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TMI Blog2023 (3) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational transaction pertaining to the Arm s Length interest on the investment. We find the Hon'ble Bombay High Court in the case of Vodafone India Services (P) Ltd vs. Union of India [ 2014 (10) TMI 278 - BOMBAY HIGH COURT] has held that the issue of shares at a premium by the assessee to its nonresident holding company does not give right to any income from an admitted international transaction and therefore, there is no occasion to apply Chapter X in such cases. Since admittedly the assessee has furnished the relevant details before the TPO as well as the DRP by submitting that the investment was made towards equity investment for the purpose of business expansion of the assessee company and its subsidiary company and the investments were made out of the internal funds raised by the assessee and since the DRP in the assessee s own case in the immediately preceding A.Y has deleted such addition made by way of adjustment on ALP being investment in equity and the Revenue has accepted the same by not filing any appeal before the Tribunal, therefore, we are of the considered opinion that the DRP was not justified in directing the TPO to adopt LIBOR+2% as interest receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 023 - Shri R. K. Panda, Accountant Member And Shri Laliet Kumar , Judicial Member For the Assessee : Shri P. Murali Mohan Rao, CA For the Revenue : Shri Jeevan Lal Lavidiya, CIT(DR) ORDER Per R. K. Panda , A.M ITA No.365/Hyd/2015 filed by the assessee is directed against the order dated 27.02.2015 passed by the Assessing Officer u/s 143(3) r.w.s. 144C(13) for the A.Y 2010-11. ITA No.451/Hyd/2015 filed by the assessee and ITA 480/Hyd/2015 filed by the Revenue are cross appeals and are directed against the order dated 27.02.2015 passed by the Assessing Officer u/s 143(3) r.w.s. 92CA of the Act for the A.Y 2011-12. ITA 118/Hyd/2016 filed by the assessee is directed against the order dated 11.2.2015 passed u/s 143(3) r.w.s. 92CA of the Act for the ITA Nos 365 451 and 480 of 2015 and 118 of 2016 Brightcom A.Y 2011-12. Since identical issues are involved in all these appeals filed by the assessee, and the only appeal filed by the Revenue, therefore, for the sake of convenience, these appeals were heard together and are being disposed of by this common order. ITA 365/Hyd/2015 A.Y 2010-11 (By Assessee) 2. Facts of the case, in brief, are that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal by raising the following grounds: 1. Erred in passing the order u/s 143(3) r.w.s 144C(13) on date 27.02.2015 which is beyond one month from the end of the month in which such DRP directions are received. 2. Erred in computing Arm s Length Price of Rs.1,67,57,828/- u/s 92C(3) of the IT Act, 1961 by treating the investment of Rs.50,17,31,400/- in M/s Global IT Inc, USA, the assessee's wholly owned subsidiary as Interest free loan by charging interest LIBOR+2% without appreciating the fact that the investment had been made towards equity investment for the purpose of business expansion. 3. Ought to have appreciated the fact that Honourable DRP for the AY 2008-09 has directed to delete the addition made towards interest on investment in subsidiary and hence the same should have been Rs followed for the year under consideration. 4. The AO erred in re-categorizing the nature of asset by treating the| Investment as Loan which is not permissible u/s 145 of the Act. 5. Erred in not appreciating the fact that the transaction relating to investment doesn't fall under the purview of Transfer Pricing u/s 92B, as no income is generated from the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the export turnover without excluding the same from the total turnover of the assessee while computing the deduction u/s 10A of the Act. 16. Ought to have appreciated that whatever amount has been excluded from the export turnover, the same amount should also be excluded from the total turnover for the purpose of computation of deduction u/s.10A of the Act. 17. Ought to have appreciated that the assessee's claim u/s 10A of the Act has been allowed by the Revenue in the earlier years and the same cannot be disallowed in the subsequent years. 18. The assessee may add, alter or modify any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal. 5. The assessee has also raised certain additional grounds. However, since the learned Counsel for the assessee did not press these grounds, therefore, these are dismissed as not pressed. 6. So far as the grounds of appeal No.2 to 10 relating to part relief granted by the DRP on account of TP adjustment is concerned, the facts, in brief, are as under: 7. The TPO during the course of TP assessment noted that the assessee in its TP study has reflected the following internat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LP on the interest free loan of Rs.50,17,31,400/- and proposed upward adjustment at Rs.6,14,62,097/-the details of which are as under: Closing balance of investment - Rs.64,37,36,882/- Less:Opening Balance of Investment- Rs.14,20,05,482/- Alleged Investment during the year Rs. 50,17,31,400/- Interest free loan/Advance during the year- Rs.50,17,31,400/- Interest @ 12.25% on Rs.50,17,31,400 = Rs.6,14,62,097/-. 10. Before the DRP, the assessee submitted that : a) The investment was made towards. equity investment for the purpose of business expansion of the assessee company and its subsidiaries companies. b) The investment made by the assessee company was out of internal funds raised by the assessee. c) The assessee has not taken any borrowings for providing investment and no cost incurred by the assessee d) The money was paid towards equity investment and no interest can be charged on such investment made by the assessee company. 11. Based on the arguments advanced by the assessee, the DRP directed the Assessing Officer to adopt LIBOR+2% for interest receivables on loans given by the assessee to its AE by observing as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.9.2012 has held that it is not correct to impute interest on investment made by the assessee in its own subsidiaries which in turn fetched the assessee company to expand its business and enter into new space as well as earned profits. It is not an idle investment made by the assessee to park its funds abroad without any benefit accruing to such transaction. Accordingly, the addition of Rs.2,56,18,200/- was directed to be deleted. He submitted that the Revenue accepted the order of the DRP on this issue and did not file any appeal. Thus, once the Department has accepted the position, they cannot take a different proposition for bringing such interest to tax. The learned Counsel for the assessee also relied on the following decisions to the proposition that investment in share capital of the subsidiaries outside India are not in the nature of international transactions u/s 92B of the Act and the investments cannot be treated as loan and therefore, no interest can be charged on the same: i) Hon'ble Bombay High Court in the case of Vodafone India Services (P) Ltd vs. Union of India (2014) 50 Taxmann.com 300 (Bom.) ii) ITAT Hyderabad in the case of Prithvi Information So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case proposed upward adjustment of Rs.6,14,62,097/- being the ALP of the international taxation which was computed by applying the interest rate of 12.25% on investment of Rs.50,17,31,400/- treating the same as loan given by the taxpayer to its AE during the relevant financial year. When the assessee approached the DRP, we find the DRP directed the Assessing Officer to apply the LIBOR+2% on loans given by the assessee to its AEs. It is the submission of the learned Counsel for the assessee that when the assessee has invested in the equity share capital of the subsidiary outside India, the same is not in the nature of international transaction u/s 92B of the I.T. Act and the investment in equity cannot be treated as loan and therefore, no interest can be charged on the same. It is also his submission that recategorization of the nature of the asset by treating the investment as loan is not permitted u/s 145 of the I.T. Act. According to him, the procedure laid down under the provisions of section 92C of the I.T. Act relating to the computation of ALP should be followed. 20. We find merit in the above arguments advanced by the learned Counsel for the assessee. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the financial statements prepared by assessee company since 2007-08 financial year onwards. Therefore, it is not correct to treat the said investment as a loan and compute interest on such investment transaction. It is very clear from the perusal of the facts that the assessee company right from the beginning is intended to invest the amounts as part of expanding its business and entered into new area to widen its professional activity. On its part, the assessee fulfilled its legal obligation of intimating the RBI and obtaining unique identification number for the direct investment in overseas as well as intimating to the Authorized Bank regularly about the remittances as well as forwarding a copy of the share certificates within due dates as prescribed by RBI. Assessee is also harping on the point that the investments have been made out of internal accruals but not out of borrowed funds; therefore, there is no cost to the assessee on this investment transaction. In view of the above discussion, the Panel feels that it is not correct to impute interest on the investments made by the assessee in its own subsidiary which in return fetched the assessee company to expand its business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y computing the eligible deduction u/s 10A of the Act at Rs.5,03,85,186/- as against the assessee s computation at Rs.5,24,50,966/-. 25.1 After hearing both the sides, we find the Assessing Officer on verification of the export sales and their invoices/sub tax forms noted that against the US$ of 2,21,97,835/-equivalent to INR of Rs.99,03,62,533/-, the assessee has shown to have received USD14499302 and could not produce the proof of receipt for the balance amount of USD 76,98,533/- equivalent to Indian Rs.34,34,72,174/-. Therefore, the Assessing Officer for the purpose of computation of eligible export turnover reduced the amount of Rs.34,34,72,174/- being export proceeds not received in India. We find the DRP directed the Assessing Officer to verify the export bill/invoice records as claimed by the assessee with reference to the FIRCs and consider the export turnover to the extent the proceeds are realized in convertible foreign exchange within the stipulated time limit or within the extended time limit, if any supported by the relevant certificate and accordingly recompute the deduction allowable u/s 10A by observing as under: In view of the submissions of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnish any evidence towards Onsite Development Charges and could not substantiate that the Onsite charges rendered were only an extension of the services rendered in India, the Assessing Officer reduced the same from the export turnover for the purpose of calculation of deduction u/s 10A. The DRP has upheld the order of the Assessing Officer and the Assessing Officer in the final order reduced the onsite development charges both. 29. After hearing both sides, we find it is an admitted fact that the assessee did not furnish any evidence before the Assessing Officer regarding the onsite development charges and that the onsite Services rendered were only an extension of the services rendered in India. Therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to substantiate the same to the satisfaction of the Assessing Officer regarding the details of onsite development charges and that the services rendered were only for the extension of services rendered in India. The grounds raised by the assessee are accordingly al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in subsidiaries, without appreciating the fact that the same was due to reclassification of the head goodwill to investment and that provisions of transfer pricing are not applicable to the transaction as there in no income. 11. Ought to have appreciated the fact that the amount of Rs. Rs 90,56,47,100/- was reclassified from Goodwill to Investment and the actual amount of investment in the subsidiaries is Rs.2,19,50,20,970/- till financial year 2008-09, but this amount was shown under two heads under goodwill for an amount of Rs.90,56,47,100/- and the other under the head investments of Rs.1,28,93,73,870/- and this fact is apparent from Balance Sheet as on 31.03.20110. 12. Erred in stating that the assessee has not furnished supporting R= documents in respect to the classification of goodwill, without appreciating that the same fact can be seen from Fixed Assets schedule of FY 2009-10. 13. Erred in treating the amount of Rs. 24,58,52,364/- as investment in subsidiaries and computing interest 3.34% (LIBOR + 2%) without, without appreciating the fact that the assessee company has incurred the above amount in the process of setting up of three locations t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the issue and the addition made by the Assessing Officer has been deleted in toto in the preceding Paragraphs.. Following our reasonings given therein, the above grounds raised by the assessee are allowed and the ground raised by the Revenue is dismissed. 37. Ground of Appeal No.17 by the assessee relates to the treatment of gain on Foreign Exchange fluctuation of Rs.4,22,579 as other income. 37.1 At the outset, the learned Counsel for the assessee submitted that the assessee has already offered such foreign exchange fluctuation as other income and addition of the same will amount to double taxation and therefore, he has no objection if the same is restored to the file of the Assessing Officer with a direction to verify the same and if it amounts to double addition, then the same has to be deleted. The learned DR has no objection for the above proposition. Therefore, the issue of foreign exchange fluctuation gain of Rs.4,22,579/- is restored to the file of the Assessing Officer with a direction to verify that the assessee has already offered the same to taxation and addition of the same will amount to double addition. The Assessing Officer shall decide the issue as per fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result which would cause grave injustice to the Respondent which could have never been the intention of the legislature. 20. Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well . 39. Similar view has been taken by the Hon'ble Supreme Court in the case of Tesco Hindustan Services (P) Ltd reported in (2018) 96 Taxmann.com 76. In view of the above, we hold that the DRP is fully justified in holding that the communication expenses of Rs. Rs.34,40,948/- to be deducted from both total turnover and export turnover. Accordingly, the ground raised by the Revenue on this issue is dismissed. 40. Ground of Appeal No.3 4 by the Revenue being general in nature are dismissed. ITA 118/Hyd/2016 A.Y 2011-12 (By assessee) 41. The grounds raised by the assessee read as under: 1. Erred in law in making the reference to TPO without meeting the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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