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TMI Blog2020 (9) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... idiary - assessee submits that interest on the loans given to AE to be benchmark by using the prevalent rate in the country where loans utilised for appropriate LiBOR rates - HELD THAT:- As decided in own case [ 2018 (11) TMI 864 - ITAT MUMBAI] AR submitted that the assessee had advanced loans in foreign currency i.e. US Dollars and therefore, the benchmarking was to be done at LIBOR and to support the same, additional evidences in the shape of outward remittance advices issued by the bank and other documents has been placed - 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 -, respectfully following the orders of the coordinate benches of the Tribunal this issues is restored back the file of TPO/AO to pass the order by following the directions in [2018 (11) TMI 864 - ITAT MUMBAI] . Disallowance under Section 14A - DRP affirmed the disallowance made by AO holding that disallowance made by him is in accordance with Rule 8D(2)(iii) being .5% of average value of investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act, 1961 (hereinafter the Act ) dated 29th October, 2018, passed in pursuance of the directions of Dispute Resolution Penal (DRP) dated 28th August, 2018 for A.Y. 2014-15. 2. The assessee has raised the following grounds of appeal: - On the facts and in the circumstances of the case and in law, the learned AO/ learned Deputy Commissioner of Income-tax, Transfer Pricing - 3(1)(1)(hereinafter referred to as TPO')/ Hon'ble DRP has: GENERAL GROUND 1. erred in assessing the total income at 5,67,38,117as against returned loss of ₹ 8,55,13,089 computed by the Appellant; PART B -TRANSFER PRICING GROUND: 2. Adjustment of ₹ 20.58.028/- pertaining to providing of Corporate Guarantee (CG) to Associated Enterprise (AE) 2.1 erred in making an adjustment under Section 92CA(3) of the Act of ₹ 20,58,0287- in respect of CG given by the Appellant to its AE, Laqshya Media International, Mauritius ('LMI') against the guarantee given by LMI to HSBC Bank Middle East Ltd and National Bank of Dubai for the amount borrowed by the Appellant's step down Dubai subsidiary Right Angle Media FZ LLC('RAM' or 'AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... realities that interest on loan advanced to AE's could not be recovered, as the recovery of loans itself was doubtful; 3.5 erred in not applying the principles of real income theory whereby only the income which has really accrued or arisen can be taxable and no tax can be levied on hypothetical income; 3.6 erred in determining the ALP of interest on loans given to AE at 13% p.a and 14% p.a without undertaking benchmarking analysis as per Indian Transfer Pricing Regulations; and 3.7 Without prejudice to the above grounds, erred in not appreciating the fact that interest rate in respect of advances given to AE should be based on LIBOR. PART II - CORPORATE TAX GROUNDS: 4. Disallowance of Interest of ₹ 64,95,182/- under section 36(1)(iii) of the Act 4.1 erred in making disallowance of interest expenditure claimed by the assessee under section 36(1){iii) of the Act amounting to ₹ 64,95,182 on the ground that interest free funds were advanced to the subsidiaries of the Assessee out of interest-bearing funds and hence, the same were not used for business purposes; 4.2 erred in not following principles of judicial discipline by not follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit for the above addition. 7. Short grant of IDS credit of ₹ 2,17.73.430/- 7.1 erred in granting IDS credit of ₹ 41,12,0607- instead of ₹ 2,58,85,490/-as claimed by the Appellant for the year under consideration i.e. short grant of IDS credit of ₹ 2,17,73,430/-; 8. Non-grant of set-off of brought forward business losses and unabsorbed depreciation 8.1 erred in not granting set-off of brought forward business losses and unabsorbed depreciation against the assessed income as claimed by the Appellant 9. Levy on Interest under section 234A 9.1 erred in levying interest under section 234A of the Act of ₹ 2,85,932, without appreciating the fact that the Appellant had filed the return of income, within the time limit prescribed under section 139(1) of the Act. 10. Levy on interest under section 234B 10.1 erred in levying interest under section 234B of the Act of ₹ 78,63,130. 11. Penalty under section 271 (1 )f c) of the Act 11.1 erred in initiating penalty under section 271{1)(c) of the Act. 3. Brief facts of the case are that the assessee, a company engaged in the business of outdoor media advert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said bank on the terms and conditions as mentioned in the facility letter dated 12.11.2007 of HDFC Bank Middle East Ltd. and facility letter dated 23.09.2007 of National Bank of Dubai. This corporate guarantee provided to the AE was reduced to AED 51 million vide amended deed Amendment Deed dated 04.01.2010 and further reduced to AED 40 million vide Guarantee Deed dated 29.04.2010. This guarantee was availed up to 01.07.2013. It was allowed prematurely cancelled/withdrawn by the step down subsidiary. The assessee has not reported this corporate guarantee in its report in Form No. 3CEB on the grounds that the assessee has not charged any guarantee fees. On show cause notice by the TPO, the assessee explained that no claim was raised by the assessee on AE against the corporate guarantee and the assessee has not incurred any cost or financial loss on the issuance of the said guarantee. The corporate guarantee was a bilateral agreement between the assessee and its step down AE. The TPO disregarded the contention of the assessee and held that corporate guarantee given by assessee to its AE was withdrawn by way of mutual consent. The TPO took his view that the intimation of withd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013 till the corporate guarantee remained in existence. The learned TPO is directed accordingly to restrict the adjustment on account of corporate guarantee @0.5% till July 2013. In the result, this ground of appeal is partly allowed. 9. Ground No. 3 relates to adjustment relating to interest on loan given to AE. The learned A.R. of the assessee submits that in the previous financial year the assessee granted loan of ₹ 94.55 crores to its AE. Laqshya Media International, Mauritius (LMI) for further lending to step down subsidiaries ₹ 78.72 crores @14% and ₹ 2.83 @13% and ₹ 13 crores for acquiring shares of overseas entity by AE at 13%. Out of ₹ 94.55 cores an amount of ₹ 81.55 crores was lent to RAM through LMI and subsequently through Gulf Media Holding, Mauritius and remaining ₹ 30 crores was given to LMI to acquire shares of APJ Digital. The learned A.R. for the assessee submits that the assessee grated to loan of ₹ 78.72 crore to LMI for the purpose of lending to RAM through Gulf Media Holding. The assessee agreed to grant loan to LMI aggregating ₹ 159.04 crores vide Board Resolutions dated 10.02.2009 and 14.04.2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 379,651 for the year ended 31 March 2013, has net current liabilities of AED 91,792,229 and net liabilities of AED 159,831,439 as at that date) The same is reflected in note 2(b) in the Financial Statement of Right Angle Media, Dubai for the FY 2012-13 on Going Concern . GMH (holding company of RAM) in its note 7 of Financial statements of FY 2013-14 also stated that an impairment loss of USD 5,731,968 representing 25% of the loan advanced to RAM has been accounted for in FY 2011-12 based on the assessment of the recoverability of the loan from RAM in line with its long term project and its ability and capacity to recover from the economic crisis in Dubai. Appellant has made substantial provision against the loan given to RAM - LML had provided ₹ 13.00 crores in FY 2009-10 and ₹ 39.63 crores in FY 2011-12 and ₹ 0.25 Crores in FY 2013-14 aggregating to 52.88 Crores against outstanding loan of ₹ 94.55 Crores. Appellant also made provision for the accrued interest of ₹ 2.61 crore in FY 2009-10 and ₹ 23.53 crores in FY 2011-12 in the books of LML, as principal loan itself was doubtful of recovery for the reasons mentioned above. The provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s impaired. Interest accrued up to FY 2010 -11 on the loan given to AE has been written off in the books of account of the assessee on 31 January 2017. 12. The learned AR of the assessee further submits that appropriate CUP for benchmarking the transaction of way of interest on loan would be Stressed Assets , since the AE is of the assessee are not in a position to discharge its liability neither to the assessee nor to any third party lenders /investors in the group, accordingly it was submitted that comparables like stressed company should be considered, wherein the loans advanced by banks were turned into stressed assets as there was no recovery of principal as well as interest on loans and hair-cut was also taken on the principal amount due to the bankers. The learned AR of the assessee also gave the examples of a comparables companies like Alok Industries, Bhushan Steel, Electrosteel Steels, Synergy Doory Automotive and Jet-Airways. 13. In alternative and without prejudice submission the learned AR for the assessee submits that interest on the loans given to AE to be benchmark by using the prevalent rate in the country where loans utilised for appropriate LOBOR rates as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest rate for loan advanced to foreign subsidiary based on market determined interest rate applicable to currency in which loan has to be repaid or as per national interest rate of interest, if the same is payable in India. In support of his submissions the ld DR for the revenue relied on the decision of Delhi High Court in CIT VS Cotton Naturals (I) (P) Ltd [2015] 55 txamann.com 523 (Delhi High Court). 17. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have also deliberated on the decision of Tribunal for assessment year 2012-13, which was followed in assessment year 2013-14. We have seen that the similar submission of learned AR of the assessee with regard to commercial expediency of loan given to subsidiary, was repudiated by coordinate bench of Tribunal in assessment year 2012-13 by holding that the commercial expediency of loan to subsidiaries is wholly irrelevant in ascertaining arm s length price of interest on loan to AE s by following the decision of Special Bench of Kolkata Tribunal in Instrumentarium Corporation Ltd versus ADIT (71 taxmann.com and 93). The coordinate bench of Tribunal in assessee s o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transactions between the associated enterprise, Section 92 of the Act mandates that the income from such transactions is to be computed on the 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e adjudication of the issue and the fact as to the currency in which the loan was granted and the currency in which it was repayable is not quite certain, the issue requires re-appreciation 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. 18. We have noted that subsequent to the aforesaid order the assessee filed MA vide MA No. 11/Mum/2019, which was disposed off vide order dated 12.03.2019, the relevant part of the order is extract below; 3. We have carefully considered the same. Upon careful consideration of para 5.6 of the stated order, we find that only a principle has been drawn on the strength of statutory provisions to arrive at a conclusion that so long as the transactions is an international transaction within the framework of law, the computation of income there-from has to be on the basis of arm s length principle. While arriving at such a conclusion, strength has been drawn from the cited decision of the special bench. This being the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the Assessing Officer. 23. We have considered the submissions of both the parties and noted that during the year the assessee has shown investments of ₹ 23.17 crores. The assessee in its Tax Audit Report submitted that no exempt income is earned by the assessee and that no expenditure was incurred for earning exempt income. Considering the submission of the learned A.R. of the assessee that no exempt income was earned by the assessee and the AO has not identified any exempt income, therefore, following the decision of the Tribunal in assessee s own case for A.Y. 2013-14, wherein the Coordinate Bench has followed the decision of the Hon'ble Delhi High Court in the case of Chem Invest Ltd. vs. CIT (378 ITR 33 Bom) and the decision of the Hon'ble Bombay High Court in the case of Principal CIT vs. Ballarpur Industries Ltd. in (ITA No. 51 of 2016), no disallowance in this regard for the year under consideration is warranted. Therefore, the AO is directed to delete the entire disallowance under section 14A. Since we have deleted the entire disallowance under section14A, similarly no adjustment on account of disallowance of section 14A in the book profit under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidiary companies was rejected. Hence disallowance of interest was done amounting to ₹ 4,51,66,441. 21. The dispute resolution panel following its earlier decision upheld the assessing officer's action. Against this order assessee is in appeal before the ITAT. 22. We have heard both the sides and perused the records. Learned counsel of the assessee reiterated that in assessee's own case ITAT for assessment year 2009 - 10 to assessment year 2012 - 13 has held that no disallowance in this regard is warranted as the interest free loan advanced to the subsidiaries was out of commercial expediency. Furthermore, the tribunal had also held that assessee's interest free funds to grant loans were sufficient and in this regard it had placed reliance upon Hon 'ble Bombay High Court decision in the case of CIT vs HDFC bank. In these circumstances learned counsel contended that no disallowance in this regard is warranted. He further contended that facts are identical and assessee's interest free funds are more than the advances given to AE's. 23. Upon careful consideration we find that since facts are identical and DRP has also followed its earlier year or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly. 31. We have considered the submissions of the parties and have perused the order of the authorities below. The AO while passing the draft assessment order made addition on account of mismatch of 26AS of ₹ 1,26,28,368/-. After the direction of DRP the addition was restricted to ₹ 24,03,464/-. We have seen that in assessee s own case for AY 2012-13 in ITA 1984/Mum/2017 dated 14 November 2018 on similar issues the Tribunal held as under: - The root of next issue lie in the fact that certain incomes as reflected in Form 26AS were not found to be credited in the Profit Loss Account and the income to the extent of ₹ 1.02 Lacs could not be reconciled by the assessee. The Ld. DRP directed id. AO to make further enquiries from the parties confirmed. Since no response was received from the concerned parties tilt the date of impugned order, the addition thereof was made in the hands of the assessee. The Ld. AR has pleaded that the additions are not warranted and raised an alternative plea that the credit of TDS against those payment should be granted to the assessee. Upon due consideration of factual matrix, we find that onus to reconcile the entries was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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