2016 (1) TMI 853 - AT - Income Tax

Tax Appeals: Tribunal's Directions on TP Adjustments, Interest-free Loans, Share Premium, Rule 8D Disallowance

The Tribunal partly allowed the appeals for AYs 2009-2010 and 2010-2011, providing specific directions for each issue. The adjustments on interest-free ... TP adjustment on account of interest free loans given to the AEs - Held that:- On perusal of the said orders / directions of the Revenue Authorities, we find, in principle DRP did not agree with the TPO's proposal of relying on the internal comparables and adopting 15% as applicable rate of interest in benchmarking the transactions with CNK Singapore. However, having held so, DRP also relied on SBI-PLR, which is not the applicable interest rate in the country of Singapore. It is the settled proposition in law that the interest in respect of the current year in which the transaction has taken placed should be considered while calculating the interest on loan granted in foreign currency. Therefore, in principle, we reject the direction of the DRP in thrusting on assessee the SBI-PLR and direct the lower authorities to consider the LIBOR of Singapore. Considering the suo moto adjustments of the assessee, which amounts to addition of ₹ 2,49,260/-, we direct the Assessing Officer to restrict the addition of adjustment to the said amount and delete the balance of addition - Decided in favour of assessee in part. Benchmarking of corporate guarantee related taxes - Held that:- We direct the AO to restrict the adjustments to 0.5% as upheld by the Hon‟ble High Court in the case of Everest [2015 (5) TMI 395 - BOMBAY HIGH COURT] Adjustment on account of share premium - Held that:- Adjustment made on account of ‘share premium’ and ‘interest’ charged on account of ‘under charged premium amount’ does not attract the TP provisions. - Decided in favour of assessee. Disallowance made u/s 14A read with Rule 8D - Held that:- Issue remanded for reconsideration consedring the case of the assessee that the assessee has not earned any dividend income or exempt income during the year and therefore, the said provisions of section 14A of the Act do not attract.- Decided in favour of assessee for statistical purposes. Disallowance in respect of the Annual Information Report (AIR) qua reconciliation - Held that:- The onus is on the Assessing Officer to inform the assessee giving all the details as to on, on what issue, the reconciliation is required, how that entry relates to the assessee etc. How any assessee can reconcile an entry or transaction which does ot pertains to him. Therefore, the onus is on the AO to inform the same. Considering the same and the finding of the Assessing Officer that no exhaustive exercise of reconciliation is undertaken by him during the assessment, we find need for remanding. Accordingly, we remand this ground to the file of the Assessing Officer for fresh adjudication of the issue after granting a reasonable opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes. Issues Involved:1. TP adjustments to the international transaction of giving interest-free loans to the AE.2. Corporate guarantee TP adjustment for issuing the guarantee to a third-party bank in favor of the AE.3. TP adjustment on account of share premium.4. Disallowance u/s 14A read with Rule 8D.5. Additions qua the AIR reconciliation.Issue-wise Detailed Analysis:1. TP Adjustments to the International Transaction of Giving Interest-Free Loans to the AE:The assessee provided loans in foreign currency to its AEs, charging 15% interest for loans to CNK Australia and CNK Dubai but no interest for the loan to CNK Singapore. The TPO suggested a 15% interest rate for the loan to CNK Singapore based on internal comparables. The assessee proposed using the Singapore PLR of 0.91% + 200 basis points, which was rejected by the TPO. The DRP directed the AO/TPO to use the SBI PLR + 200 basis points (14.25%), resulting in an addition of Rs. 12,20,603/-. The Tribunal rejected the SBI PLR and directed the AO to use the LIBOR of Singapore, limiting the addition to Rs. 2,49,260/- as proposed by the assessee.2. Corporate Guarantee TP Adjustment:The assessee provided a corporate guarantee for CNK Australia without charging a commission. The TPO/DRP benchmarked the transaction using CRISIL data, resulting in adjustments based on a differential rating of 4.12%. The assessee argued for a 0.5% guarantee commission, citing the Everest Kanto Cylinders Ltd case. The Tribunal directed the AO to restrict the adjustment to 0.5%, as upheld in the Everest Kanto Cylinders Ltd case.3. TP Adjustment on Account of Share Premium:The Tribunal referenced the case of M/s. Anglo-Eastern Ship Management (India) Pvt Ltd vs. DCIT, where the adjustment on share premium was deemed outside the scope of TP provisions. The Tribunal followed the precedent set by the Bombay High Court in Vodafone India Services Pvt Ltd, concluding that capital receipts from share premium do not attract TP provisions. Thus, the adjustment on share premium was disallowed.4. Disallowance u/s 14A Read with Rule 8D:The assessee argued that no dividend or exempt income was earned during the year, making section 14A inapplicable. The AO applied Rule 8D, resulting in a disallowance of Rs. 65,64,655/-, which was upheld by the DRP. The Tribunal, referencing various precedents, directed the AO to re-examine the issue, emphasizing that section 14A does not apply if no exempt income is received or receivable during the relevant year.5. Additions Qua the AIR Reconciliation:The AO added Rs. 1,73,44,191/- for un-reconciled tour sales based on the AIR statement, later reduced to Rs. 49,85,147/- by the DRP. The assessee contended that reconciling tour sales based on AIR extracts was impractical. The Tribunal, citing the need for detailed information from the AO for reconciliation, remanded the issue back to the AO for fresh adjudication, directing the AO to provide specific details for reconciliation.Conclusion:The appeals for AYs 2009-2010 and 2010-2011 were partly allowed for statistical purposes, with the Tribunal providing specific directions for each issue to ensure proper adjudication.