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TMI Blog2021 (4) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... ur days. Shri A. Mohan representing the Department referred to application dated 20/01/2021 filed by the Department stating reasons for delay in filing of the appeals. After considering the submissions made in application, the delay in filing of appeals is condoned and the appeals are admitted to be heard and disposed of on merits. ITA NO. 1584/Mum/2014- A.Y 2006-07: 3. The Revenue has raised following grounds of appeal: 1. "Whether in the facts and in the circumstances of the case and in Law, the Ld. DRP erred in deleting the addition made in draft assessment order on account of TP adjustment of an amount of GBP 37.5 million (Rs. 297 crores)?" 2. "Whether in the facts and in the circumstances of the case and in Law, the Ld. DRP erred in deleting the addition made in draft assessment order on account of unexplained investment u/s. 69 of the I.T. Act for Rs. 297.71 crores? 3. "Whether in the facts and in the circumstances of the case and in Law, the Ld. DRP erred in deleting the addition made in draft assessment order on account of interest on external commercial borrowing?" 4. "Whether in the facts and in the circumstances of the case and in Law, the Ld. DRP erred in dele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2008-09 Sh. Chirag Vajrani, the representative of the assessee vide letter dated 27/07/2011 and 06/09/2011 admitted that the assessee is part of the consortium for extending loan to Tata Tea UK and has received participation/commitment fee of the credit allocation of GBP 37.5 million. The ld. Departmental Representative pointed that a perusal of letter dated 27/07/2011 would show that the assessee has contributed GBP 37.50 million to loan consortium. In subsequent letter dated 06/09/2011 the same employee of the assessee company changed its stand and stated that the assessee was not part of the consortium but admitted that the assessee has received participation/commitment fee. The ld. Departmental Representative referred to the draft assessment order dated 08/05/2013 and submitted that letters furnished by the assessee are self-contradictory. The assessee has failed to furnish documentary evidence as part of Transfer Pricing study documentation to benchmark the transaction. The assessee has not submitted contemporaneous documents for the period during which the entire loan transaction took place. No documents were submitted by the assessee on the basis of which fees an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition to extend such huge loan facility solely. The loan was extended to Tata Tea UK by consortium of banks/financial institutions with Rabobank London as lead lender. The assessee being originator of the deal was remunerated with percentage of interest earned. The ld. Counsel for the assessee referring to the letter dated 06/09/2011 pointed that the table given in the said letter would show that a loan of GBP 160 million was extended to Tata Tea UK during the financial year 2005-06 by consortium of six banks/financial institutions. The assessee was not part of that consortium. As per the arrangement the assessee was paid fee only for originating the deal. The assessee was not exposed to any financial risk. The ld. Counsel for the assessee referred to order under section 92CA(3) of the Act for assessment year 2008-09, wherein the letter of the assessee dated 21/09/2011 is reproduced. The said letter clearly states that Rabobank London performed the key functions such as negotiating the pricing terms with Tata Tea UK, invited various banks to participate in the syndication to jointly provide loan to Tata Tea UK. In the same very communication it was categorically denied that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectures. The cloud of suspicion arose in the mind of Assessing Officer from two letters i.e. dated 27/07/2011 and 06/09/2011, wherein inadvertently Mr. Chirag Vajani, made same statements which were factually incorrect. The said statements were subsequently retracted by filing an affidavit. The ld. Counsel for the assessee submitted that if the assessee would have extended loan to overseas entity in a clandestine manner, without proper approval, apart from beaching Income tax Act, it would have also violated the provisions of Company Law, FEMA and various other laws that would have attracted major penalty. The ld. Counsel to support his argument placed reliance on the decision in the case of A.S. Sivan Pillai vs. CIT, 34 ITR 328(Mad). 8. In respect of ground No. 3 and 4 of the appeal, the ld. Counsel for the assessee submitted that the assessee had availed ECB loan under automatic route. The assessee had availed ECB to finance its working capital requirement in India. The interest on ECB paid to Rabobank Hong Kong was offered to tax in its return of income for the relevant assessment year. The assessee complied with TDS provisions on said interest payment. The assessee referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to the tune of GBP 37.5 million. In the subsequent letter dated 06/09/2011 Chirag Vajani repudiated that the assessee was part of syndicate for extending loan. However, he stated that the assessee was paid participation/commitment fee of GBP 1,50,000 @ 0.40% of the credit allocation. The aforesaid letters do create an impression that the assessee in some manner was part of consortium that extended credit facility to Tata Tea UK. Later, Chirag Vajani retracted from the statements made in the aforesaid letters by filing an affidavit dated 04/03/2013 (page 1044 to 1047 of the paper book). 10. Further, to substantiate that the assessee was not part of consortium that had extended credit facility to Tata Tea UK, the assessee furnished various documents which inter-alia include; confirmation from Rabobank London (at page 958 of the paper book), Global Substitution Certificate giving list of participants (at pages 961 and 962 of the paper book), communication dated 19/09/2011 and 28/09/2011 from Rabobank London (at pages 1033 and 1034 of Paper Book), a communication dated 17/01/2013 from Rabobank Singapore regarding credit allocation of Rabobank London (at pages 1036 and 1037 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record to corroborate with the statements. 12. The findings of the TPO and the Assessing Officer in draft assessment order that the assessee has advanced loans from undisclosed sources is merely based on surmises and conjunctures. It is a well settled legal proposition that suspicion, howsoever strong, cannot take place of evidence. Except from the letters referred above there is no material to back the observations made by the TPO/AO. On the contrary, the assessee has furnished various documents to substantiate that the assessee was not part of syndicate that has extended loan facility to Tata Tea UK, however, the same have been ignored by the TPO and the assessing officer while passing the draft assessment order. In the absence of any cogent evidence, the Revenue has failed to discharge its onus while alleging that there was an outflow of funds from India by assessee or receivables from Rabobank London have been squared off for diversion of funds to syndicate for advancing loan to Tata Tea UK. The assessee cannot be expected to prove negative. The onus is on the Department to substantiate that the assessee has advanced amount to Rabobank London for loan to Tata Tea UK or ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. The Hon'ble Bombay High Court in the case of CIT vs. Lever India Exports Ltd., 292 CTR 393 has held that the jurisdiction of the TPO is only to determine ALP by applying most appropriate method specified under section 92C(1) of the Act. It is not the domain of TPO to determine allow ability of the expenditure. Similar view has been expressed in the case of CIT vs. EKL Appliance Ltd. 345 ITR 241 (Delhi). The Hon'ble Delhi High Court held that the TPO cannot question commercial expediency of the transaction or the quantum of benefit derived. 15. In the instant case the assessee has borrowed funds from Rabobank Hong Kong to finance its working capital requirements. The interest paid to Rabobank Hong Kong on ECB has been reflected in the books. Tax has been duly deducted on the payment of interest. Similarly, in respect of guarantee fee and service fee the assessee has been able to substantiate that the payments have been made for the purpose of assessee's business. The TPO cannot sit in the judgment whether these expenses were necessary for conducting the business or whether any benefit has been derived from the expenditure so incurred. The requirement of the law i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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