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TMI Blog2023 (10) TMI 646X X X X Extracts X X X X X X X X Extracts X X X X ..... elated economic/commercial factors surrounding the transaction However, no such information/details is available on record in relation to the loan transactions identified by the Appellant. We are constraint to remand the issue back to the file of the AO/TPO for determination of arm s length rate of interest and transfer pricing adjustment, if any, in relation to transaction of working capital loan of INR 29 Crores granted by SCB India to the Appellant afresh. With the above direction, Ground No. 1 raised by the Appellant is allowed for statistical purposes. Interest received by the Appellant from SCB India on fixed deposits - TPO had compared the rate of interest charged by the Appellant with the Punjab National Bank ( PNB ) interest rate card and noted that interest rate on fixed deposits exceeding INR 1 Crore was higher by 1%, thus proposed TP adjustment - DRP noted that the PNB interest rate card adopted by the TPO was effective from 01/03/2009 only and therefore, directed the TPO/Assessing Officer not to adopt the PNB interest rate card for deposits prior to 01/03/2009 and restricting the adjustment to interest on fixed deposit placed thereafter - HELD THAT:- Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ahul Chaudhary, Judicial Member: 1. The present appeal is directed against the Assessment Order dated, 06/12/2013, passed under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961 [hereinafter referred to as the Act ], as per directions, dated 01/11/2013, issued by the Dispute Resolution Panel-II, (hereinafter referred to as the DRP ) under Section 144C(5) of the Act pertaining to the Assessment Year 2009-10. 2. The Appellant has raised the following grounds of appeal: GROUND NO. 1: Transfer Pricing adjustment related to Interest paid to Standard Chartered Bank-India (SCB- India') on Working Capital loan obtained - Rs. 21,75,000 The learned Deputy Commissioner of Income Tax-1(3) (DCIT) pursuant to the directions issued by Dispute Resolution Panel -II (DRP) erred in making the price adjustments of Rs. 21,75,000 for interest paid on working capital loan obtained from SCB-India on 20 October 2008 considering that interest 14.75% is not at arm's length rate. SCCL submits that DRP have ignored the economic factors influencing the interest rate pricing on such loans granted by SCB-India based on which average internal comparables are co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,59,74,320/-. The return was processed under Section 143(1) of the Act. Subsequently, the case of the Appellant was selected for scrutiny and notice under Section 143(2) of the Act was issued to the Appellant. 4. During the assessment proceedings, the Assessing Officer noted that the Assessee had entered into international transactions with Associated Enterprises (AEs) and therefore, made a reference to the Transfer Pricing Officer (TPO) for computation of Arm s Length Price (ALP) under Section 92CA(1) of the Act. The TPO, vide order, dated 29/01/2012, passed under Section 92CA(3) of the Act, proposed Transfer Pricing Adjustment of INR 22,27,548/- consisting of (a) transfer pricing adjustment of INR 21,75,000/- in respect of interest paid to Standard Chartered Bank, India [For short SCB India ] and (b) transfer pricing adjustment of INR 52,548/- in respect of interest received from SCB India on fixed deposits. The aforesaid transfer pricing adjustment was incorporated in the Draft Assessment Order, dated 14/02/2013. In addition, the Assessing Officer also proposed corporate tax addition which included, inter alia, disallowance of INR 9,00,000/- under Section 14A of the Act rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22/10/20088 31/10/2008 9 29 crore 14.00 Average arms length rate 14.25% 14.9625% 9. On the basis of the above transactions, the Appellant had computed average interest rate of 14.9625% as arm s length rate of interest. According to the Appellant, the rate of 14.75% charged by SCB India was within a range of (+/-) 5% and therefore, no transfer pricing adjustment was warranted. It was also contended on behalf of the Appellant that in case the average rate of interest of 14.70% (approx) thus determined by the Appellant is not considered to be arm s length rate of interest, the closest comparable transaction would be the transaction of loan of INR 10 Crores given by SCB India to its customers Mr. Amit Jadhav for a period of 29 days (17/10/2008 to 15/11/2008) at the interest rate of 14.50%. However, the TPO was not convinced and therefore, rejected the average rate of interest 14.75% determined by the Appellant and concluded that the transaction of loans of INR 29 Crores granted by the SCB India to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant being a tested party, has been sought to be benchmarked by the transactions undertaken by the SCB India with third parties whereby loan has been granted by SCB India to such third parties. The Appellant is not party to the loan transaction identified by the Appellant and therefore, in our view, rate of the interest determined by the Appellant as arm s length rate of interest on the basis of such transactions does not constitute internal CUP. Further, as per the Appellant s own submissions, the interest rate on working capital loans is a function of prevailing market rates, liquidity conditions and other related economic/commercial factors surrounding the transaction However, no such information/details is available on record in relation to the loan transactions identified by the Appellant. In the aforesaid facts and circumstances, we are constraint to remand the issue back to the file of the Assessing Officer/TPO for determination of arm s length rate of interest and transfer pricing adjustment, if any, in relation to transaction of working capital loan of INR 29 Crores granted by SCB India to the Appellant afresh. With the above direction, Ground No. 1 raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yce Mfg. Co. Ltd. v. Dy. CIT: 394 ITR 449 18. Per contra, the Ld. Departmental Representative relied upon the order passed by the Assessing Officer. He submitted that the Assessing Officer has rightly invoked provisions of rule 8D to make disallowance of INR 9,00,000/- in terms of Rule 8D(2)(iii) of the Rules as the Appellant had made no disallowance under Section 14A of the Act despite earning exempt income. 19. We have considered the rival submissions and perused the material on record. We find merit in the contention of the Appellant with the Assessing Officer has failed the record satisfaction before invoking provisions of Section 14A of the Act read with Rule 8D of the Rules. On perusal of the assessment order we find that the Assessing Officer has rejected the contention of the Assessee that no disallowance should be made under Section 14A of the Act and while doing so, the Assessing Officer has neither referred to any interest cost and/or administrative expenses incurred/claimed by the Assessee for earning the exempt income, nor made any reference to the accounts of the Assessee. 20. The Hon'ble Supreme Court in the case of Godrej Boyce Mfg. Co. Ltd. v. Dy. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance under Section 14A of the Act the Assessing Officer must express his dissatisfaction regarding the computation of disallowance made by the Assessee. Accordingly, in view of the above judgments, the addition of INR 9,00,000/- made under Section 14A of the Act read with Rule 8D(2)(iii) of the Rules is deleted. Ground No. 3 raised by the Appellant is allowed. Ground No. 4 23. Ground No. 4 raised by the Appellant pertains to disallowance of depreciation of INR 10,42,446/-. 24. The relevant facts in brief are that from the Previous Year 2006-07 relevant to the Assessment Year 2007-08 the Appellant had claimed depreciation of INR 1,01,13,325/-, on routers, connection charges and servers as the Appellant was of the view that the same qualify for depreciation at the rate of 60%, being the rate applicable to computers. However, the Assessing Officer restricted the depreciation to 15%. 25. During the relevant previous year, the Appellant again claimed depreciation of INR 13,89,928/- computed at the rate of 60% on the opening Written Down Value (WDV) as no additions were made to the block of assets during the relevant previous year. However, the Assessing Officer again r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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