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TMI Blog2021 (8) TMI 896X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) has submitted that it should be reduced to 0.2% - on careful perusal of the decision rendered in case of Asian Paints (supra), we find that in the facts of the said case the assessee itself had charged commission @ 0.2% over the years and the Tribunal has accepted the claim of the assessee which was not contested by the Revenue. Taking note of these facts the Hon'ble Jurisdictional High Court has dismissed the appeal of the Revenue. These are not the facts in case of the present assessee. Therefore, we are not inclined to interfere with the decision of learned Commissioner (Appeals) on this issue. Disallowance made on account of alleged non-genuine purchases - HELD THAT:- All the documents furnished by the assessee are only self-serving documents which are available in the books of accounts of the assessee company and which are not corroborated by third party confirmation. Even the assessee had failed to produce parties for examination as directed by the ld. AO. In these circumstances, it would be just and fair to conclude that the purchases made from the aforesaid suppliers remain unverifiable - corresponding sales made out of disputed purchases had not been doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.308/Mum/2019 for A.Y.2013-14 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-57, Mumbai in appeal No.CIT(A)-57/Arr.463/2018-19 dated 17/12/2018 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 144C (3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 06/02/2017 by the ld. Dy. Commissioner of Income Tax, Central Circle- 8(3), Mumbai (hereinafter referred to as ld. AO). 2. The ground No.1 raised by the assessee is with regard to transfer pricing adjustment made on account of notional interest on loan given to wholly owned subsidiary by the assessee company. 3. We have heard rival submissions and perused the materials available on record. We find that assessee is engaged in the business of cutting and polishing rough diamonds and export of cut and polished diamonds. The assessee had given interest free loan of USD 13,50,000/- equivalent to INR 9,84,41,500/-to its wholly owned subsidiary Tai Shan Gems Ltd., (Hong Kong) which is an associated enterprise of the assessee (AE in short). The assessee stated that this loan is part of capital fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est income is bad in law. The ld. CIT(A) did not heed to the contentions of the assessee and upheld the addition made on account of notional interest income at LIBOR plus Spread rate of 3.52% per annum. 4. Aggrieved assessee is in appeal before us. 5. The. Ld. AR stated that interest free loan given to wholly owned subsidiary by the assessee is a shareholder activity and hence, does not fall within the ambit of international transaction within the meaning of Section 92B of the Act. However, he fairly stated that this aspect of the issue had been dismissed by this Tribunal in assessee s own case for A.Y.2014-15 in ITA No.1724/Mum/2019 dated 16/02/2021. With respect to addition made on account of notional interest, he drew our attention to para 7 of the said Tribunal order for A.Y.2014-15 wherein this Tribunal had held that only LIBOR rate should be considered for the purpose of making transfer pricing adjustment on account of interest free loan given to wholly owned subsidiary. 5.1. Per contra, the ld. DR argued that naked LIBOR rate alone cannot be adopted as the same does not consider risk adjustments. He even stated that six months average of LIBOR rates for March 2013 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be determined by applying LIBOR rate. Since, learned Commissioner (Appeals) has accepted the aforesaid contention of the assessee, we do not find any infirmity in the decision of learned Commissioner (Appeals). This ground is dismissed. 6.1. Respectfully following the same, we direct the ld. TPO to consider only LIBOR rate @1.52% as arm s length price for benchmarking the interest free loan given by the assessee to its AE and recompute the transfer pricing adjustment accordingly. Accordingly, the ground No.1 raised by the assessee is partly allowed. 7. Ground No.2 raised by the assessee is with regard to transfer pricing adjustment made on account of fee for corporate guarantee. 8. We have heard rival submissions and perused the material available on record. We find that assessee has given corporate guarantee during the year on behalf of its AE in favour of Barclays Bank PLC on 02/04/2012 for an amount of USD 7500000, on the strength of which, the AE had taken loan from Barclays Bank. The assessee has not charged any commission / fees for issue of such guarantee for the benefit of the AE. The ld. TPO determined fee / commission for corporate guarantee at 2.25% and arriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged commission @ 0.2% over the years and the Tribunal has accepted the claim of the assessee which was not contested by the Revenue. Taking note of these facts the Hon'ble Jurisdictional High Court has dismissed the appeal of the Revenue. These are not the facts in case of the present assessee. Therefore, we are not inclined to interfere with the decision of learned Commissioner (Appeals) on this issue. This ground is dismissed. 8.2. Since we find that the ld. CIT(A) had relied on the decision of the Hon ble Jurisdictional High Court while deciding this issue, we find no infirmity in the said order of the ld. CIT(A). Accordingly, the ground No.2 raised by the assessee is partly allowed. 9. The ground No.3 raised by the assessee is challenging disallowance made on account of alleged non-genuine purchases. 10. We have heard rival submissions and perused the materials available on record. In the course of assessment proceedings, the ld. AO noticed that some of the purchases shown by the assessee from the following parties were part of Rajendra Jain group:- Sr.No. Name of the Party P.A.No. Purchase Amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit element embedded in the said purchase transaction could be brought to tax. The ld. AO accordingly, estimated the profit percentage which should be brought to tax at 5% and made addition of ₹ 23,52,068/-(₹ 4,70,41,361 x 5%) in the assessment. This addition was upheld by the ld. CIT(A). Before us, the ld. AR pointed out that all the requisite documents were duly furnished by the assessee before the ld. AO which are also listed in page 8 of the assessment order. The ld. AO did not find any defects in the said documents. The ld. AR argued that the ld. AO did not resort to issue any notice u/s.133(6) of the Act of these suppliers though it has been mentioned by him incorrectly in the assessment order. This fact was sought to be verified from the assessment records and the ld. DR, who was in possession of the assessment records at the time of virtual hearing, fairly submitted that no notice u/s.133(6) of the Act issued to any suppliers is available in the assessment records. Hence, it could be safely concluded that the ld. AO after receipt of various documents from the assessee had not resorted to make any verification by issuing notice u/s.133(6) of the Act to the conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses is required to be made. It was submitted that in any case, the disallowance made by the assessee voluntarily in the sum of ₹ 1,00,000/- would be more than sufficient considering the facts of the case. The assessee also pleaded before the ld. AO that it had sufficient interest free funds for making the entire investments and hence, no disallowance of interest is called for. The assessee also pleaded that no investment was made during the year under consideration. The ld. AO simply disregarded the entire contentions of the assessee and proceeded to hold that management of investments involves magnitude and monitoring which in turn necessitates expenditure in terms of man hours and administrative expenditure like telephone, postage, office expenses etc., other than expenditure directly related thereto. He observed that it is an irrefutable fact that up keeping of maintenance of any investment portfolio for earning of income necessitates expenditure on supportive office and other infrastructure facilities apart from financial cost on the funds deployed. With these observations, the ld. AO proceeded to make disallowance under second and third limb of Rule 8D(2) of Rules as und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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