2020 (10) TMI 243 - AT - Income Tax

Revenue's Appeal Dismissed: Penalty on TP Adjustment Upheld, TDS Credit Allowed, Disallowance Restricted

M/s Jindal Stainless Ltd Versus Dy. C.I.T Circle – 13 (2) New Delhi

The Revenue's appeal against the deletion of penalty on Transfer Pricing (TP) adjustment and disallowance under section 14A was dismissed. The Tribunal ... TP adjustment - Arm’s Length Price [ALP] of export of goods - Whether appellant had considered all the transaction with its associated enterprise? - HELD THAT:- TPO picked up only two transactions where the price charged was less than the average market price and also beyond 5% permissible band width to make the addition ignoring other transactions where the average price charged was more. Considering decision of ESSAR STEEL LTD. [2014 (11) TMI 254 - ITAT MUMBAI] if the transactions are the interlinked transactions then the ALP should be considered of export of goods on aggregate basis. It can be established in many ways that transactions are interlinked, one of the illustrative way is supply of goods billed separately but the purchase order is common and the rates are also predetermined with adjustments on account of material prices. Before us, no such data is available or any other information by which we can say that the transactions of export to associated enterprise are interlinked transactions - merely because they are the export of the same goods over a period to the Associated Enterprises, they do not become interlinked. There has to be a binding element behind all the transactions to make them one and connected. Such data was also not available before the learned Transfer Pricing Officer or learned Dispute Resolution Panel. If this fact is established by the assessee then the issue is squarely covered in favour of the assessee on this point by the decision of the coordinate bench. Direct the AO to compute the ALP considering the transactions of export to associated enterprise on aggregate basis after assessee establishes before him that all these export transactions of the associated enterprise are interlinked. To this extent, this issue is sent back to the file of the learned AO/TPO with a direction to the assessee to substantiate the argument that the transaction of export of goods to associated enterprise are interlinked. Benefit of tolerance range of +/- 5% in the price charged from the AE vis a vis ALP - HELD THAT:- As relying on THE DEVELOPMENT BANK OF SINGAPORE [2013 (8) TMI 175 - ITAT MUMBAI] we direct the assessee to furnish necessary computation and the TPO is directed to examine the same and decide this issue afresh. Credit of TDS denied - AO denied credit of TDS/TCS on the ground that the same pertained to preceding years, i.e. Rs. A.Y. 2007-08 and 2008-09 - HELD THAT:- No error or infirmity in the findings of the Assessing Officer. But, at the same time, the Revenue should not be benefitted unjustly. We, accordingly, direct the Assessing Officer to allow the credit of TDS/TCS as per provisions of law in preceding A.Ys. Adjustment of interest on loan received from AE - Interest is charged on the loan at the rate of 3 moths LIBOR plus 200 basis point - HELD THAT:- As decided in own case [2018 (11) TMI 1250 - ITAT DELHI] relying on CIT vs Cotton Naturals [2015 (3) TMI 1031 - DELHI HIGH COURT]has already held that the transaction cost of hedging cost is borne and paid by the borrower therefore transaction cost is not applicable in case in question the loan had to be repaid in the foreign currency. Even otherwise according to us the markup towards the transaction cost is exorbitant and comparison with the bank is also untenable. No rational in the impugned in further cost and risk premium on the rate directed by the learned Dispute Resolution Panel - direct the TPO to not to charge any risk premium following the decision of the coordinate bench. In view of this, the transaction cost imputed of 300 basis points cannot be sustained. TPO should have considered for both the years the LIBOR +200 basis points in both the financial year financial year for the benchmarking for the interest income of the assessee. Adjustment on account of corporate guarantee - HELD THAT:- As decided in own case TPO has benchmarked the transaction by obtaining the quote from bankers and Hon Bombay High court in case of THE COMMISSIONER OF INCOME TAX, MUMBAI Vs M/s EVEREST KENTO CYLINDERS LTD [2015 (5) TMI 395 - BOMBAY HIGH COURT] Even otherwise the commission charged by the assessee also in conformity with the rates quoted by Indusind bank and ING vasya bank. Further, the reasons given by us with respect to Risk adjustments and margins while deciding the issue of Interest receipt relying on the decision of Bharti Airtel decision [2017 (1) TMI 172 - ITAT DELHI]are equally applicable for this transaction too. Addition u/s 14A r.w.r 8D - disallowance should not exceed exempt income - HELD THAT:- We are of the considered opinion that the disallowance should not exceed exempt income - we draw support from the decision of Joint Investment Pvt Ltd [2015 (3) TMI 155 - DELHI HIGH COURT]. We direct the Assessing Officer to restrict the disallowance to ₹ 2,37,000/-. This ground is partly allowed. Set off of prior period expenses from prior period income - HELD THAT:- If the Assessing Officer was of the strong belief that the prior period expenses cannot be allowed in the year under consideration, then the AO should have realized that he is taxing prior period income earned during the year under consideration. We do not find any reason why the prior period expenses should not be netted off against the prior period income, which in our opinion is most logical way of treating the same. We draw support from the decision of Exxon Mobil Lubricants (P) Ltd. [2010 (9) TMI 36 - DELHI HIGH COURT], wherein observed that expenses pertaining to prior period were allowable in the relevant year in which the same were crystallized. On facts of the case, we direct the Assessing Officer to allow set off of prior period expenses with prior period income. - Decided in favour of assessee. Issues Involved:1. Deletion of penalty on TP adjustment and disallowance under section 14A.2. Inadvertent filing of an infructuous appeal.3. TP adjustment on ALP of export of goods.4. Credit of TDS.5. TP adjustment related to interest on loan and corporate guarantee.6. Disallowance under section 14A.7. Rejection of set-off of prior period expenses from prior period income.Detailed Analysis:1. Deletion of Penalty on TP Adjustment and Disallowance under Section 14A (ITA No. 5095/DEL/2016):- The Revenue's appeal against the CIT(A)'s order, which deleted the penalty on TP adjustment due to differences in interest on loans charged from AE and disallowance under section 14A, was dismissed.- The Tribunal had previously deleted the quantum additions in ITA No. 4249/DEL/2013, leaving only an estimated addition of Rs. 25,000 under section 14A.- As the foundation for the penalty was removed, the Tribunal found no reason to interfere with the CIT(A)'s findings.2. Inadvertent Filing of an Infructuous Appeal (ITA No. 6380/DEL/2016):- The Revenue's appeal was dismissed as infructuous since a separate appeal (ITA No. 6130/DEL/2016) had already been filed for the same issue.3. TP Adjustment on ALP of Export of Goods (ITA No. 6517/DEL/2016 & ITA No. 6130/DEL/2016):- The assessee's appeal challenged the TP adjustment of Rs. 26,10,077 made in the ALP of export of goods.- The Tribunal allowed the appellant to make comparisons of prices on a monthly average basis, following the decision in the assessee's own case for A.Ys 2007-08 and 2008-09.- The issue was sent back to the TPO to compute the ALP considering the transactions on an aggregate basis if the assessee could establish that the transactions were interlinked.- The Tribunal also directed the TPO to examine the benefit of the ±5% tolerance range.4. Credit of TDS (ITA No. 6517/DEL/2016):- The Assessing Officer denied credit of TDS/TCS amounting to Rs. 14,27,213 as it pertained to preceding years.- The Tribunal upheld the AO's decision but directed that the credit should be allowed as per the provisions of law in preceding A.Ys.5. TP Adjustment Related to Interest on Loan and Corporate Guarantee (ITA No. 6130/DEL/2016):- The adjustment of Rs. 7,63,15,464 was bifurcated into interest on loan (Rs. 1,45,49,640) and corporate guarantee (Rs. 6,17,65,824).- The Tribunal followed the jurisdictional High Court's decision in CIT vs Cotton Naturals and deleted the adjustment, holding that LIBOR should be the basis for interest rates.- For the corporate guarantee, the Tribunal upheld the CIT(A)'s decision, referencing the co-ordinate bench's findings in the assessee's own case for previous years.6. Disallowance under Section 14A (ITA No. 6130/DEL/2016 & ITA No. 6539/DEL/2016):- The Tribunal restricted the disallowance under section 14A to the amount of exempt income earned (Rs. 2,37,000 and Rs. 1,77,000 respectively), following the jurisdictional High Court's decision in Joint Investment Pvt Ltd.7. Rejection of Set-off of Prior Period Expenses from Prior Period Income (ITA No. 6518/DEL/2016):- The assessee's appeal contested the rejection of set-off of prior period expenses (Rs. 46.39 lakhs) against prior period income (Rs. 433.12 lakhs).- The Tribunal directed the AO to allow the set-off, referencing the Delhi High Court's decision in Exxon Mobil Lubricants (P) Ltd.Conclusion:- Revenue's appeals in ITA No. 5095/DEL/2016 and ITA No. 6380/DEL/2016 were dismissed.- Revenue's appeals in ITA No. 6130/DEL/2016 and ITA No. 6539/DEL/2016 were partly allowed.- Assessee's appeals in ITA No. 6517/DEL/2016 and ITA No. 6518/DEL/2016 were partly allowed for statistical purposes.