9911796707
TMI Blog2023 (9) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... ete the transfer pricing adjustment made in respect of special purpose loan of USD 110 million. Accordingly, ground No.1 raised by the assessee is allowed. Foreign tax credit tax while determining the tax liability on the assessee - HELD THAT:- We find that the interest income received by the assessee from Home Field International Ltd. (AE) was duly offered to tax by the assessee company in Mauritius. The assessee paid the due taxes thereon at Mauritius. The assessee is only seeking foreign tax credit for the taxes already paid at Mauritius since the very same interest income received from AE is also subjected to tax in India in the hands of the assessee. We find that this is a legitimate claim of the assessee and hence, we direct the ld. AO to grant foreign tax credit tax while determining the tax liability on the assessee pursuant to this Tribunal order. Accordingly, the additional ground raised by the assessee is allowed. Disallowance of payments made to various institutions by invoking the provisions of section 40A(9) - HELD THAT:- As relying on assessee own case [ 2019 (4) TMI 2064 - ITAT MUMBAI] we direct the ld. AO to delete the disallowance made in this regard. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in the first instance, the Managing Director and Executive Director should be shareholders and they should have been paid commission in lieu of distribution of profit or as dividend. Since the ld. AR placed on record the list of shareholders for the first time before us to drive home the point that both the MD and ED were not shareholders of the assessee company at the relevant point in time, we deem it fit and appropriate to restore this issue to the file of the ld. AO for the limited purpose of verification of facts as to whether Mr. P R Menon and Shri Homi R Khushrokhan were shareholders of the assessee company at the relevant point in time. If they are not found to be shareholders, then the disallowance made u/s.36(1)(ii) of the Act should be deleted. Ground raised by the assessee is allowed for statistical purposes. Deduction made in respect of post retirement medical benefits provided to retired employees by the assessee company - Assessee company has a scheme whereby the existing employees and employees who had retired from the services of the company on attainment of normal retirement age, are entitled for their medical check-up and medicines at the company hospital fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 31/12/2009, 31/12/2010 & 19/10/2011 u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act, hereinafter referred to as Act, pursuant to the directions of the ld. Dispute Resolution Panel-II (DRP in short) u/s. 144C(5) of the Act dated 27/09/2010 & 30/09/2011 for the A.Y. 2006-07 & 2007-08. 2. The ground No. 1 raised by the assessee is with regard to the transfer pricing adjustment on account of low rate of interest charged on advance to M/s. Home Field International P. Ltd (Associated Enterprises-AE). 2.1. We have heard rival submissions and perused the materials available on record. Home Field International Pvt. Ltd. (HIPL) in Mauritius is a 100% subsidiary of the assessee formed with a view to make investments globally. The assessee was bidding for acquisition of Egyptian Fertiliser Company through HIPL With a view to fulfil the pre-bid condition of 'Proof of funds letter' from an international banker, the assessee had lent USD 110 million to HIPL to show availability of funds with them. The lending of funds was from 16.05.2005 to 26.06.2005 i.e. for a period of 41 days. Since, the bid was unsuccessful the funds were returned back. The said funds were placed by HIPL a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncipal portion of the loan and interest of USD 3,76,247 after reducing bank charges of USD 105. 2.2. The monies received from the assessee by the AE was parked by the AE with Barclays bank in the form of short term deposits at Mauritius. The monies were lying with bank account at Mauritius in the name of AE for a period of 41 days and it had fetched interest of USD 376247.02. Since the bid was unsuccessful on 28/06/2005, the AE withdrew the amount in the sum of 110376247.02 on 28/06/2005 and returned the money to the assessee on the very same day. This goes to prove that the AE had actually received interest @3% on the funds parked by it with Barclays bank. The very same interest amount of USD 376247.02 had been returned to the assessee company by the AE without retaining any margin thereon. This peculiar fact itself goes to prove that the fund that was given to AE was not at the disposal of the AE to be utilised for any other purpose, rather it was used for special purpose funding to participate in the bid, for which purpose the funds were placed in the form of short term deposits with Barclays bank. Hence, this peculiar fact distinguishes this special purpose loan transaction gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from material on record, need to be stated. The assessee before us is a company now merged in Bennett Coleman & Co. Ltd., the flagship company of a well-known Indian media group- commonly known as 'Times Group'. At the relevant point of time, the assessee company, then known as Times Infotainment Media Ltd (TIML-India, in short), was a fully owned subsidiary of Bennett Coleman & Co Ltd and was engaged, inter alia, in the radio broadcasting business. When the Times Group decided to expand its wings in the radio broadcasting business and acquire overseas companies engaged in this line of business, as is stated, it was considered commercially expedient to make these investments through the assessee company. A public listed company in the United Kingdom, by the name of Scottish Media Group plc (SMG-UK, in short), wanted to disinvest in its radio broadcasting business, and that is the reason it put to auction its entire shareholding in Virgin Radio Holdings Limited, UK, (Virgin Radio, in short) which was held through SMG's wholly-owned subsidiary Ginger Media Group Ltd, UK. (Ginger-UK, in short). TIML-India was one of the successful bidders in this auction. The assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a result of these transactions, TIML Golden became a wholly-owned subsidiary of TIML Global, TIML Global became a wholly-owned subsidiary of TIML, and, TIML anyway was already a wholly-owned subsidiary of BCCL. With this structure in place and the deal having been finalized, the flow of funds started to complete the transaction. TIML received Rs. 388.85 crores as interest-free deposits from its holding company, i.e. BCCL, and Rs. 100 crores as a subscription for 1% non-cumulative preference shares. TIML-India then remitted UK £ 56,824,316 (UK £ 1.2 million for equity, and balance UK £ 55.824 million as an interest-free loan to TIML-Global on 27th June 2008. Once this amount of UK £ 56.82 million was received by TIML-Global, it paid UK £ 53.51 million, on that day itself, on behalf of TIML-Golden, for the acquisition of Virgin Radio shares, and the balance amount of TIML-Golden for other acquisition-related costs. The acquisition of shares in Virgin Radios by TIML-Golden was completed on 30th June 2008. A further payment of UK £ 3,75,000, as an interest-free loan, was made by TIML India to TIML Global for the working capital costs. It was in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Departmental Representative was confronted with, what appeared to us, infirmities in the application of CUP method, it was his submission that even if there are some shortcomings in the determination of the arm's length price, though he maintains that there are no such infirmities in substance, the matter may be remitted at the assessment stage for fresh adjudication on the determination of arm's length price. He fairly submits that if Indian PLR is not good enough as a benchmark for this loan, in all fairness, at least LIBOR is a good enough benchmarking tool for GBP denominated loan. Learned counsel reiterates his submissions, submits that this transaction is shown as a loan in the books of accounts as that is the only way in which it can shown, under the legal requirements, but then nothing really turns on how the transaction is treated for accounting purposes. Learned counsel for the assessee has vehemently opposed this suggestion and submitted that what is before this Tribunal is an adjudication on the arm's length price adjustment made and confirmed by the authorities below; if this arm's length price adjustment is incorrect, the Tribunal has to delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llip;……………………………. 10. ……………………………………………………………………………………. 11. ……………………………………………………………………………………. 12. It is important to understand the true nature of this transaction because everything hinges on what is the true nature of the transaction in question. The transaction is a remittance of Rs. 477.10 crores to a wholly-owned subsidiary for making further payment of the cost of acquisition of a target company in the name of a step-down subsidiary which is fully owned by this fully owned subsidiary of the assessee company. Let us not forget the fact that the assessee company was one of the successful bidders in the purchase of the entire equity capital of Virgin Radi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of, in furtherance of business interests of the assessee company, and structured by the assessee company. The remittance of funds to TIML-Global was for this limited and controlled purpose, and sequence events and the material on record unambiguously confirm this factual situation- and that is not even called into question by the revenue authorities. The transaction of remittance to TIML-Global cannot, therefore, be considered on a standalone basis and can only be viewed in conjunction with the restricted use of these funds, for the strictly limited purposes, by the TIML-Global. 13. If at all, therefore, this transaction can be compared with any other transaction, such other transaction can only be for the purpose of making remittance to an independent enterprise with the corresponding obligation to use the funds so remitted for acquiring a target company already selected by, and on the terms already finalized by, the entity remitting the funds. The essence of the transaction is a targeted acquisition and providing enabling funds for that purpose. Such a transaction, in our humble understanding, cannot be equated with providing funds to another enterprise as a loan simpliciter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e such a funding transaction between the parties which are not associated enterprises, or, to put it differently, whether there can be valid comparables, under the CUP method, for such a transaction of SPV funding; second, whether if such a transaction is hypothetically possible, what could be the rate of interest in such financing is done in an uncontrolled situation; and, third- if interest is not the arm's length consideration for such funding, what could constitute an arm's length price of such financing. 19. As for the first question, the answer is obvious. Once we have held that transactions between the owner of SPV and the SPV belong to a genus different from the transactions between lenders and borrowers, such transactions between an SPV and the entity creating such an SPV, as long as it is for a specific transaction structured by the owner entity- as in this case, is inherently incapable of taking place between independent enterprise. The moment this kind of funding is done, the relationship between the entity funding the SPV and the SPV will be rendered as of 'associated enterprise' within the meanings of Section 92A(1) as also 92A(2). It is also elemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est is compensation for the time value of money in the sense that when lender puts the money at the disposal of the borrower for a certain period, the interest that the borrower pays the lender is compensation for placing the money at the disposal of the borrower for borrower's use during this period. In a situation in which a borrower has sufficient opportunities to gainfully use the funds so placed at his disposal, and the gains from such use are high, interest rates are also high, and when there are no gains from such funds placed at the borrower's disposal, or when the gains from such funds are low or minimal, the interest rate also correspondingly travel south. In a situation, therefore, when the borrower has no discretion of using the funds gainfully, the commercial interest rates do not come into play at all. 21. That brings us to the third question, academic as it may sound at this stage, as to what, hypothetically speaking, could be a reasonable compensation under the CUP method, in an arm's length situation or, to borrow the terminology used in rule 10B(1)(a), 'comparable uncontrolled transaction', for making remittance to another corporate entity, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the SPV to achieve its objectives. Therefore, when the CUP method is to be adopted for ascertaining arm's length price of providing wherewithal to the SPV, for achieving its objectives and purpose, the arm's length consideration thereof could at best be the corresponding gain to the SPV concerned- whether directly or indirectly. 22. To sum up, there cannot be a transaction, between the independent enterprises, of interest-free debt funding of an overseas SPV by its sponsorer; if such a transaction between independent enterprises is at all hypothetically possible, the arm's length interest on such funding will be 'nil'; and, if there has to be an arm's length consideration under the CUP method, other than interest, for such funding, it has to be net effective gains- direct and indirect, attributable to the risks assumed by the sponsorer of the SPV, to the SPV in question. 23. So far as the arm's length consideration for SPV funding, for consideration other than interest is concerned, it is academic in the present case because the entire case of the revenue proceeds on the basis that interest was leviable on this funding, and benchmarking the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of hearing of the appeal. 3.1. We find that this additional ground raised by the assessee goes to the root of the matter and does not require verification of fresh facts. Hence, they are admitted and taken up for adjudication. We find that the interest income received by the assessee from Home Field International Ltd. (AE) was duly offered to tax by the assessee company in Mauritius. The assessee paid the due taxes thereon at Mauritius. The assessee is only seeking foreign tax credit for the taxes already paid at Mauritius since the very same interest income received from AE is also subjected to tax in India in the hands of the assessee. We find that this is a legitimate claim of the assessee and hence, we direct the ld. AO to grant foreign tax credit tax while determining the tax liability on the assessee pursuant to this Tribunal order. Accordingly, the additional ground raised by the assessee is allowed. 4. The Ground No. 2 raised by the assessee was stated to be not pressed by the ld. AR due to smallness of the amount. We accordingly dismiss the said ground as not pressed with an observation that the same shall not be construed as a precedence for other years. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions and perused the materials available on record. We find that the assessee had entered into Brand Equity and Business Promotion (BEBP) Agreement dated 18.12.1998 with Tata Sons Ltd for use of Tata Logo by the assessee, pursuant to which payment has been made by the assessee. This payment was sought to be disallowed by the ld. AO on the ground that the assessee was a Tata Group Company since 1939 and has its own reputation and logo. Hence there is no need to use separate Tata Logo. Accordingly, the ld. AO disallowed the said payment as not meant for business purposes of the assessee. 6.2. We find that this issue is no longer res integra in view of the decisions of this tribunal in assessee's own case in the following cases :- ITA No. 6366/Mum/2014 dated 15.09.2017 for A.Y. 2001-02 ITA No. 3383/Mum/2015 dated 22.04.2019 for A.Y. 2002-03 ITA No. 2439/Mum/2011 dated 19.02.2021 for A.Y. 2003-04 ITA No. 2440/Mum/2011 dated 06.07.2022 for A.Y. 2004-05 6.3. The ld. AR also stated that the similar issue has been decided by this tribunal in the case of assessee's own subsidiary Rallis India Ltd case in ITA No. 5701/Mum/2008 for A.Y. 2004-05 ; in the case of BPL Refrigeration Ltd v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal, this tribunal had held the revision order passed u/s 263 of the Act by the ld. CIT to be invalid. The appeal preferred by the revenue against this tribunal order is pending before the Hon'ble High Court. 8.1.1. Hence as on date, the deduction u/s 80IA of the Act in respect of Mithapur Power Plant was allowed in A.Y. 2001-02 on merits , being the first year. For A.Ys. 2002-03 to 2005-06, it has been allowed by the ld. AO u/s 143(3) of the Act, which had become final as subsequent reopening and revision proceedings, as the case may be, were quashed by this tribunal. Effectively, the claim of deduction is allowed to the assessee upto A.Y. 2005-06. Accordingly, the ld. AR argued that there is no reason for the ld. AO to take a divergent stand during the year under consideration to deny the claim of deduction u/s 80IA of the Act, when the facts are identical and there is absolutely no subsequent adverse developments on facts. The method of working of the profit of the eligible undertaking adopted for the year is the same as it was for A.Y. 2001-02. This method has been consistently followed by the assessee in all the subsequent years also. 8.2. The audit report in Form 10CCB for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the ld. AO is that-- (i) since the said power plant is a captive power plant, deduction u/s. 80IA of the Act is not eligible to the assessee; (ii) the assessee had adopted the rate of Rs. 4.74 per unit to book income from sale of power. This is nothing but the rate charged by the Gujarat Electricity Board had it supplied power to the assessee. Hence, the assessee has inflated the profit on sale of power by showing the cost of production at a rate much lower than the one as per the tariff of Gujarat Electricity Board; and (iii) the assessee has claimed deduction u/s. 80IA of the Act on the sale of steam also. This is merely a notional book entry passed by the assessee and accordingly, not eligible for deduction u/s. 80IA of the Act. 8.5. We would like to adjudicate each of the aforesaid propositions separately. First, whether deduction u/s. 80IA of the Act would be eligible in respect of captive power plant i.e. power generated in the power plant when captively conceived by other non- eligible units, deduction u/s. 80IA of the Act would be eligible for the said power plant. This issue is no longer res integra in view of the decision of the Hon'ble Madras High Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. In this regard, the eligibility of an assessee to claim deduction u/s. 80IA of the Act for the sale of steam from power unit to non-eligible unit has been subject matter of consideration by the Co-ordinate Bench decision of this Tribunal in the case of DCW Ltd vs. The Additional Commissioner of Income Tax reported in 37 SOT 322(Mum). The relevant observation of this Tribunal on the impugned aspect of the issue is reproduced hereunder:- "18.8 The next item of miscellaneous income is the income from sale of steam produced by the assessee. Briefly the facts and nature of steam are that the captive power undertaking also has waste heat recovery boiler, which is part of the power undertaking. The power generated by the running of diesel generating set is used in the manufacture of caustic soda. Running of Diesel Generating Sets produce heat, which is recovered from the waste heat recover boiler in the form of steam. During the year ended March, 2003, the total quantity of steam generated is 1,02,295 MT. The said steam is used as power for the manufacture of PVC and Ilmenite and 6,240 MT was used towards internal consumption. During the year 66,990 MT of steam was consume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in 421 ITR 686 (Bom). The relevant question raised before the Hon'ble Jurisdictional High Court is reproduced as under:- (c) Whether, on the facts and in the circumstances of the case and in law, the ld. Tribunal was right in upholding the decision of the ld.CIT(A) who had deleted the addition made by the then AO by restricting the deduction u/s. 80IA at Rs. 48,76,82,681/-as against Rs. 131,43,30,575/- claimed by the assessee?" 8.8.1. The Hon'ble Jurisdictional High Court disposed of the above question by observing as under:- 4. Question (c) pertains to the dispute between the department and the assessee regarding the rate at which the electricity generated by one unit of the assessee- company and provided to the another be valued. The assessee contended that such valuation should be at the rate at which the electricity distribution companies are allowed to supply electricity to the consumers. The revenue on the other hand argues that the appropriate rate should be the rate at which the electricity is purchased by the distribution companies from the electricity generating companies. 5. This controversy arose in the background of the fact that the assessee had set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was purchased by the Assessee from Tata Power Company as market value. There is nothing brought on record as to how the rate determined by the MERC is the true market value. The Assessee gave explanation that the rates determined by the MERC do not reflect the correct market rate. The finding is that the mode of computation and deduction under Section 80IA requires no deviation from the past. The findings of fact and to be found in paragraphs 42 to 50 also reflect that the very issue came up for consideration for the Assessment Year 2003-2004. For the reasons assigned by the ITAT and finding that the attempt is to seek reappreciation and reappraisal of the factual data that we come to a conclusion that even question (d) as framed is not a substantial question of law." 8.9. In view of the above, we hold that assessee was justified in recognizing the sale income of power at the rate of 4.74 power unit. 8.10. In view of the independent observations, we find that basis on which the deduction u/s. 80IA of the Act has been denied by the ld. AO for the year under consideration has no legs to stand in the eyes of law. Hence, we direct the ld. AO to grant deduction u/s. 80IA of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is allowed. 10. The ground No. 7b raised by the assessee was stated to be not pressed by the ld. AR due to smallness of the amount. We accordingly, dismiss the said ground No.7b as not pressed with an observation that the same shall not be construed as a precedent for other years. 11. The ground No.8 raised by the assessee is challenging the disallowance of commission paid to Managing Director and Executive Director by applying the provisions of Section 36(1)(ii) of the Act. 11.1. We have heard rival submissions and perused the materials available on record. We find that assessee was directed to produce the details of the commission paid to the Directors and employees by the ld. AO during the course of assessment proceedings. The assessee filed the details vide letter dated 22/12/2009. The assessee stated that commission has been paid to the Managing Director and Executive Director as per the provisions of Companies Act 1956. It was specifically clarified that no commission was paid to any employee. The assessee stated that it had paid commission to Shri P R Menon, Managing Director in the sum of Rs. 80 lakhs and Shri Homi R Khushrokhan, Executive Director in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f profit or as dividend. Since the ld. AR placed on record the list of shareholders for the first time before us to drive home the point that both the MD and ED were not shareholders of the assessee company at the relevant point in time, we deem it fit and appropriate to restore this issue to the file of the ld. AO for the limited purpose of verification of facts as to whether Mr. P R Menon and Shri Homi R Khushrokhan were shareholders of the assessee company at the relevant point in time. If they are not found to be shareholders, then the disallowance made u/s.36(1)(ii) of the Act should be deleted. We make it clear that we are not even contemplating here that if the payment is made to shareholders in the form of Commission or Bonus, the provisions of section 36(1)(ii) of the Act would become applicable automatically. With these directions, the ground No. 8 raised by the assessee is allowed for statistical purposes. 12. The ground No.9 raised by the assessee was stated to be not pressed by the ld. AR. The same is reckoned as a statement made from the Bar and accordingly, dismissed as not pressed. 13. The ground No. 10 raised by the assessee with regard to disallowance of machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was considered to be at arm's length price while doing the benchmarking in the TP study report. The total loan outstanding to Home Field International Pvt. Ltd (HLP) Mauritius was USD 140.58 million which has been funded partly through FCCB issue proceeds to the extent of USD 112.22 million and remaining USD 28.36 million has been funded by way of remittance from India. The lending at the interest rate of LIBOR +200 basis points to the AE was accepted to be at arm's length price by the ld. TPO in A.Y. 2006-07 i.e. the immediately preceding year which has been adjudicated hereinabove. The assessee had actually earned interest income of 36.37 lakhs, Rs. 11.85 lakhs and Rs. 14.09 lakhs. This interest was considered erroneously by the ld. TPO at 36.37%, 11.85% and 14.09%. Based on this, the ld. TPO by applying CUP method adopted 16% interest rate to be the arm's length price which is the domestic SBI Prime Lending Rate. (PLR). The assessee argued before the ld. DRP that when the loan is given in foreign currency, how the interest rate applicable at SBI PLR rates could be charged on the said loans. The assessee always argued that the currency in which the loan amount is getting consumed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the place or the country of residence of either party. Interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters. Interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable. The currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115 states as under:-- "The existing differences in the levels of interest rates do not depend on any place but rather on the currency concerned. The rate of interest on a US $ loan is the same in New York as in Frankfurt-at least within the framework of free capital markets (subject to the arbitrage). In regard to the question as to whether the level of interest rates in the lender's State or that in the borrower's is decisive, therefore, primarily depends on the currency agreed upon (BFH BSt.B1. II 725 (1994), re. 1 § AStG). A differentiation be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of interest rate. The loan in question was given in foreign currency i.e. US $ and was also to be repaid in the same currency i.e. US $. Interest rate applicable to loans granted and to be returned in Indian Rupees would not be the relevant comparable. Even in India, interest rates on FCNR accounts maintained in foreign currency are different and dependent upon the currency in question. They are not dependent upon the PLR rate, which is applicable to loans in Indian Rupee. The PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate in the extant case. PLR rates are not applicable to loans to be re-paid in foreign currency. The interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made. The same principle should apply. 41. Counsel for the Revenue had made reference to Chapter 10 of the U.N. Transfer Pricing Manual, relevant portion of which reads:-- "10.4.10. Financial Transactions 10.4.10.1. Intercompany loans and guarantees are becoming common international transactions between related parties due to the management of cross-border funding within group entities of an MNE gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia and the foreign subsidiary is taken into account and the rate of interest specific to a credit rating of Indian bonds is also considered for determination of the arm's length price of such guarantees. 10.4.10.4. However, the Indian transfer pricing administration is facing a challenge due to non-availability of specialized databases and of comparable transfer prices for cases of complex inter-company loans as well as mergers and acquisitions that involve complex inter-company loan instruments as well as an implicit element of guarantee from the parent company in securing debt." 42. The first paragraph quoted above, rightly stipulates that inter-company loans would require examination of the loan agreement, comparison of the terms and conditions of loan agreements, the determination of credit rating of the lender and the borrower, identification of comparable third party loan agreements and suitable adjustments should be made. In addition to the aforesaid factors, the comparability analysis should also take into account the business relationship and the functions performed by the subsidiary AE for the parent company. In the present case, we are not concerned with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , have suggested that economic purpose and substance of the debt- claim or debt for which granting of credit calls for the lending rate would be determinative. Thus, in case of a capital investment, the borrowing rate will apply, whereas in case of credit allowed to a customer on sale of goods, the lending rate would apply. We do not deem it necessary to enter into this controversy and express our view as regards the same. 19.3. Further, we find that the Hon'ble Jurisdictional High Court in the case of PCIT vs. Manugraph India Pvt. Ltd in Income Tax Appeal No.758 of 2017 dated 09/09/2019 also had an occasion to consider the same issue. The relevant question raised before the Hon'ble Jurisdictional High Court was as under:- "(a). Whether on the facts and in the circumstances of the case and in law, in terms of provision of Section 92C of the Income Tax Act read with Rule 10B of the Income Tax Rules, the Hon'ble Tribunal was right in restricting the rate of interest on loans given to Associated Enterprises @ LIBOR + 2% instead of 17.22% proposed by the Transfer Pricing Officer? 19.3.1. This question was disposed of by the Hon'ble Jurisdictional High Court by observing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25,25,951 21.2. The said payments were sought to be disallowed by the ld. AO by applying the provisions of section 40A(9) of the Act pursuant to the directions of the ld. DRP. Both the parties mutually agreed that this issue has already been settled in favour of the assessee by the co-ordinate bench decisions of this tribunal in assessee's own case as under:- Contribution to Tata Sports Club Covered by Tribunal order for A.Y. 2006-07 supra vide ground No.3 Mithapur Nutan Balshikshan Sangh Covered by Tribunal order for A.Y. 2006-07 supra vide ground No.3 Kindergarten Primary School Covered by Tribunal order for A.Y. 2006-07 supra vide ground No.3 Tatachem D A V Public School Covered by Tribunal order for A.Y. 2006-07 supra vide ground No.3 Tatachem Sports and Cultural Club Covered by Tribunal order for A.Y. 2006-07 supra vide ground No.3 21.3. With regard to payment made to various clubs as detailed above, we find that the Hon'ble Supreme Court in the case of CIT vs. United Glass Manufacturing Co. Ltd reported in 28 taxmann.com 429 had stated that club membership fees paid for employees for seeking membership in the clubs and accordingly payment of entrance fees and subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in its books but since that expenditure had accrued for the year under consideration, in view of the mercantile system of accounting followed by the assessee, the assessee claimed the said provision for post retirement medical benefits in the sum of Rs. 6,23,86,226 as a deduction while filing the return of income. The assessee submitted that the said provision has been made based on actuarial valuation report obtained by a registered valuer who is a Fellow Member of Institute of Actuaries, England and Fellow Member of Actuarial Society of India. The said Actuarial valuation report duly determined the provision figure to be made as on 31/03/2007 and as on 01/04/2006. The copy of the Actuarial valuation report was placed on record by the ld. AR based on the directions given by this Tribunal. This actuarial valuation report was prepared in accordance with the mandate provided in AS-15 issued by ICAI. In our considered opinion, this provision based on actuarial valuation would be clearly an ascertained liability for the assessee at the end of the year. The ld. AO however, strangely applied the provisions of Section 43B of the Act and held that since the said provision made f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in the case of Goetze India Ltd reported in 284 ITR 323 (SC), denied to grant deduction for the same. We find that the decision of Goetze India Ltd does not prohibit an assessee who has a valid claim to be made before the appellate authorities. Moreover the restriction provided by the said decision, shall not apply to appellate authorities. This is provided in the last paragraph of the decision of the Hon'ble Supreme Court. However, the veracity of the claim had not been examined at all by the ld. AO. Hence, we deem it fit and appropriate, in the interest of justice and fairplay, to restore this issue to the file of the ld. AO for denovo adjudication in accordance with law. The assessee is at liberty to produce fresh evidences, if any, in support of its contentions. Accordingly, the ground No.12 raised by the assessee is allowed for statistical purposes. 28. The ground No.13 raised by the assessee claiming deduction for provision for wealth tax and provision for advances while computing book profit u/s.115JB of the Act is similar to ground No.14 raised by the assessee for A.Y. 2006-07. Hence, the decision rendered in A.Y. 2006-07 shall apply to this assessment year also. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TP adjustment. The ld. TPO gave effect to the directions of the ld. DRP and passed an order on 25/10/2011 which is after the date of passing of final assessment order on 19/10/2011 by the ld. AO. In the said order passed by the ld. TPO, the ld. TPO had enhanced the TP adjustment figure by considering the different approach with regard to appropriation of repayment of loan made by the AE. The ld. AO thereafter passed an order u/s.154 of the Act on 31/07/2012 pursuant to this TPO order and made the addition as enhanced by the ld. TPO. 33.1. The ld. AR before us made submissions that once the final assessment order is framed on 19/10/2011, pursuant to the directions of the ld. DRP, the ld. TPO passing the order on 25/10/2011 has got no legs to stand in the eyes of law and the ld. AO erred in taking cognizance of the belated order passed by the ld. TPO and rectifying the same by way of an order u/s.154 of the Act. 33.2. In our considered opinion, this entire appeal becomes infructuous as there will be no grievance left to the assessee in view of our decision rendered in ground No.1 of assessee's appeal for the A.Y. 2007-08 in ITA No.8710/Mum/2011, wherein we have directed the ld. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
