TaxTMI 
TaxTMI 
TaxTMI 
2014 (1) TMI 709
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....s taxable and the balance Rs. 10,33,64,257/- has been claimed as exempt u/s. 10(34) of the Act. The AO further observed that the assessee has suo motu disallowed a sum of Rs. 1,29,58,179/- in its computation of total income. The assessee has also provided the working and the basis of the disallowance made by it u/s. 14A of the Act. The assessee was asked to explain why the provisions of Rule 8D of the Act should not be made applicable to the assessee in working out the disallowance u/s. 14A of the Act. The assessee filed a detailed reply dt. 26.10.2010. 3.1. The main contention of the assessee was that Rule 8D was applicable from assessment year 2008-09. After considering the submissions of the assessee, the AO was of the firm belief that even if strictly the amended provisions of Section 14A and the corresponding rules are not applicable to the current assessment year, the basis of the disallowance evolved therein is the most adequate in the present scenario. The AO further observed that while computing the disallowance suo moto, the assessee has not given any justification for taking only 9.84% of treasury expenses which according to the AO were incurred solely for earning divid....
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....see and following the same method the disallowance is worked out at Rs. 2,38,90,719/-. The Ld. CIT(A) accordingly directed the AO to consider the amount of disallowance at Rs. 2,38,90,719/- after reducing the amount that has already been offered by the assessee u/s. 14A of the Act. 5. Aggrieved by this, the assessee is before us. The Ld. Counsel for the assessee drew our attention to page-30 of the Paper book and pointed out how the income has been computed from the business other than the business of qualifying ships. The Ld. Counsel further drew our attention to page-31 of the Paper book where the assessee has computed the disallowance u/s. 14A of the Act. The Ld. Counsel further drew our attention on exhibit 35 & 36 of the Paper Book which contain the formula given by the Ld. CIT(A) for making of the disallowance accordingly. It is the say of the Ld. Counsel that the Ld. CIT(A) has deviated from the findings of his predecessor for A.Y. 2006-07. The Ld. Counsel concluded that this issue has been decided by the Tribunal in favour of the assessee in assessee's own case for A.Y. 2006-07. The Ld. Counsel placed the order of the Tribunal before us. 6. Per contra, the Ld. Departmenta....
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....ngs of the Tribunal in assessee's own case, we reverse the findings of the Ld. CIT(A) on this issue and direct the AO to accept the disallowance made by the assessee suo moto u/s. 14A of the Act. Ground No. 1 to 4 are accordingly allowed. 9. Grievance raised by ground No. 5 becomes otiose. 10. Ground No. 6 to 11 relate to the Transfer Pricing adjustments in respect of international transaction. 11. The International transaction reported by the assessee relates to giving of term loan to its 100% subsidiary USD 40,00,000/- for two years for meeting working capital requirements and term loan to subsidiary USD 17 Million to finance the stage payment for a new building rig contract. The assessee has charged interest @ 5% per annum on the first loan of 40 lakhs USD which is based on the two years USD fixed IRS rate + 100 BPS and on the second loan of USD of 17 million the assessee has charged interest @ 7.3% per annum. A reference was made u/s. 91CA(1) of the Act by the AO to the Transfer Pricing Officer (TPO). The TPO proceeded on facts which were not even remotely connected with the facts of the case. Firstly the TPO took the loan amount at Rs. 20,29,46,50,000/- and was of the firm ....
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....uted the TP adjustments at Rs. 4,17,34,739/- instead of Rs. 1,76,96,93,480/-. 12. Aggrieved by this TP adjustment, the assessee carried the matter before the Ld. CIT(A). The Ld. CIT(A) has considered this grievance of the assessee vide disposing of ground No. 10 to 14 of his appellate order. It was explained to the Ld. CIT(A) that the assessee has given two foreign currency loans to its wholly owned subsidiary of Sharjah, first loan was USD 4 Million and the second loan was USD 17 Million. It was further explained that the loan of USD 17 Million was given and repaid during the year under consideration whereas the loan of USD 4 Million was given in the immediately preceding previous year and was outstanding for the previous year under consideration. The assessee has charged 5% interest on the first loan and 7.3 % interest on the second loan. Total interest charged during the year was Rs. 3,67,14,785/-. It was explained that the assessee has paid interest at the rate of 4.79% per annum on two USD loans availed from the Export Import Bank of Korea (KEXIM) and strongly contended that the rate of interest charged by the assessee on the loans given to its AE is certainly comparable with....
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....of ECB. The assessee was asked to provide the relevant details. After considering the details, the Ld. CIT(A) observed that during the relevant period Reserve Bank of India's Master Circular No. 07/2006-07 dt. 1st July, 2006 on External Commercial Borrowing (ECB) provided that all in cost ceiling for ECB with average maturity period of three years and upto five years is to be 6 months LIBOR plus 200 basis points and for period more than five years the rate is 6 months LIBOR plus 350 basis points. The Ld. CIT(A) accordingly directed to work-out the quantum of adjustment by adopting rate of interest as 6 months LIBOR PLUS 200 basis point for the loan of USD 4 Millions and 6 months LIBOR plus 350 basis points for loan of USD 17 Millions. 14. Aggrieved by this finding of Ld. CIT(A), the assessee is before us. The Ld. Counsel for the assessee reiterated what has been stated before the lower authorities. It is the say of the Ld. Counsel that the first loan of USD 4 Million was benchmarked at the time when the loans were given and the benchmarking was done by taking USD interest rate swap rate IRS rate plus 100 basis point and at that point in time the IRS rate was 3.956 % and adding 100....
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..... The benchmarking was done by the assessee as per the prevailing rate in the earlier. No TP adjustment was done in the earlier year. This year what the assessee has charged is only on the loan brought forward from the earlier year. This fact has not at all been appreciated by the Ld. CIT(A). Secondly, the Ld. CIT(A) further erred in not considering the second USD loan of Rs. 17 Million in its right perceptive. Though the loan was given for a long term but the undeniable fact is that the loan was repaid within the year itself i.e. within 179 days. The Ld. CIT(A) has taken leaf out of the RBI Circular bearing No. 5 dt. 1st August, 2005 wherein ceiling rates have been laid down for interest payable on External Commercial Borrowings which are as under: Average Maturity period All-in-cost Ceilings over 6 months LIBOR Three years and upto five years 200 basis points More than five years 350 basis pints. 16.1. The Ld. CIT(A) has directed to apply the aforestated rates for the purpose of determining the arm's length price. We do not agree with this finding of the Ld. CIT(A) for the simple reason that the loan of USD 4 million was given in earlier accounting year and as per the agreeme....
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.... account and that the expenditure for which the claim was received was incurred in the year 1995-96 when the tonnage tax scheme was not in existence? v) Whether on the facts, circumstances and in the law, the Ld. CIT(A) erred in directing the AO to treat the amount of Rs. 5,00,000/- being liabilities of prior period written back as forming part of the tonnage income without appreciating that the said liabilities of Rs. 5,00,000/- represented the expenses of earlier years prior to the introduction of Tonnage Tax Scheme? vi) Whether on the facts, circumstances and in the law, the Ld. CIT(A) erred in deleting the addition/adjustment of Rs. 4,17,34,739/- made by the AO/TPO on account of Arm's length price u/s. 92CA(3) of the I.T. Act, without appreciating the facts and reasons discussed by the AO/TPO in the assessment orders? vii) Whether on the facts, circumstances and in the law, the Ld. CIT(A) erred in ignoring that the assessee would have earned the interest on the loan advances of such loans were given to unrelated parties and further not appreciating that the Transfer Pricing Officer/AO has discussed the basis for applying the rate @ 14% of interest?" 19. At the very outset b....