TaxTMI 
TaxTMI 
TaxTMI 
2013 (9) TMI 199
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....t giving a corporate guarantee to the A.E.s for obtaining bank loans. (b) The learned Assessing Officer failed to appreciate that giving of a corporate guarantee to A.E.s has been as a measure of commercial expediency and there is no loss to the appellant as it is not the business of appellant to give a corporate guarantee for others. (c) Without prejudice to the above, while the appellant contends that no adjustment is required to be made on the facts and circumstances of the case, the learned A.O. erred in not considering the decision of CIT(A) in appellant's case for the immediate preceding A.Y. 2005-06 wherein the CIT(A) has held that the rate of 0.25% commission in place of 1.5% was appropriate. 3. The learned A.O erred in making overall adjustment of notional interest of Rs.4,29,095/- in respect of following A.E.s on the ground that appellant had not charged or short-charged interest. 4. Sr. No. Particulars Amount(Rs.) a) M/s Nimbus Communications Worldwide, Ltd. 39,569/- b) Nimbus Media Pvt.Ltd. for granting advance of Rs.1,00,255/- 7,919/- c) Nimbus Communication Limited- British Virgin Islands for granting loan of Rs.37,11,95....
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.... respect of such transactions and has relied on the OECD Transfer Pricing Guidelines issued in 2010. As stated in para 1.59 of the said guidelines, the business strategies should also be examined in determining comparability for transfer pricing purposes and certain illustrations of such business strategies are also given therein. As stated in para 1.60 of the said guidelines which has been relied upon by the ld. Counsel for the assessee, business strategies also could include market penetration schemes and taxpayer seeking to penetrate a market or to increase its market share might temporarily charge a price for its product that is lower than the price charged for otherwise comparable products in the same market. As explained further, a tax payer seeking to enter a new market or expand (or defend) its market share might temporarily incur higher costs and hence achieve lower profit levels than other taxpayers operating in the same market. In our opinion, the relevant facts of the present case do not indicate that there was any such business strategy adopted by the assessee in not charging commission in respect of guarantees issued for its Associated Enterprises. As a matter of fact....
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....l in the case of M/s Everest Kanto Cylinder Ltd. (supra) wherein while accepting the CUP method as the most appropriate method for benchmarking the guarantee fee, the Tribunal accepted 0.5% guarantee fee/commission to be at arm's length after taking into consideration the rates of guarantee commission charged by various banks including the guarantee commission charged by the HSBC Bank in the range of 0.15% to 3%. Since the facts involved in the present case are materially similar to the facts involved in the case of Everest Kanto Cylinder Ltd. (supra), we prefer to follow the decision rendered by the co-ordinate Bench of this Tribunal in the said case over the decision of French Court in the case of Societe Carrefour (supra). We, accordingly modify the impugned order of the ld. CIT(A) on this issue and direct the A.O. to recompute the commission for guarantee given by the assessee to its Associated Enterprises @ 0.5% being the arm's length price. Ground No. 1 of Revenue's appeal is thus partly allowed whereas ground No. 2 of assessee's appeal is dismissed". 5. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.....
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....sp; "5. A continuing debit balance, in our humble understanding, is not an international transaction per se, but is a result of the international transaction. In plain words, a continuing debit balance only reflects that the payment, even though due, has not been made by the debtor. It is not, however, necessary that a payment is to be made as soon as it becomes due. Many factors, including terms of payment and normal business practices, influence the fact of payment in respect of a commercial transaction. Unlike a loan or borrowing, it is not an independent transaction which can be viewed on standalone basis. What can be examined on the touchstone of arm's length principles is the commercial transaction itself, as a result of which the debit balance has come into existence, and the terms and conditions, including terms of payment, on which the said commercial transaction has been entered into. The payment terms are an integral part of any commercial transaction, and the transaction value takes into account the terms of payment, such as permissible credit period, as well. The residuary clause in the definition of 'international transaction'....
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....dinate bench in assessee's own case in the immediately preceding year, we hold that the impugned addition of Rs 12,51,175 is unsustainable in law and that the CIT(A) ought to have deleted the same. We, accordingly, direct the Assessing Officer to delete the impugned adjustment. The assessee gets the relief accordingly". 20. It is clearly evident from the relevant portion of the Tribunal's order as reproduced above that a similar addition made in assessee's own case for the earlier A.Y. i.e. 2004-05 has been deleted by the Tribunal even on merit holding that even when an ALP is made in respect excessive credit period allowed under the CUP method, the comparable has to be dues recoverable from a debtor and not a borrower. It was held that the TPO had adopted interest @ 2.19% LIBOR on balances which exceeded 30 days, but LIBOR rate was relevant only in the case of lending or borrowing of funds and not in the case of commercial overdues. It was held that even if the continuing debit balances of Associated Enterprises could be treated as "international transactions" u/s 92-B, the right course of applying the CUP method, in the case of non-charging of interest on overdue balances, woul....
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....e this issue to the file of the A.O. with a direction to recompute the disallowance to be made u/s 14A of the Act by following some reasonable basis. As pointed out by the ld. counsel for the assessee in this regard, substantial investment made by the assessee was in the shares of foreign companies, dividend income of which is not exempt from tax. The A.O. is accordingly directed to consider this aspect also while computing the disallowance to be made u/s 14A of the Act. Ground No. 5 of assessee's appeal is accordingly treated as partly allowed". 10. Respectfully following the order of the Tribunal in assessee's own case for A.Y. 2005-06, we restore the issue relating to the disallowance u/s 14A of the Act to the file of the A.O. for deciding the same afresh as per the same direction as given in A.Y. 2005-06. Ground No. 4 of the assessee's appeal is accordingly treated as partly allowed for statistical purpose. 11. In appeal for A.Y. 2007-08, the assessee has raised the following grounds:- "1. The learned Assessing Officer erred in assessing the income at Rs. 11,58,61,620/- in place of Rs.8,71,81,798/- declared by the appellant. 2.(a) The learned Assessing Officer erred in mak....
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....ate guarantee given by the assessee to its Associated Enterprises (AEs) for obtaining bank loans, the ld. representatives of both the sides have agreed that this issue is similar to the one involved in assessee's appeal for A.Y. 2006-07 which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2006-07, we direct the A.O. to restrict the TP adjustment by recomputing the commission for guarantee given by the assessee to its AEs at 0.5% being the arm's length price. Ground No. 2 of the assessee's appeal for A.Y. 2007-08 is partly allowed. 14. At the time of hearing before us, the ld. counsel for the assessee has not pressed ground No. 3(a) & (b) of the assessee's appeal. The same are accordingly dismissed as not pressed. 15. The issue raised in ground No. 4 relating to the addition made on account notional interest payable to assessee by its AE on outstanding trade balances is similar to the one involved in assessee's appeal for A.Y. 2006-07 which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2006-07, we delete the addition of Rs. 22,78,937/- made by the A.O. an....