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TMI Blog2022 (8) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... case and the Department has failed to suggest any exception on facts or law involved in the Assessment Year under consideration, we respectfully adopt the detailed reasoning given by the Co-ordinate Bench (supra) and accordingly dismiss the ground/s relating to this issue raised by the Department in its appeal. Fees on corporate guarantee for AE - On the perusal of the audited financial statements of the assessee, we failed to understand from where and how the ld. TPO has figured out that the assessee has issued corporate guarantee for its AE and proceeded to benchmark @ 3.125% and arrive at an upward adjustment - We fully concur with the submissions made by the ld. Counsel for the assessee as noted above that the impugned addition is arbitrary, imaginary, untenable and not backed by any evidence of fact as is also demonstrated from the additional notes on financial statements placed - Hence, we find no reason to interfere with the factual finding given by the ld. CIT(A) while deleting the impugned adjustment - We thus, accordingly dismiss the grounds taken in this respect by the Department in its appeal. Sale and purchase of raw material and other goods with AEs - manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO/AO to re-work the PLI of tested party and re-compute the mean PLI of the comparables with reference to the accepted set of comparables based on his meritorious findings. We find that giving such directions is well within the powers of the Commissioner of Income Tax (Appeals) as enunciated u/s 251(1)(a) of the Act. Accordingly we dismiss the grounds of appeal raised by the Department on this issue and also Ground No. 3 of the cross objection of the assessee. Ground Nos. 1 and 2 of the cross-objections filed by the assessee are allowed. - ITA No. 1611/Kol/2019, C.O. No. 13/Kol/2021 - - - Dated:- 22-4-2022 - Shri Rajpal Yadav, Vice President And Shri Girish Agrawal, Accountant Member For the Assessee : Shri S.K. Tulsiyan, Advocae Ms. Lata Goyal, ACA For the Revenue : Shri Tushal Dhawal Singh, CIT, D/R ORDER PER GIRISH AGRAWAL, ACCOUNTANT MEMBER : This appeal by the department is arising out of the order of the ld. Commissioner of Income Tax (Appeals)-22, Kolkata in Appeal No. 109/CIT(A)-22/14-15/17-18/Kol, vide order dt.28/02/2019 passed u/s 250 of the Income Tax Act, 1961 (hereinafter the Act ) against the assessment order dt. 27/12/2017 passed u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itigant does not stand to benefit by resorting to delay. In fact he runs a serious risk. 6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so. 2.2. Similarly, we would like to make reference to authoritative pronouncement of Hon'ble Supreme Court in the case of N.Balakrishnan Vs. M. Krishnamurthy (supra). It reads as under: Rule of limitation are not meant to destroy the right of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. Law of limitation fixes a life-span for such legal remedy for the redress of the legal injury so suffered. Time is precious and the wasted time would never revisit. During efflux of time newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a life span must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. Law of lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended by the revenue that on account of huge pendency of time barring assessment, action plan targets and penalty proceedings, the concerned officer could not get time to take approval of competent authority for filing the appeal. Considering the brief delay and the explanation of the revenue, we condone the same and admit the appeal. 2.5. As far as the delay in filing of the cross-objection is concerned, it is pertinent to note that sub-Section (4) of Section 253 of the Act, authorizes the respondent to file cross-objection against any part of the impugned order by which it is aggrieved. The procedure contemplated in the Income Tax Rules, 1962 and followed by the Registry is that on receipt of an appeal from the appellant it issues notice to the respondent. Though it is not a notice fixing the actual hearing of the appeal. It is for the purpose of completion of formalities so that, it can be posted before the Bench when it s turn comes. Therefore, the initial date in a way is a farzi (tentative) date. In the present case, the assessee has filed the cross-objection well in advance of the actual listing of the appeal on the board. The second reason for condoning the delay is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the circumstances of the case, the Ld. CIT(A) has erred in not appreciating the findings of the TPO on corporate guarantee which was based on the information available on record. 8. That the appellant craves for leave to add, delete and modify any grounds of appeal before or at the time of hearing. The assessee has challenged the following grounds in its cross objection:- 1. That, on the facts and circumstances of the case, the Ld. CIT(A) has erred in holding the PLI-OP/TC used by the TPO for benchmarking the sales as correct in place of OP/Sales as the PLI adopted by the assessee for determining ALP without pointing out any error in the Transfer Pricing Report of the appellant. 2. That, on the facts and circumstances of the case, the Ld. C.I.T.(A) erred in considering the OP/OR of comparables, DCM Engineering Ltd and Dee Dee Steel Castings Ltd at 10.83% and 8.49% which was computed by considering excise duty as a part of OR. 3. That, without prejudice to the above, the Ld. C.1.T.(A) erred in directing the TPO to rework the PLI of the tested party and recompute the mean PLI of the comparables with reference to the accepted set of comparables which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the addition by holding that the interest rate charged by the assessee from its AE was required to be benchmarked against the prevailing LIBOR (US) in Financial Year 2013-14 i.e. 0.72% and since the interest rate charged by the assessee on the loans granted to its AE was 5%, no ALP adjustment was called for. While giving this finding and deleting the addition, the ld. CIT(A) noted that assessee had benchmarked the transaction by applying external CUP method. 7.1 On the second issue of fees for corporate guarantee, the ld. CIT(A) deleted the addition by noting the fact that when no corporate guarantee was issued by the assessee, no adjustment can be inferred in this regard. The ld. CIT(A) further noted that the TPO ought to have set out the name of the AE to whom such corporate guarantee was extended, the details of bank loan for which corporate guarantee was extended and when such corporate guarantee was released, as no facts whatsoever had been set out by the ld. TPO in his order. 7.2 On the third issue of upward adjustment made in respect of purchase and sale of raw materials and goods to AEs, the ld. CIT(A) gave his finding on the limited disputes in this respect which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h higher level, the details of which is tabulated as under:- Company OP/OR as per assessee OP/OR as per Ld. TPO DCM Engineering Ltd -0.22% 10.83% Dee Dee Steel Castings Ltd. -0.34% 8.49% 8.2 The ld. Counsel for the assessee further pointed out that while computing the PLI on these two comparables tabulated above, excise duty was also taken into account in the figure of Operating Revenue (OR) which resulted into a much higher level of PLI. This has led to the application of different functions while computing the PLI of the assessee and the comparables adopted. To contest this issue, the assessee filed its cross objection raising the grounds which has been admitted for adjudication by condoning the delay. 9. Before us, the ld. CIT D/R, Shri Tushar Dhawal Singh, argued the matter vehemently by placing strong reliance on the order of the ld. TPO and the ld. AO. During the course of hearing, the ld. CIT D/R submitted that he wishes to file a written note. Though the heari ..... 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 is denominated in foreign currency i.e. USD, the LIBOR (US) rate has been rightly applied for benchmarking. To buttress his submission, the ld. Counsel for the assessee relied on the decision of the co-ordinate Bench of ITAT Chennai in the case of Siva Industries and Holdings Ltd. vs. ACIT [145 TTJ 497 CHY] and on the decision of the Co-ordinate Bench of ITAT Mumbai in the case of Tata Autocomp System Ltd. vs. ACIT [149 TTJ 223 (Mum)] which was confirmed by the Hon ble Bombay High Court. 10.2 On the second issue of adjustment made in respect of fees for corporate guarantee dealt in Ground Nos. 6 7 (supra), the ld. Counsel for the assessee submitted that there was no corporate guarantee extended by the assessee during the relevant assessment year which was evidenced from note no. 25 of the audited financial statements of the assessee for which reference was made to page number 28 of the paper book. Therefore, no adjustment of ALP on this count ought to be made. 10.3 The ld. Counsel for the assessee pointed out that ld. TPO has stated that he gathered from the financial statement that the assessee has issued corporate guarantee for the AE wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions under consideration except for the three comparables out of which two were rejected primarily for non-availability of their annual report and diversified activity in one case. For the two comparables i.e., Indo Shell Cast Pvt. Ltd. and Rane Diecast Ltd., copies of their annual report available in the public domain were furnished during the course of appellate proceedings before the ld. CIT(A) who had accepted these comparables. In the case of the third comparable i.e., Besco Ltd., the ld. Counsel for the assessee submitted that NIC activity as per Capitaline database is Manufacture of other iron and steel casting and products thereof which demonstrates that it is functionally comparable to the business of the assessee and the same was accepted by the ld. CIT(A) in the first appellate stage. The ld. counsel for the assessee strongly submitted that there is no dispute in the selection of TNMM as MAM to arrive at ALP neither there is any dispute in the criteria adopted by the assessee to select the comparables. The ld. TPO has by and large agreed with the general premise on which the assessee has computed its ALP. In respect of seven new comparables identified and selecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o para 50 at page 40 of the impugned order of the ld. CIT(A), wherein from serial number 8 to 11 and from serial number 14 to 23, the ld. Assessing Officer has accepted the PLI as furnished by the assessee which has been computed by taking sales net of excise duty. However, in respect of serial number 12 and 13 in the same table, the PLI of these two comparables has been taken including the excise duty, thus, distorting the benchmarking of PLI, details of these two comparables is tabulated as under:- Company OP/OR as per appellant OP/OR as per Ld. TPO DCM Engineering Ltd. (DEL) -0.22% 10.83% Dee Dee Steel Castings Ltd. (DDSCL) -.0.34% 8.49% 12.1 From the order of the ld. TPO as reproduced in the order of the ld. CIT(A), it was pointed out at page number 34 that in respect of these two comparables, ld. TPO has accepted these comparables but while computing the margin, has taken the sales inclusive of excise duty. DCM Engineering Ltd. The comparable tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 180.5 14.84 7.60 8.22% Besco Ltd. 221.01 7.52 213.49 210.2 3.29 1.54% 1.57% Century Aluminium Mfg. Co. Ltd. 556.92 66.44 490.48 471.05 19.43 3.96 % 4.12% DCM Engineering 447.97 49.54 398.43 399.45 -0.89 -0.22% -0.22% Dee Dee Steel Castings Ltd. 6.48 0.56 5.92 5.93 -0.02 -0.34% -0.34% Dekson Castings Ltd. 22.28 2.32 19.96 18.59 1.37 6.86% 7.37% Indo Shell Cast Pvt. Ltd. 114.28 0 114.28 109.55 4.73 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the authorities below as well as case law cited, we record our findings as under:- 13.1 We note that essentially all the issues in the appeal and cross objection before us relate to adjustments made by the ld. TPO in reference to Transfer Pricing regulations and additions made by the ld. Assessing Officer thereon. There are broadly three issues that arise before us i.e. (a) interest earned on loan to AE (b) fees on corporate guarantee for AE and (c) sale and purchase of raw material and other goods with AEs. 13.2 In respect of the first issue listed above, we note that the same is squarely covered in favour of the assessee by the decision of the Hon ble coordinate bench of the ITAT Kolkata in the assessee s own case (supra), there being no change in the facts except for the quantum. Further, we find that the assessee had benchmarked the transactions of loan given to its AE by applying CUP method as mentioned in the TPSR. The assessee has obtained the prevailing LIBOR rates by applying external CUP method and considered itself as the tested party for the purpose of benchmarking the transactions. We note from the TPSR that the assessee has earned interest income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter is well covered by the general consensus among the Hon'ble ITAT Benches that international transactions involving cross- border country loans to AE can be bench marked against LlBOR, as also supported by the RBI's circular that a spread ranging from 1 % - 2% over LIBOR is reasonable {or advancing loans. Therefore, in deciding the matter, it is held that an interest rate of LIBOR plus 2% can ,be held to be Arm's length rate of interest, and as for the case at hand, the interest charged by the assessee from its AE is ITA No. 980/Kol/2017 Assessment Year: 2012-13 M/s. Manaksia Limited higher than LIBOR plus 2%, the adjustment made by the ld. TPO in the case is held to be unjustified and not sustainable. The ground of appeal stands allowed accordingly. As the ld. CIT(A) has followed the propositions of law laid down by different benches of the Tribunal on this issue, we find no infirmity in the same. The Kolkata Bench of the ITAT has in a number of cases including M/s. EIH Ltd. vs. DCIT (supra) followed the same principles. Hence the order of the ld. CIT(A) on this issue is upheld and Ground No. 1 of the revenue is dismissed. 13.4 Since the issue is alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d economic analysis conducted by the ld. TPO while identifying these new seven comparables which were rejected by the ld. CIT(A) since the product profile and functionality was not comparable with that of the assessee. We find that the issues involved on this third aspect in the appeal and the cross objection before us relate to (i) the manner in which the PLA has been worked out (ii) selection and rejection of comparables and (iii) inclusion of excise duty on the operating revenue for two comparables out of the said 19 comparables by the ld. TPO 13.7 In respect of the issue relating to the manner in which the PLI is to be worked out, the assessee has computed it on the basis of OP/OR as the most appropriate PLI as against which the ld. TPO has considered OP/OC to be the most appropriate PLI. The ld. CIT(A) has given a finding that application of PLI as OP/OC is the most appropriate PLI and has directed the ld. TPO / AO to re-compute and re-work the PLI and the mean of PLI of the comparables. The assessee has not challenged this finding of the ld. CIT(A) and we do not find any reason to interfere with the finding given by the ld. CIT(A) to this effect. Accordingly, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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