TaxTMI 
TaxTMI 
2015 (12) TMI 683
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....on 14A of the Act; Part II - Transfer Pricing Grounds: Addition of Rs. 2,47,07,596/- on account of adjustment in respect of guarantee commission for guarantee provided to banks in respect of loans taken by Associated Enterprises ('AEs') Original ground 2. erred in making adjustment of Rs. 2,47,07,596j- on account of guarantee commission; Supplementary Ground 2.1 Without prejudice to above, while computing adjustment on account of arm's length price of guarantee commission, erred in applying the rate of guarantee commission to the entire amount of guarantee of USD 2.34 million, instead of restricting the adjustment only to the actual amount of loan availed by the AE from the overseas bank during the year; Addition of Rs. 63,44,901/- on account of adjustment in respect of interest on loan given to AEs : Original ground 3. erred in making adjustment ofRs.63,44,901/- on account of interest on loan given to AE; Supplementary Ground 3.1 Without prejudice to above, erred in not providing the benefit of the variation of 5 percent from the arithmetic mean as provided in the proviso to Section 92C(2) of the Act, while making the adjustment to the ....
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....19.76 69.25 (Net addition Rs. 49.49 cr EKC International FZE (Dubai) 21.17 21.17 Investment in Associates Everest Kanto Investment &Finance Ltd 0.09 0.09 0.09 Everest Industrial Gases Private Ltd. 0.00 0.01 0.00 Total (A) 0.09 41.03 90.52 Other investments Investments in immovable properties 0.00 0.00 0.00 GPT Steel Industries Pvt. Ltd 2.00 2.00 2.00 Solar Explosives Limited 0.45 0.00 0.00 Shivalik Global ltd. 0.30 0.00 0.00 Investment in Mutual Funds Fixed Maturity Plan/Growth Oriented Schemes 0.00 10.00 10.00 Other Mutual funds/Dividend Oriented Schemes 10.37 1.27 0.10 Total 10.37 1.27 10.10 Total(B) 13.12 13.27 12.10 Grand Total (A+B) 13.22 54.30 102.62 Learned AR also invited our attention to the investment made in UTI fixed maturity/growth plan amounting to Rs. 10 crores and contended that if it is excluded from opening and closing value of investment, disallowance under Rule 8D would work out to be Rs. 1.39 lakhs....
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....6]; (v) National Commodity Derivatives Exchange Ltd. [IT Appeal No. 2923 (Mum) of 2010, dated 26-8-2011]; and (vi) Quippo Telecom Infrastructure Ltd. [IT Appeal No. 4931 (De1hi) 2010, dated 18 February 2011] (Delhi). Respectfully following the propositions laid down in the aforesaid decision, we direct the AO to exclude the amount of disallowance of Rs. 17,33,157/-made u/s.14A, while computing the book profit u/s.115JB. 6. The next grievance of the assessee relates to addition made in respect of corporate guarantee amounting to Rs. 2,47,07,596/- 6.1 Rival contentions have been heard. The assessee provided corporate guarantees to its owned subsidiaries namely, EKC International FZE (EKC Dubai) and EKC Industries (Tianjin) Limited (,EKC China) amounting USD 23 million and USD 4 million respectively. The said subsidiaries are set-up for expanding the business of the assessee of manufacture of cylinders in Dubai & China region which are huge markets for the assessee. For this purpose assessee approached ICICI Bank, Bahrain branch and the said bank agreed to provide term loans for working capital and capital expenditure to the subsidiary company. For this purpose assessee....
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....at the transaction of giving corporate guarantee to bank on behalf of AE, is not an international transaction, the assessee company submits that, even if corporate guarantee given to the EKC Dubai is regarded as an international transaction, the assessee has recovered from the AE, the comparable cost of guarantee commission charged by its bank in India. Hence the transaction is at arms length and requires no further adjustment. On the facts of the case, assessee had paid 0.6% as guarantee commission to ICICI Bank India and has charged @ 0.5% to its AE. In connection with corporate guarantee given to EKC China, it is submitted that the non-recovery of any guarantee commission was on account of restriction under Chinese regulations and accordingly non-recovery of guarantee commission is to be considered at arm's length. Further, by giving guarantee, the assessee protects its strategic, business and economic interest in the subsidiary and ensure goodwill and reputation of the group. 7. On the other hand, learned DR relied on the order of lower authorities. 8. We have considered rival contentions, carefully gone through the orders of the authorities below and found that asses....
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....B enlarge the scope of Section 92 B itself, even as it is modestly described as 'clarificatory' in nature, it is an issue to be examined whether an enhancement of scope of this anti avoidance provision can be implemented with retrospective effect. Undoubtedly, the scope of a charging provision can be enlarged with retrospective effect, but an anti-avoidance measure, that the transfer pricing legislation inherently is, is not primarily a source of revenue CIS it mainly seeks compliant behaviour from the assessee vis-a-vis certain norms, and these norms cannot be given effect from a date earlier than the date norms are being introduced. However, as we have decided the issue in favour of the assessee on merits and even after taking into account the amendments brought about by Finance Act 2012, we need not deal with this aspect of the matter in greater detail. 35. When it was put to the learned Departmental Representative that there could be a view that issuance of guarantees could be outside the ambit of scope of 'international transaction' itself, he submitted that there are large number of decisions in India and abroad, notably in Canada, dealing with the determin....
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....ression 'transaction'. It is nobody's case that the relevant legal provisions are in pari materia. We need not, therefore, deal with those foreign judicial precedents. Suffice to say that we have reached our conclusions on the basis of the legal provisions under section 92 B and no judicial precedent, contrary to our understanding of these legal provisions, has been cited before us. There is a decision of the co-ordinate bench in the case of Mahindra & Mahindra (supra), referred to in the DRP order, but that decision does not deal with the scope of amended section 92 B and leaves the issue open by stating that post insertion of Explanation to Section 92 B, the matter will have to be examined in the light of the amended law. We have held that even after the amendment in Section 92 B, amending Explanation to Section 92 B, a corporate guarantee issued for the benefit of the AEs, which does not involve any costs to the assessee, does not have any bearing on profits, income, losses or assets of the enterprise and, therefore, it is outside the ambit of 'international transaction' to which ALP adjustment can be made. As we have decided the matter in favour of the asses....
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....a conclusion in the foregoing paras that the rate of 3% by taking external comparable by the TPO, cannot be sustained in facts of the present case. We also find that in an independent transaction, the assessee has paid 0.6% guarantee commission to IGIGI Bank India for its credit arrangement. This could be a very good parameter and a comparable for taking it as internal GUP and comparing the same with the transaction with the AE. The charging of 0.5% guarantee commission from the AE is quite near to 0.6%, where the assessee has paid independently to the IGIGI Bank and charging of guarantee commission at the rate of 0.5% from its AE can be said to be at arms length. The difference of 0.1% can be ignored as the rate of interest on which IGIGI Bank, Bahrain Branch has given loan to AE (i.e. subsidiary company) is at 5.5%, whereas the assessee is paying interest rate of more than 10% on its loan taken with IGIGI Bank in India. Thus, such a minor difference can be on account of differential rate of interest. Thus, on these facts, we do not find any reason to uphold any kind of upward adjustment in ALP in relation to charging of guarantee commission." As the facts and circumstances of ....
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....ntion was invited to the loan granted to EKCL which was converted into equity during the financial year 2011-12. Accordingly, it was argued that loan was in the nature of equity investment, the benefits from such investment were expected to arise to EKCL in future. Further the argument of the learned AR was that the loan has been availed in foreign currency and has been provided to the subsidiaries in foreign currency. Hence, EKCL the loan should be considered to be at arm's length as no risk is involved. 11. We had considered rival contentions and gone through the orders of lower authorities. As per our considered opinion, appropriate international rates should be used for the purpose of the comparability analysis. For this purpose, the London Inter Bank Offer Rate (LIBOR) is an internationally recognized rate for benchmarking loans denominated in foreign currency. For this purpose, reliance may be placed on the following decision of the coordinate bench :- (i) Great Eastern Shipping Co. Ltd. [IT Appeal No 397 (M) of 2012, dated 10-1-2014]; (ii) Mahindra & Mahindra Ltd. [IT Appeal No 7999/M/2011, dated 8-6-2012]; (iii) Hinduja Global Solutions Ltd. v. Addl. CIT [20....