of the said order has held as under: 4. Proceeding further, in para 5.7, the matter of quantification of appropriate applicable rate has been remitted back to the file ofLd. AO/ TPO with certain observations in the light of additional evidences submitted by the assessee. It is made clear that the Arm's Length Price of the stated transactions shall be determined within the fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The DRP also confirmed the addition. Against this order assessee is in appeal before us. 25. We have heard both the parties and perused the records. Learned counsel of the assessee contended that since the assessee has not earned any exempt income disallowance under section 14A is not warranted. In this regard is placed reliance upon several case laws including the following: Principal CIT versus Ballarpur industries Ltd ITA No. 51 of 2016 (Bom) Chem Invest Ltd versus CIT 378 ITR 33 (Delhi) Upon careful consideration we find that since the assessee has not earned any exempt income disallowance in this regard is not warranted in accordance with the case laws and referred above. We direct accordingly 26. As regards the disallowance with regard to computation under section 115 JB learned counsel of the assessee contended that as held by Hon ble Special Bench of the ITAT in the case of ACIT vs. Vireet Investments Private Limited for computation of book profit provisions of section 14A cannot be imported into clause f of the explanation to section 115 JA of the Act. 27. Upon careful consideration we are of the considered opinion that for computation of book profit under section 115JB ..... X X X X Extracts X X X X X X X X Extracts X X X X
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