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TMI Blog2021 (4) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Income Tax, Range 5(1)(1), Mumbai ('hereinafter referred to as Assessing Officer7) and relates to the Assessment Year 2012-2013. (1). The Assessing Officer (AO) / Transfer Pricing Officer (TPO) / Dispute Resolution Panel (DRP) erred in holding that the transaction of giving financial guarantee by the Appellant on behalf of its Associated Enterprises (AEs) was an "international transaction" under Section 92B of the Act. (2). The AO / TPO / DRP erred in determining the Arm's Length Price of the financial guarantees given by the Appellant on behalf of its AEs @ 2% per annum. (3). The AO / TPO / DRP erred in making a transfer pricing adjustment of Rs. 28,69,70,745/-on account of guarantee commission. (4). The AO /TPO / DRP failed to appreciate that giving of financial guarantees by the Appellant on behalf of its subsidiaries was a shareholder activity for which no charge is required. (5). The AO / TPO / DRP erred in law and in facts in rejecting the benchmarking analysis undertaken by the Appellant in respect of guarantee commission in its transfer pricing documentation. (6). Without prejudice to Ground Nos. 1 to 5, the Assessing Officer / Transfer Pricing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The interest under section 234C should be restricted to Rs. 11,74,709/-. The Appellant craves leave to add to, amend, alter, modify or withdraw any or all the Grounds of Appeal before or at the time of hearing of the Appeal, as they may be advised from time to time." 2. Briefly stated, the assessee company which is engaged in the business of owning, operating and charter hiring of supply vessels, tugs, barges, rigs and all types of vessels related to offshore services and undertaking activities related to drilling including deep water drilling and shipping related activities had e-filed its return of income for A.Y 2012-13 on 28.11.2012, declaring a total income of Rs. 102,21,04,981/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. Observing that the assessee during the year in question had entered into international transactions with its associated enterprises (for short "AEs") exceeding the prescribed limit of Rs. 15 crore, the A.O, thus made a reference to the Transfer Pricing Officer (for short "TPO") for determining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the A.O. However, the DRP not finding favour with the contentions advanced by the assessee dismissed the respective objections as were raised before it. 6. After receiving the order passed by the DRP under Sec. 144C(5), dated 29.12.2016, the A.O taking cognizance of the fact that pursuant to rejection of all the objections that were raised by the assessee before the DRP the draft assessment order passed by him had remained undisturbed, therein assessed the income of the assessee company vide his order passed under Sec. 143(3) r.w.s 144C(13), dated 06.01.2017 at Rs. 132,70,76,760/-. 7. Aggrieved, the assessee has assailed the assessment framed by the A.O under Sec. 143(3) r.w.s 144C(13), dated 06.01.2017 in appeal before us. The Ld. Authorised Representative (for short "A.R") for the assessee at the very outset of the hearing of the appeal took us through the respective issues which were being assailed in the present appeal. Ld. A.R had challenged the TP adjustment of Rs. 28,69,70,745/- that was made by the A.O/TPO as regards the corporate guarantee that was given by the assessee to foreign banks on behalf of its AEs. Elaborating on the facts therein involved, it was submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank would be higher than the bank guarantee fee charged by the banks. Accordingly, the TPO backed by his aforesaid conviction, in substance, without adopting any specified method for benchmarking the transaction of providing of guarantee by the assessee to its foreign AEs had on an ad hoc basis took the ALP of the guarantee fees at 2% p.a and determined the same at Rs. 36,66,16,120/-. As the assessee had made a suo motto adjustment of Rs. 7,96,45,375/- i.e @0.43% thus, the TPO made an upward adjustment of Rs. 28,69,70,745/- [Rs. 36,66,16,120/- (-) Rs. 7,96,45,375/-]. Ld. A.R assailed the determination of the ALP of the financial guarantee that was provided by the assessee to the banks in order to facilitate raising of loans by its AEs. It was submitted by the ld. A.R that the TPO had grossly erred in law in rejecting the Internal CUP that was adopted by the assessee for benchmarking the transaction of providing of financial guarantee by the assessee to the foreign banks for facilitating raising of loans by its foreign AEs. It was further submitted by the ld. A.R that the TPO had erred in law by taking the ALP of the transaction of providing financial guarantees to the banks on an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the assessee"s counsel to drive home his claim. As is discernible from the orders of the lower authorities, corporate guarantees were given by the assessee company to the foreign banks in order to facilitate raising of loans by its AEs viz, Greatship Global Energy Services Pte. Ltd; and Greatship Offshore Services Pte. Ltd., both Singapore based concerns; from DnB Nor Bank, Singapore; Bank Of Nova Scotia, Singapore; and ABN Amro Bank. Although the assessee had not charged any guarantee fees as per its books of accounts, however, in Form 3CEB it had taken the ALP of guarantee fees at 0.43% of the amount of loan and had computed the ALP of the corporate guarantee given to the banks on behalf of its AEs, viz. GGOS and GGES at Rs. 2,57,96,937/- and Rs. 5,38,48,438/-, respectively. Accordingly, the assessee had made a suo-motto adjustment of Rs. 7,96,45,375/- w.r.t the transaction of providing corporate guarantee to the banks in order to facilitate raising of loans by its AEs. As noticed by us hereinabove, the assessee had benchmarked the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guarantee by the assessee to the foreign banks for facilitating raising of loans by its AEs. Observing, that the guarantee fees rates charged by the banks to Indian companies varied from 1.10% to 3%, the TPO had adopted the same as a yard stick and had concluded that the range of corporate guarantee fee for foreign based transactions would conservatively be in the range of 1.5% to 3.5%. As such, in the backdrop of his aforesaid observations that the TPO had estimated the corporate guarantee fee at 2% of the actual borrowed capital. In our considered view the very basis adopted by the TPO for determining the ALP of the corporate guarantee i.e guarantee fees rates charged by the banks to Indian companies is inconsistent with the ratio laid down by the Hon'ble High Court of Bombay in the case of CIT Vs. Everest Kanto Cylinders Ltd. (2015) 378 ITR 57 (Bom). In its aforesaid order, it was held by the Hon"ble High Court that the considerations which apply for issuance of corporate guarantee were distinct and separate from that of guarantee provided by the banks and, therefore, the two transactions were incomparable. In fact, involving identical facts the Tribunal in the assessee"s own c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approach of the TPO is clearly inconsistent with the ratio laid down by the Hon"ble Bombay High Court in the case of Everest Kanto Cylinder Ltd. (supra). Notably, in the case of Everest Kanto Cylinder Ltd. (supra), the dispute was relating to the adjustment made by the TPO in the matter of Guarantee commission earned for providing a Corporate Guarantee to the Bank in connection with the borrowings made by the AE of the assessee therein. The TPO determined the arm"s length price of such transaction based on the instance of commercial banks providing Guarantee on behalf of their clients. The Hon"ble High Court held that the considerations which apply for issuance of Corporate Guarantee were distinct and separate from that of Guarantee provided by the banks and, therefore, the two transactions were incomparable. In our considered opinion, similar parity of reasoning is applicable in the present case too because the considerations which weigh for raising of bonds, that too in Indian market, are quite distinct and incomparable with the instance of providing of Corporate Guarantee to a bank abroad in connection with raising of loan from such bank by the AE of assessee outside India. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for obtaining bank guarantee, as they are easily encashable in the event of default as in comparison to corporate guarantee provided by an assessee company to a bank for facilitating raising of loan by its AE. Accordingly, we are of the considered view that insofar the adequacy of the ALP of the corporate guarantee fees determined by the assessee at 0.43% is concerned, the same in the backdrop of the aforesaid facts cannot be called in question. Apart from that, we find that it was also the claim of the assessee before the lower authorities that Kotak Mahindra Bank (as per its sanction letter) had expressed its willingness to give guarantee on behalf of the AEs at a commission rate of 0.40% p.a/0.50% p.a. In the backdrop of the aforesaid fact, we find substantial force in the claim of the ld. A.R that the aforesaid credit sanction letter too would constitute a CUP for benchmarking the transaction of providing of corporate guarantee by the assessee to the banks for facilitating raising of loans by its AEs. Be that as it may, the adequacy of the ALP of corporate guarantee fee at 0.43% can also safely be gathered by drawing support from the following judicial pronouncements as had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Interest (Rs.) 22.02.2011 01.04.2011 01.10.2011 22.02.2012 4,00,00,000 4,00,00,000 4,00,00,000 0.0369275 0.0369275 0.0396605 30.09.2011 21.02.2012 31.03.2012 183 144 39 7,38,550 5,81,154 1,69,465 45.88 49.21 49.21 3,40,68,228 2,85,98,593 83,39 03.11.2011 03.11.2011 1,80,00,000 0.0384489 31.03.2012 150 2,83,639 49.21 1,39,57.906 03.02.2012 03.02.2012 50,00,000 0.3984 31.03.2012 58 31,567 49.21 15,53,423 06.02.2012 06.02.2012 85,00,000 0.0398275 31.03.2012 55 50,873 49.21 25,03,439 Total 8,90,20,949/- (B). Greatship (UK) Limited : Date of disbursement Date Principal amount Rate LIBOR + 3% Period ended No. of days Interest (USD) Ex. Rate Interest (Rs.) 18.03.2011 01.04.2011 18.03.2012 10,00,000" 10,00,000 0.037705 0.040531 17.03.2012 31.03.2012 352 14 36,263 1,550 50.88 50.88 18,53,924 78,883 Total 19,32,806 The assessee had charged interest aggregating to Rs. 9,09,53,756/- [Rs. 8,90,20,949/- (+) Rs. 19,32,806/-] from its AEs, viz. (i) Greatship Global Holdings Ltd. (for short "GGHL"); and (ii). Greatship (UK) Limited (for short "GUK") at the rate of LIBOR plus 2.9% mark-up and LIBOR plus 3% mark-up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ark the loan transaction by treating the AE as a tested party under the external CUP method then the onus was cast upon it to find out comparable transactions where third parties (with same credit rating and in the same geography as the AE) under similar circumstances had borrowed funds in UK and Mauritius. Observing that the Hon"ble High Court of Delhi in the case of CIT Vs. Cotton Naturals (I) Pvt. Ltd (55 taxmann.com 523), had held, that the ALP of the interest rate should be determined based on the rates prevailing with respect to the currency in which such loans were advanced the TPO conducted search on www.bloomberg.com to find out the average interest rate of foreign currency loans taken by companies in Mauritius and U.K. Based on his search, the TPO observed that though the average rate of interest in case of USD borrowings in UK was comparable to LIBOR + 3% charged by the assessee from its U.K based AE, viz. GUK, however, the average rate of interest on borrowings in Mauritius worked out to 431.25 basis points. On being confronted with the aforesaid set of facts the assessee objected to the adoption of the interest rate w.r.t loan advanced to its Mauritius AE, viz, GGHL at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced by the assessee to its AE at Singapore could not be applied as a precedent for determining the ALP of the interest paid on the loan that was advanced to its AE, viz. GGHL, Mauritius. Accordingly, in the backdrop of its aforesaid observations the panel rejected the objection of the assessee as regards the TP adjustment w.r.t the interest charged by the assessee on the loan advanced to its Mauritius based AE, viz. GGHL. After receiving the order passed by the DRP under Sec. 144C(5), dated 29.12.2016 the A.O vide his order passed under Sec. 143(3) r.w.s 144C(13), dated 06.01.2017 inter alia made an addition towards TP adjustment of Rs. 97,39,903/- as regards the ALP of interest paid on loan advanced by the assessee to its AE, viz. GGHL, Mauritius. 12. The assessee has assailed the TP adjustment carried out by the A.O/TPO as regards the interest charged on the loan advanced by it to its AE, viz. GGHL, Mauritius. Before us, it was submitted by the ld. A.R that the TPO/DRP had wrongly rejected the Internal CUP i.e average mean of the interest rate that was paid by the assessee on its foreign currency loans, as was applied by the assessee for the purpose of benchmarking the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arm"s length in respect of loan of USD 4 million that was given to its another AE, viz. GGES and was repaid by the latter during the said year itself. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that the DRP had consistently been holding the interest rate of LIBOR + 2.9% / 3% p.a charged by the assessee on the loans advanced to its AEs as being at arm"s length. It was the claim of the ld. A.R that qua the loan transaction in question the DRP had in the immediately preceding year held that the interest charged by the assessee at LIBOR + 2.9% p.a was at arm"s length. Ld. A.R in order to drive home his claim that the interest charged by the assessee on the loan advanced to its AE, viz. GGHL, Mauritius was at arm"s length, relied on the order of the Tribunal passed in the case of its holding company, viz. The Great Eastern Shipping Co. Ltd. Vs. ACIT, Mumbai, ITA No. 397 and 437/Mum/2012, dated 10.01.2014 for A.Y 2007-08 (copy placed on record). It was submitted by the ld. A.R that the Tribunal in its aforesaid order had observed that the interest paid by an assessee on foreign currency loans raised from banks could safely be taken as an Internal CUP for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as against the interest that was charged by the assessee on the loan given by it to its AE, viz. GGHL, Mauritius at LIBOR + 2.9% thus, the interest charged on the loan advanced to the AE was claimed to be at arm"s length. As observed by us at length hereinabove, the TPO had rejected the Internal CUP that was applied by the assessee for benchmarking the interest charged on the loan advanced to its aforesaid AE, viz. GGHL, Mauritius, primarily for the reason that all the foreign currency loans which had been used as comparable by the assessee were fully secured upto 130% of the value of loan alongwith mortgage of the ship. Further, it was observed by the TPO that the assessee while benchmarking the interest transaction had failed to take cognizance of the mortgage, legal, documentation, insurance and other charges that were paid by the borrower. Also, it was observed by the TPO that not only penal interest was provided for in case of default of interest by the assessee, but the borrower assessee was also obligated to satisfy certain other requirements like maintaining of cash debt equity ratio etc. Backed by his aforesaid observations, the TPO was of the view that if the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee on its foreign currency borrowings from KEIXM bank and State Bank of India. Accordingly, respectfully following the view taken by the Tribunal in its aforesaid order, we find no infirmity in benchmarking of the interest charged by the assessee on the loans advanced to its AE, viz. GGHL, Mauritius by applying of an Internal CUP i.e arithmetic mean of the interest rate charged by the banks on the foreign currency loans availed by the assessee during the year in question. Apart from that, we also find substance in the claim raised by the assessee before the lower authorities that the foreign currency loans obtained by its holding company viz. Great Eastern Shipping Company Ltd. at an interest rate of LIBOR + 1.79% p.a and LIBOR + 1.50% p.a during the year in question would also form a suitable Internal CUP. Further, we are of the considered view that in case of availability of an Internal CUP there was no need on the part of the TPO to have benchmarked the transaction by applying an external CUP. Our aforesaid conviction is supported from Para 3.26 of OECD guidelines, which reads as under: "Internal comparables may have a more direct and closer relationship to the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pore (for short "GGOS"). Briefly stated, the assessee had entered into a ship building contract dated 23rd July, 2008 with Drydocks World Singapore Pte. Ltd for construction of an Anchor Handling Tug and Supply Vessel (for short "AHTSV"), viz. "Vimla" having Bollard pull of minimum 150 tons. The contract price for the construction of the said vessel was SGD 4,96,20,000. The assessee paid 10% of the contract price towards the first instalment of SGD 49,62,000 on 11th August, 2008. Further, the assessee had also incurred certain expenses towards salary and expenses of employees deputed to supervise the construction of the vessel and loss on cancellation of forward foreign exchange contracts which were entered to hedge against loss on foreign exchange fluctuation for payment of instalments of the vessel under construction and such loss was capitalized. However, due to certain business considerations the Board of Directors passed a resolution to transfer the said vessel to the assessee"s AE, viz. GGOS, Singapore. Accordingly, during the year in question i.e A.Y 2012-13 the aforesaid vessel by virtue of a tripartite novation agreement dated 3rd January, 2012 was transferred at cost by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction of loan advanced to the AE. It was submitted by the assessee that as it was not the case of the TPO that the form of the transaction was different from its substance thus, he was not justified in recharacterising the transaction of sale of vessel by the assessee to that of a loan advanced by it to its AE. It was further submitted by the assessee that the TPO had exceeded his jurisdiction while observing that the assessee by investing the funds of SGD 49,62,000 on the construction of vessel had lost the "opportunity cost", as he could have otherwise earned a decent interest on the same. It was submitted by the assessee that the A.O/TPO cannot step into the shoes of a businessman to decide as to whether a particular transaction should have been undertaken or not, as the same was the sole prerogative of the assessee and was not to be left to the prudence of the said authorities. Apart from that, it was submitted by the assessee that though the assessee had placed on record documentary evidence in support of its claim that the market situation for sale of ship was not appropriate/favourable, the TPO, however, had wrongly observed that no material was led by the assessee in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the form of the transaction was different from its substance, therefore, he was not justified in recharacterising the transaction of sale of vessel by the assessee as a loan advanced to its AE, viz. GGOS, Singapore. In order to support his aforesaid contention the ld. A.R had drawn support from the order passed by the Tribunal in its own case for A.Y 2008-09 and A.Y 2009-10 in ITA No. 7673/Mum/2012 & 1703/Mum/2014, dated 21.06.2019 (copy placed on record). Our attention was drawn by the ld. A.R to the relevant observations of the Tribunal, wherein by drawing support from the judgments of the Hon"ble High Court of Delhi in the case of EKL Appliances Ltd. (2012) 345 ITR 241 (Del) and Sony Ericsson Mobile Communications India Pvt. Ltd. Vs. CIT (2015) 374 ITR 118 (Del), the Tribunal had observed that re-characterization of a transaction can be done by the revenue authorities only when the transactions are found to be substantially at variance with the stated form. Accordingly, it was submitted by the ld. A.R that the TP adjustment carried out by the TPO/DRP by recharacterising the transaction of sale of vessel by the assessee as a loan advanced to its AE, and therein determining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n exceptional cases, the tax administration should not disregard the actual transactions or substitute other transactions for them. Restructuring of legitimate business transactions would be a wholly arbitrary exercise the inequity of which could be compounded by double taxation created where the other tax administration does not share the same views as to how the transaction should be structured. 1.37 However, there are two particular circumstances in which it may, exceptionally, be both appropriate and legitimate for a tax administration to consider disregarding the structure adopted by a taxpayer in entering into a controlled transaction. The first circumstance arises where the economic substance of a transaction differs from its form. In such a case the tax administration may disregard the parties' characterization of the transaction and re-characterise it in accordance with its substance. An example of this circumstance would be an investment in an associated enterprise in the form of interest-bearing debt when, at arm's length, having regard to the economic circumstances of the borrowing company, the investment would not be expected to be structured in this way. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage re-structuring of legitimate business transactions. The reason for characterisation of such re-structuring as an arbitrary exercise, as given in the guidelines, is that it has the potential to create double taxation if the other tax administration does not share the same view as to how the transaction should be structured. 18. Two exceptions have been allowed to the aforesaid principle and they are (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner." Accordingly, in the backdrop of our aforesaid observations, now when the form of the transaction of sale of vessel is not found to be different from its substance, the TPO, thus, was not justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid observations, we are unable to uphold the transfer pricing adjustment of Rs. 62,23,256/- worked out by the TPO/DRP as regards the notional interest which as per them the assessee ought to have charged from its AE, viz. viz. GGOS, Singapore. Accordingly, we herein direct the A.O/TPO to vacate the transfer pricing adjustment of Rs. 62,23,256/- made towards notional interest. The Grounds of appeal nos. 12 to 14 are allowed in terms of our aforesaid observations. 21. We shall now deal with the claim of the assessee that the A.O/DRP had erred in invoking Rule 8D without recording an objective satisfaction that having regard to the accounts of the asssessee the suo-motto disallowance offered by the assessee under Sec. 14A was incorrect. Succinctly stated, the assessee had made investments in equities and mutual funds amounting to Rs. 104,44,00,000/- as on 31.03.2011 and Rs. 67,60,00,000 as on 31.03.2012. The assessee had during the year in question earned exempt dividend income of Rs. 8,28,16,193/-, against which it had suo-motto disallowed an amount of Rs. 22,63,129/- under Sec. 14A of the Act. It was observed by the A.O that the assessee by applying a formula of its own i.e p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Maxopp Investment Ltd. Vs. CIT (2018) 402 ITR 640 (SC), the A.O before dislodging the suo-moto disallowance worked out by the assessee under Sec. 14A of the Act therein remained under a statutory obligation to record his satisfaction that having regard to the accounts of the assessee as placed before him, it was not possible to generate the reasonable satisfaction with regard to the correctness of the claim of the assessee. It was submitted by the ld. A.R that the Hon"ble Apex Court had observed that it was only after the A.O had recorder his dissatisfaction as regards the correctness of the claim of the assessee that the provisions of Sec. 14A(2) and (3) r.w Rule 8D could be invoked. In the backdrop of his aforesaid contentions, it was submitted by the ld. A.R that as the A.O san recording of any dissatisfaction as regards the correctness of the suo-motto disallowance offered by the assessee under Sec. 14A had rejected the same and substituted it by an enhanced amount, therefore, the said action on his part being not as per the mandate of law was liable to be vacated. On merits, it was submitted by the ld. A.R that as the assessee had adopted a fair method for allocating the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the A.O had recorded his dissatisfaction as regards the correctness of the claim of the assessee that he can thereafter invoke the provisions of Sec.14A(2) and (3) r.w. Rule 8D. The Hon"ble Apex Court in its aforesaid order had observed as under: "37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule SD of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Off icer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the ld. A.R that the interest u/s 234C in its case was liable to be restricted to an amount of Rs. 11,74,709. 27. Per contra, it was submitted by the ld. D.R that no infirmity did emerge from the computation of interest u/s 234C by the A.O. 28. We have deliberated at length on the aforesaid contention of the counsel for the assessee. Before adverting any further, we deem it fit to cull out Sec. 234C of the Act, which during the year in question read as under : "Interest for deferment of advance tax. [(1) Where in any financial year,- [(a) an assessee, other than an eligible assessee in respect of theeligible business referred to in section 44D, who is liable to pay advance tax under section 208 has failed to pay such tax or- (i) the advance tax paid by such assessee on its current income on or before the 15th day of June is less than fifteen per cent, of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of September is less than forty-five per cent, of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than seventy-five per cent, of the tax due on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Act, 2000 (10 of 2000), as amended by the Taxation Laws (Amendment) Act, 2000(1 of 2001), and the assessee has paid the amount of shortfall, on or before the 15th day of March, 2001, in respect of the instalment of advance tax due on the 15th day of June, 2000, the 15th day of September, 2000, and the 15th day of December, 2000:] [Provided also that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of increase in the rates of surcharge under section 2 of the Finance Act, 2000 (10 of 2000), as amended by the Taxation Laws (Amendment) Act, 2001(4 of 2001), and the assessee has paid the amount of shortfall on or before the 15th day of March, 2001, in respect of the instalment of advance tax due on the 15th day of June, 2000, the 15th day of September, 2000, and 15th day of December, 2000.] [Explanation.-In this section, "tax due on the returned income" means the tax chargeable on the total income declared in the return of income furnished by the assessee for the assessment year commencing on the 1st day of April immediately following the financial year in which the advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and (v) any tax credit allowed to be set off in accordance with the provisions of section 115JAA." Accordingly, on the basis of our aforesaid observations, we concur with the claim of the ld. A.R that the interest under Sec. 234C is to be computed on the tax due on the returned income i.e the tax chargeable on the total income declared in the return of income furnished by the assessee for the year in question, as reduced by the amounts contemplated in the "Explanation" to Sec. 234C(1) of the Act. We, thus, in terms of our aforesaid observations restore the issue to the file of the A.O with a direction to recompute the liability of the assessee towards interest under Sec. 234C on its tax due on returned income as contemplated in the "Explanation" to Sec. 234C(1) of the Act. The Ground of appeal No. 17 is allowed for statistical purposes in terms of our aforesaid observations. 29. The appeal of the assessee is allowed in terms of our aforesaid observations. ITA No.6083/MUM/2018 (Assessment Year: 2014-15) 30. We shall now take up the appeal of the assessee for A.Y. 2014-15. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by holding that the arm's length price of the loan was LIBOR + 3.332% p. a. (11). The AO / TPO / DRP erred in not following the order of the DRP for the Assessment Year 2011-2012 wherein this very loan given to Greatship Global Holdings Ltd. (GGHL) at interest rate of LIBOR + 2.9% was held to be at arm's length. (12). The AO / TPO / DRP erred in rejecting the benchmarking analysis conducted by the Appellant in respect of interest on loan given to AE, GGHL. (13). Without prejudice to Ground Nos. 9 to 12, the AO / TPO / DRP erred in computing the arm's length price of the loan given by the Appellant to its AE in an arbitrary manner. NON-TRANSFER PRICING ISSUES (14). The AO / DRP erred in invoking Rule 8D without recording an objective satisfaction that having regard to the accounts of the Appellant, the suo-moto disallowance of expenses of Rs. 10,68,219/- by the Appellant under section 14A was incorrect. (15). The AO / DRP erred in disallowing further expenses of Rs. 14,60,718/- under Section 14A read with Rule 8D(2)(iii). The Appellant craves leave to add to, amend, alter, modify or withdraw any or all the Ground of Appeal before or at the time of hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the DRP. Observing that its predecessor panel while disposing off the objections of the assessee for the immediately preceding year i.e A.Y. 2013-14 had modified the ALP of the guarantee fee from 2.07% as worked out by the TPO to 1.25% per annum, the DRP taking note of the fact that there was no shift in the facts or the financial conditions of the AEs during the year in question thus, directed the TPO/A.O to adopt the ALP at 1.25% for computing the guarantee fee that was liable to be charged by the assessee from its AE. 35. The A.O after receiving the order passed by the DRP under Sec.144C(5), dated 15.06.2018 therein vide his order passed under Sec.143(3) r.w.s 144C(13), dated 28.08.2018 assessed the income of the assessee company at Rs. 169,20,41,700/-. 36. Aggrieved with the order passed by the A.O under Sec. 143(3) r.w.s. 144C(13), dated 28.08.2018 the assessee has carried the matter in appeal before us. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements pressed into service by them. 37. We shall first deal with the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom its AE. 38. The assessee being aggrieved with the order of the A.O/DRP wherein they had determined the ALP of the corporate guarantee @ 1.25% p.a has carried the matter in appeal before us. As the facts and the issue involved as regards determination of the ALP of corporate guarantee provided to the banks by the assessee in order to facilitate raising of loans by its foreign AEs, viz. GGOS, Singapore and GGES, Singapore remains the same as were there before us in its case for A.Y 2012-13 in ITA No. 1287/Mum/2017, therefore, our order therein passed shall apply mutatis mutandis for disposal of the present issue. Accordingly, in terms of our observations and reasoning adopted while determining the ALP of the corporate/financial guarantee given by the assessee to the foreign banks in order to facilitate raising of loans by its foreign AEs by applying Internal CUP i.e the arithmetic mean of the guarantee commission paid by the assessee to various banks for standing guarantee on its behalf to various parties, we, thus, on the same terms direct the A.O/TPO to take the ALP of the corporate guarantee at 0.49% p.a i.e the arithmetic mean of the guarantee commission that was paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved as regards the determination of ALP of interest charged by the assessee on the loans given to its AE, viz. GGHL remains the same as were there before us in its case for A.Y 2012-13, therefore, our order therein passed shall apply mutatis mutandis for the purpose of disposal of the present issue. Accordingly, in terms of our observations and reasoning adopted while disposing off the present issue in the case of the assessee for A.Y 2012-13 in ITA No. 1287/Mum/2017, we herein uphold the Internal CUP applied by the assessee for benchmarking the interest charged on the loans advanced to its AE, viz. GGHL and hold the interest charged by it on the loan advanced to its AE, viz. GGHL at LIBOR + 2.9% as being at arm"s length. The Grounds of appeal nos. 9 to 13 are allowed in terms of our aforesaid observations. 41. The assessee has further assailed the disallowance worked out by the A.O under Sec. 14A r.w Rule 8D, on the ground that there was no recording of an objective satisfaction by the A.O that the suo-motto disallowance offered by the assessee under Sec. 14A was not correct. Succinctly stated, the assessee company which during the year in question was in receipt of exempt divi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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