9911796707
TMI Blog2019 (3) TMI 1999X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the material facts relevant thereto are similar to that of A.Ys. 2010-11 [ 2017 (11) TMI 1443 - ITAT KOLKATA] 2011-12 and 2012-13 [ 2017 (11) TMI 1901 - ITAT KOLKATA] we respectfully follow the orders of the Coordinate Bench of this Tribunal and delete the addition relating to the Transfer Pricing Adjustment made on account of Guarantee fees charged to the Associated Enterprises. Ground No. 3 of the assessee s appeal is accordingly allowed. Disallowance u/s 14A - HELD THAT:- Disallowance under section 14A is also covered by the order of the Tribunal [ 2017 (11) TMI 1901 - ITAT KOLKATA] wherein the disallowance made under section 14A was deleted by the Tribunal on the ground that there was no exempt income actually earned by the assessee during the relevant previous year. To arrive at this conclusion, the Tribunal relied on the decision of Cheminvest Limited [ 2009 (8) TMI 126 - ITAT DELHI-B] As submitted by the ld. Counsel for the assessee, no exempt income was earned by the assessee even during the year under consideration and keeping in view this undisputed factual position, we delete the disallowance made by the Assessing Officer under section 14A by following the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el, the Transfer Pricing Officer treated the investment made by the assessee-company in the share capital of its A.E. as deemed loan and worked out the Transfer Pricing Adjustment on account of interest on such loan at Rs.8,67,68,889/-. He accordingly worked out the total Transfer Pricing Adjustment to be made in the assessee's case at Rs.8,95,57,833/-. In the Draft Assessment Order dated 26.12.2016 addition to that extent was made by the Assessing Officer to the total income of the assessee. The Assessing Officer also made further additions of Rs.5,38,000/- on account of disallowance under section 14A and Rs.6,025/- on account of disallowance of interest expenses. 3. Against the Draft Order of the Assessing Officer, objections were raised by the assessee before the Dispute Resolution Panel (DRP). The DRP vide its order dated 29.05.2017 passed under section 144C(5) of the Act confirmed the Transfer Pricing Adjustment worked out by the Transfer Pricing Officer (TPO) on account of interest by treating the investment made by the assessee in the share capital of its Associated Enterprise as a deemed loan. The DRP also confirmed the disallowance of Rs.5,38,000/- made by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption/purchase undertaken by the Appellant during the assessment years ('AY') 2010-11 and AY 2011-12 as continuing, and thereby erred in making a transfer pricing adjustment, even though the Appellant had not entered into any such transaction during the AY 2013-14. 2.3. The Hon'ble DRP and the Ld. TPO/ AO erred in not appreciating that no income/potential income has arisen to the Appellant from such international transaction of investment in equity shares and thus would not fall within the purview of Indian Transfer Pricing regulations. 2.4. The Hon'ble DRP and the Ld. TPO/AO erred in re-characterizing the transaction of investment in equity shares as deemed loan, provided by the Appellant to its AE, by treating the difference in the value of equity shares invested in, i.e. difference between the alleged arm's length price as arrived by the Ld. TPO and actual invested price, which is bad in law and non-est in the eyes of law. 2.5. The Hon'ble DRP and the Ld. TPO/AO erred in making an adjustment for notional interest towards such share capital recharacterized as loan, which is not tenable and permissible under the law. The Hon'ble DRP and the Ld. TPO/ A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant to its associated enterprise. 3.2. The corporate guarantee issued by the Appellant in favour of the AE is a shareholder's activity which does not require any charge and hence cannot be considered as an international transaction. 3.3. Without prejudice to the above, the DRP erred in considering 2.19% as guarantee fee receivable as against 2% actually received by the Appellant. 3.4. Without prejudice to the above, the directions of the DRP is erroneous in so far as confirming the action of the TPO in not following any of the prescribed methods for the purpose of determination of arm's length price of guarantee fee. 3.5. Without prejudice to the above, the Hon'ble DRP and the Ld. TPO/AO erred in rejecting the methodical approach of the Appellant without any basis and assuming the credit rating of the associated enterprise purely based on gross assumptions. 3.6. Without prejudice to the above, the Hon'ble DRP and the Ld. TPO/AO followed an ad-hoc approach to determine the guarantee fee rate and disregarded the methodical benchmarking approach/ fresh benchmarking followed by the Appellant. 4. Erroneous disallowance of amount under section 14A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income in Section 2(24 )(xvi) of the Act. However, what is bought into the ambit of income is the premium received from a resident in excess of the fair market value of the shares. In this case what is being sought to be taxed is capital not received from a non-resident i.e. premium allegedly not received on application of ALP, Therefore, in the absence of express legislation, no amount received, accrued or arising on capital account transaction can be subjected to tax as Income. The said view has been reiterated by the Bombay High Court in the case of Shell India Markets Ltd. (supra). The ITAT Mumbai in the case of Topsgroup Electronic Systems (supra) has taken the view that the ratio laid down by the Hon'ble Bombay High Court in the case of Vodafone (supra) will apply to a case where an Indian entity invests in shares of an AE also. The Tribunal held that what is made applicable for inbound share investment (investments in shares of Indian subsidiary by the holding company (Non-resident) would be equally applicable to outbound share investments also (Investment by a resident Indian company in the shares of the Non-resident AE). The parameters to be applied cannot be different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l account falls outside the purview". 7. The aforesaid decision rendered for A.Y. 2010-11 has subsequently been followed by the Tribunal in A.Y. 2011-12 & 2012-13 to decide the similar issue in favour of the assesese vide its order dated 17.11.2017 passed in ITA Nos. 121/KOL/2016 & 647/KOL/2017. Since the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to that of A.Ys. 2010-11, 2011-12 and 201213, we respectfully follow the orders of the Coordinate Bench of this Tribunal for A.Ys. 2010-11, 2011-12 & 2012-13 and delete the addition made on account of Transfer Pricing Adjustment in respect of interest by treating the investment made by the assessee-company in the share capital of its Associated Enterprises as deemed loans. Ground No. 2 of the assessee's appeal is accordingly allowed. 8. As regards the Ground No. 3, the ld. Representatives of both the sides have agreed that the issue involved therein relating to the Transfer Pricing Adjustment made on account of Guarantee fees is also covered in favour of the assessee by the order of the Tribunal dated 22.09.2017 (supra) for A.Y. 2010-11, wherein a similar issue was decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for obtaining the loan by the AE." Para-15, Pg.no.7 6. Mylan Laboratories Ltd. Vs ACIT [2015] 63 taxmann.com 1 79 (Hyderabad - Trib.) "7.2 ..... Respectfully following the same, we direct the TPO to adopt 0.53% as the guarantee commission rate instead of 2% adopted by him." Para-7.2, Pg no.8 M/s. Mahindra Intertrade Ltd. Vs DCIT [ITA No.269IMuml2014] 5 Considering the decision of coordinate bench on similar issue, we direct the AO to exceed the corporate guarantee fees @ .5% and made the adjustment accordingly. Para-5, Pg no.3 26. In the light of the aforesaid judicial pronouncements, we are of the view that the addition made by the AO ought to have been deleted by the CIT(A) as the Guarantee Commission charged by the assessee has to be regarded as at Arm's Length. We therefore direct the addition made in this regard be deleted. Further, it is worthwhile to mention that the recent Safe Harbour Rules notified by the Central Board of Direct Taxes (Notification No. 46/2017 dated 7 June 2017) the guarantee commission/fee declared in relation to the eligible international transaction is at the rate not less than 1% per annum on the amount guar ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
