Tribunal dismisses revenue appeals, partially allows assessee appeals, directing adjustments in various aspects.

The revenue's appeals were dismissed, and the assessee's appeals were partially allowed by the Tribunal on 25th August 2016. The Tribunal directed adjustments in various aspects including interest rates on loans to Associate Enterprises, transfer pricing additions, recharacterization of share application money, disallowance of deductions, and treatment of expenses related to foreign subsidiary acquisitions. The Tribunal's decisions aligned with the assessee's contentions in some instances, resulting in the partial allowance of their appeals.

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Issues Involved:
1. Addition on account of Interest on Loan to Associate Enterprise (AE) at LIBOR+2%.
2. Transfer Pricing Addition in respect of Corporate Guarantee.
3. Addition on account of adjustment in respect of interest on recharacterizing share application money as Loan advanced to Associate Enterprise.
4. Disallowance of deduction claimed under section 35D.
5. Addition in respect of interest and finance expenses related to acquisition of shares of foreign subsidiary and disallowance under section 36(1)(iii).
6. Addition of foreign travelling expenses related to acquisition of shares of the foreign subsidiary and treating it as capital expenditure.
7. Charging of interest under section 234B.

Detailed Analysis:

1. Addition on account of Interest on Loan to Associate Enterprise (AE) at LIBOR+2%:
The assessee contended that the interest rate should be lower than LIBOR+2% as it was higher than the prevailing CUP and was in the business interest. The department argued for a higher rate than LIBOR+2%. The Transfer Pricing Officer (TPO) initially determined the Arm's Length Price (ALP) at LIBOR+9.65%, later rectified to LIBOR+2%. The CIT(A) used RBI guidelines and set the ALP at LIBOR+2%. The Tribunal, following its own precedent, directed the interest rate to be LIBOR+1% as an arm's length price, aligning with internal CUP.

2. Transfer Pricing Addition in respect of Corporate Guarantee:
The assessee provided a corporate guarantee to DBS Bank for its AE without charging a commission. The AO/TPO suggested a 3.25% charge, which the CIT(A) upheld. The Tribunal referenced its earlier decision, setting the guarantee commission at 0.5%, directing the AO/TPO to compute accordingly.

3. Addition on account of adjustment in respect of interest on recharacterizing share application money as Loan advanced to Associate Enterprise:
The assessee's share application money to its AE was recharacterized as a loan by the AO/TPO, leading to an interest adjustment. The CIT(A) confirmed this for A.Y. 2008-09 but reversed it for A.Y. 2009-10. The Tribunal, citing its previous ruling, held that share application money should not be treated as a loan due to delayed share issuance, directing the deletion of the addition.

4. Disallowance of deduction claimed under section 35D:
The assessee did not press this ground for both assessment years.

5. Addition in respect of interest and finance expenses related to acquisition of shares of foreign subsidiary and disallowance under section 36(1)(iii):
The AO disallowed interest and finance expenses related to acquiring shares in a foreign subsidiary, which the CIT(A) confirmed for A.Y. 2008-09 but reversed for A.Y. 2009-10. The Tribunal found the expenditure commercially expedient and allowable under section 36(1)(iii), directing deletion of the addition for A.Y. 2008-09 and upholding the CIT(A)'s decision for A.Y. 2009-10.

6. Addition of foreign travelling expenses related to acquisition of shares of the foreign subsidiary and treating it as capital expenditure:
The AO disallowed foreign travel expenses, treating them as capital expenditure. The CIT(A) upheld this. The Tribunal, noting the expenses were for business expansion, directed their allowance under section 37(1).

7. Charging of interest under section 234B:
This ground was deemed consequential and required no adjudication.

Conclusion:
The appeals of the revenue were dismissed, while those of the assessee were allowed in part. The Tribunal's decisions were pronounced on 25th August 2016.

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