TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 7
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.... Petroleum Coke ("GPC") - Rs. 6,86,97,017; * Shareholders corporate guarantee- Rs. 13,86,30,000. Ground specific to TP adjustment for purchase of GPC 2. Determination of Arm's Length Price ("ALP") of certain purchases of GPC made by the Appellant from AEs. 3. Not appreciating the fact that the GPC purchases from AE are at same price at which AE purchased from independent supplier. 4. Making adjustment on selective transaction without considering all the transaction with AE during the year. 5. Not appreciating the fact that the prices of GPC vary on the basis of quality and hence, different consignments of GPC are not comparable. 6. Disregarding the submissions/ evidence submitted by the Appellant. 7. Not appreciating the fact that the prices of GPC have fluctuated widely during the relevant previous year, due to external market conditions and hence, different consignments of GPC are not comparable. Ground specific to TP adjustment on shareholder corporate guarantee 8. Making adjustment while determination of ALP on the shareholder corporate guarantee provided to the bank on behalf of its Wholly Owned Subsidiary ("WOS"). 9. Determining the ALP on the shareho....
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....nternational transactions to the file of the TPO u/s 92CA of the Act. 5. The TPO observed that the assessee generates electricity from the exhaust hot gases and coke fines material generated during the manufacture of Calcinated Petroleum Coke (CPC) and supplies such electricity to the industrial users in the state of A.P and that the international transactions with AEs are only in CPC manufacturing division. Vide these transactions, the assessee had purchased from Rain CII Carbon LLC, Green Petroleum Coke (GPC) at Rs. 400,21,09,879, CPC at Rs. 10,68,92,448 and sold CPC to Rain CII Carbon LLC at Rs. 73,99,15,000. The TPO has observed that the assessee has bench marked these transactions using the internal CUP method. The TPO held that the purchase and sale of CPC are at Arm's Length and so is the transaction of reimbursement of expenses. With regard to purchase of GPC, he observed that the assessee has compared the price at which the GPC was imported from the AE with the price at which the GPC was imported from non AEs. However, the TPO was of the opinion that some of the transactions of purchase of GPC are not within the Arm's Length range. He observed that there were 5 transactio....
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....00. 3. Aggrieved by the proposed additions, the assessee preferred its objections before the DRP which granted partial relief to the assessee and in accordance with the directions of the DRP the final assessment order was passed. Against the relief granted by the DRP, the Revenue is in appeal before us, while the assessee is in appeal against the confirmation of the adjustments proposed by the Assessing Officer. In the assessee's appeal, the assessee has raised as many as 27 grounds of appeal. At the time of hearing, the Learned Counsel for the assessee submitted that ground of appeal No.1 is general in nature and needs no specific adjudication and ground Nos. 24 to 26 are against the levy of interest under section 234B and 234C of the Act and being consequential in nature, may be remanded to the Assessing Officer for giving consequential effect. Assessing Officer is directed accordingly. Ground No.27, being against the initiation of penalty proceedings under section 271(1)(c) of the Act, is a premature ground and is accordingly rejected. 4. As regards grounds No.2 to 8, the brief facts of the case are that assessee had purchased Green Petroleum Coke ("GPC") for a sum of Rs. ....
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....essee, while reiterating assessee's submissions before the TPO and DRP, has drawn our attention to the order of the TPO under section 92CA of the Act to demonstrate that the TPO, instead of comparing the A.E. transactions with non-A.E. transactions, has compared the non- A.E. transactions with other controlled transactions, which according to him, is against the principles of T.P. adjustments. Further, he also submitted that under CUP method, strict comparison has to be made as to the nature and quality of the product. He has drawn our attention to pages 2 and 3 of the paper book wherein the transactions picked-up by the TPO to be not at arm's length price have been analysed. The assessee has produced the comparative chart of transactions considered by the TPO to be not at arm's length and pointed out that the other product in terms of quality and composition with the type of Coke purchased by the assessee from each vendor is at variance. He submitted that out of 07 transactions picked-up by the TPO, one of the transaction is for purchase of 'shot coke' while, the other transactions were for the purchase of 'sponge coke'. He submitted that the quality of the....
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....l transactions with various parties both A.E. and non-A.E. for purchase of Green Petroleum Coke ("GPC"). The Assessing Officer has picked-up only a few transactions to hold that they are not at arm's length. We are convinced by the submissions of the assessee that the transactions with the A.E. should be compared with the transactions with non-A.Es and cannot be compared to any other controlled transactions. The TPO has compared the transaction of the assessee with its A.E. with other controlled transactions which is not permissible under the T.P. regulations and guidelines. Further, the differences between the products and their quality also have not been taken into consideration by the TPO. The CUP method requires the most direct comparison between the products and in case of any variation between the products, adjustments have to be carried out for such variations before comparing the prices. It requires close similarity in products, property or services that are involved and where the prices of the product fluctuates regularly, timing of the transaction is also relevant, i.e., the market conditions, and the terms and conditions of the transactions would also make material diffe....
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....efore is required to be compensated in the form of a fee for providing the bank guarantee and that the assessee ought to have charged the guarantee commission on the corporate guarantees given by it. The TPO considered the CUP as the most appropriate method and held the guarantee fee of 2% on the loan guaranteed by the assessee as reasonable. He accordingly determined the ALP and suggested the adjustment u/s 92CA of the Act. The AO passed the draft assessment order against which the assessee preferred its objection before the DRP. The DRP confirmed the draft assessment order on both the counts and the final assessment order was passed against which the assessee is in appeal before us. 11. At the time of hearing, the learned Counsel for the assessee submitted that the issue of appropriate guarantee fee on corporate guarantee given by the assessee to AEs in USA had come up before the Tribunal in the case of Rain Commodities (now known as Rain Industries) for the very same A.Y and this Tribunal in ITA No.83/Hyd/2014, dated 28.09.2016 has considered the decision of the Coordinate Bench of the Tribunal in the case of M/s. Everest Kanto Cylinder Ltd vs. DCIT, wherein the corporate guara....
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....y RCUSA by lending loan to its wholly owned enterprises. The assessee has taken the decision to make investment in its AE either on share capital or lending loan using its business expediency. Since, it had made the decision to make loan to its AE. By virtue of amendment to section 92B, it is international transaction. Once it is considered as international transaction, it is prudent to make bench marking also in the international arena. Similar views were expressed by the coordinate bench of this Tribunal in the cases of Four Soft Pvt. Ltd. (supra), Siva Industries & Holdings Ltd. (supra) and Vijay Electricals Ltd., (ITA No. 1159/Hyd/2013. It was held in the case of Siva Industries as below : " Once the transaction between the assessee and the AE is in foreign currency and the transaction is an international transaction, then, the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it is LIBOR rate which has to be considered w....
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....terest of parent, that the assessee was restricted by law from charging fee for a corporate guarantee provided by it in terms of para 2.2.9 of the RBI Master Circular on guarantees and Co- acceptance dated 02/07/2012, that a corporate guarantee is secondary with no cost or risk to shareholders and that it was in the business interest of the assessee. Ld. AR submitted that without prejudice to the claim that corporate guarantees are not to be charged, the method of computation of the guarantee fee was erroneous. Ld. AR also submitted that there is no cost to the assessee as it was given on the basis of Holding company and there is no profit involved in this year. Ld. AR submitted that the transaction was not relating to this year. (Refer pages 56 to 59 of paper book - relates to PY 2005-06.). Ld. AR relied on the following decisions: 1. Four Soft Pvt. Ltd., (supra) 2. Bharti Airtel Ltd. Vs. ACIT (ITA No. 5816/Del/2012 3.Redington (India) Ltd., Vs. JCIT, (ITA No.613/Mds/2014). 12. Ld. DR submitted that the assessee had not reported this transaction as international transaction. He submitted that the case Glenmark Pharmaceuticals Vs. ACIT (ITAT- Mumbai) had made after consider....
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....ee, the TPO may also consider the same while determining ALP of corporate guarantee. The TPO must provide a reasonable opportunity of being heard to the assessee before deciding the issue. This ground is allowed for statistical purposes." Thus, the grounds 7 to 11 are rejected. 14. As regards grounds 12 to 14 are concerned, we find that they are relating to computation of ALP. The average margin of the comparables in similar transactions has to be arrived at before determining ALP. This issue of the percentage at which the corporate guarantee can be benchmarked has come up before various benches of the Tribunal. We find that in the case of Glenmark Pharmaceuticals Vs. ACIT in ITA No. 5031/Mum/2012, dated 13/11/2013, the Tribunal has examined the approach of the assessee therein in determining the percentage of corporate guarantee to be methodical and found it to be appropriate. Thus, the tribunal has laid down guidelines for determination of rate of corporate guarantee. In the case before us, the AO adopted 2% of the loan guaranteed and the same was reduced to 1.25% by the ld. CIT(A) without any basis or study in this matter. We find that in the decision of the coordinate bench....
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....essee has paid 0.6% guarantee commission to ICICI Bank India for its credit arrangement. This could be a very good parameter and a comparable for taking it as internal CUP 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 ICICI Bank and charging of guarantee commission at the rate of 0.5% from its AE can be said to be at arm's length. The difference of 0.1% can be ignored as the rate of interest on which ICICI 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 ICICI 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. Hence, the addition of Rs. 28,50,353/- on account of TP adjustment on guarantee commission is hereby deleted and the order of the CIT(A) is set aside. Accordingly, ground NO.2 is treated to be allowed." Following the above decision of the ....
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.... AO dated 21.1.2015 passed u/s 143(3) r.w.s. 144C(5) and 144C(13) of the I.T. Act. The assessee has raised the following grounds of appeal: "TRANSFER PRICING ("TP") MATTERS 1. Rejecting the submissions of the Company and making TP adjustment on shareholders corporate guarantee provided to Bank - Rs. l5,21.00,000/. Ground specific to TP adjustment on shareholder corporate guarantee 2. Making adjustment on the shareholders corporate guarantee provided to the bank without appreciating the fact that wholly owned subsidiary ("WOS") was set up as a SPV for acquisition of business in USA. 3. Not appreciating that the shareholder corporate guarantee is not covered under the definition of international transaction U/S 92B of the Act. 4. Not appreciating that the amendment to section 92B would not apply to the facts of the case. 5. Not appreciating the fact that the Associated Enterprise ('AE') had also guaranteed the loan taken by the Appellant and hence the transaction is reciprocal. 6. Discriminating the US was by determining the ALP for shareholder corporate guarantee vis-a-vis similar shareholder corporate guarantee provided by parent companies to Indian subsidiar....
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....and the profit or loss of the non-eligible unit cannot be adjusted against the profits of the eligible units before allowing the deduction u/s 10B of the Act. In support of this contention, the learned Counsel for the assessee placed reliance upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Yokogawa India Ltd reported in (2017) 77 Taxmann.com 41 (S.C). 24. The learned DR however, supported the orders of the authorities below. 25. Having regard to the rival contentions and the material on record, we find that the Hon'ble Supreme Court in the case of CIT vs. Yokogawa India Ltd reported in (2012) 341 ITR 385 (Kar.) (cited Supra) has at Paras 16 to 18 held as under: "16. From a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 ....
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....e has raised the following grounds of appeal: "TRANSFER PRICING ("TP") MATTER 1. rejecting the submissions of the company and making TP adjustments to the following international transactions with AE. * Fee on shareholders Corporate Guarantee to Bank - Rs. 2,20,25,940/- 2. Making adjustment on the shareholders corporate guarantee provided to the bank/creditor of the AE, without appreciating the fact that guarantee was provided to the AE for the purpose of its business operations (i.e., procure raw material from the supplier in a timely manner). 3. Not appreciating that the shareholders corporate guarantee is not covered under the definition of international transaction u1s 92B of the Act. 4. Not appreciating that the amendment to section 92B would not apply to the facts of the case. 5. Adopting a rate of 1.75% based on the fee charged from the local banks, without appreciating that the guarantee given is a shareholder corporate guarantee as opposed to commercial bank guarantee. 6. a) Determining the guarantee fee on the entire amount of loan guaranteed to the bank instead of the actual amount of loan availed by the AE. b) Determining the guarantee fee on the entire....
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....essee has given the following corporate guarantees during the relevant previous year: S.No Date Guarantee (in USD) Name of the beneficiary O/s balance as on March 2011 (in USD) 1 1.4.2010 5,000,000 Concophilips Company 2 3.1.2011 5,000,000 Concophilips Company extended guarantee 10,000,000 3 10.6.2010 25,000,000 Wells Fargo Bank N.A 15,925,000 33. The TPO noticed that no fee has been charged by the assessee for the above Corporate Guarantees. The assessee's explanation as to why the fee was not charged where it involved services, was called for. The assessee submitted that the Corporate Guarantee (CG) does not fall within the definition of international transactions and relied on the decision of Income Tax Appellate Tribunal, Hyderabad in the case of Foursoft Ltd. The TPO observed that by virtue of the amendment made to section 92B with retrospectively/ effect from 1.4.2002, the Corporate Guarantee provided by the assessee has to be considered as an international transaction and that the Tribunal in the case of Foursoft for the next year has held that if the Finance Bill of 2012 is passed by the Parliament amending the provision of section 92B, t....
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....e as to whether the amendment is clarificatory and effective retrospectively or is it effective prospectively has been considered extensively by the Coordinate Bench of this Tribunal at Mumbai in the case of Siro Clinpharm Private Ltd in ITA No.2618/Mum/2014 and ITA No.2876/Mum/2014 dated 31.3.2016. In this decision, the decision of the Tribunal at Hyderabad in the case of Foursoft and other related decisions were considered and it was held that this provision being in respect of transfer pricing legislation, which is anti-abuse legislation and not primarily a source of revenue, is applicable prospectively i.e. from the A.Y 2013-14 onwards. For the sake of clarity and ready reference, the relevant paras are reproduced hereunder: " 6. While we will, in a short while, deal with very elaborate and detailed submissions made by learned Departmental Representative, we may begin by pointing out that this issue has been dealt with in detail by decision of a coordinate bench in the case of Micro Ink vs ACIT [(2016) 176 TTJ 8 (Ahd)] wherein the coordinate bench has, inter alia, observed as follows: 21. It is only elementary that the determination of arm's length price, under the schem....
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.... (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know -how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature; (c) capital financing, including any type of long-term or short- term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; (d) provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any f....
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....ature of purchase, sale or lease of tangible or intangible property, in the nature of provision of services, in the nature of lending or borrowing money, or in the nature of any other transaction having a bearing on the profits, income, losses or assets of such enterprises An international transaction shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to anyone or more of such enterprises. Section 92B (2), covering a deeming fiction, provides that even a transaction with non-AE in a situation in which such a transaction is de facto controlled by prior agreement with AE or by the terms agreed with the AE. 26. Let us now deal with the Explanation, inserted with retrospective effect from 1st April 2002 i.e. right from the time of the inception of transfer pricing legislation in India, which was brought on the statute vide Finance Act, 2012. 27. This Explanation states that it is merely clarificatory in nature inasmuch as it is 'for the removal of doubts&....
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....ssets of such enterprises". 30. It is, therefore, essential that in order to be covered by clauses (c) and (e) of Explanation to Section 92B, the transactions should be such as to have bearing on profits, incomes, losses or assets of such enterprise. In other words, in a situation in which a transaction has no bearing on profits, incomes, losses or assets of such enterprise, the transaction will be outside the ambit of expression 'international transaction'. This aspect of the matter is further highlighted in clause (e) of the Explanation dealing with restructuring and reorganization, wherein it is acknowledged that such an impact could be immediate or in future as evident from the words "irrespective of the fact that it (i.e. restructuring or reorganization) has bearing on the profit, income, losses or assets of such enterprise at the time of transaction or on a future date". What is implicit in this statutory provision is that while impact on " profit, income, losses or assets" is sine qua non, the mere fact that impact is not immediate, but on a future date, would not take the transaction outside the ambit of 'international transaction'. It is also important to ....
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....r assets' set out in Section 92B(1) may not be fulfilled. For example, an enterprise may extend guarantees for performance of financial obligations by its associated enterprises. These guarantees do not cost anything to the enterprise issuing the guarantees and yet they provide certain comfort levels to the parties doing dealings with the associated enterprise. These guarantees thus do not have any impact on income, profits, losses or assets of the assessee. There can be a hypothetical situation in which a guarantee default takes place and, therefore, the enterprise may have to pay the guarantee amounts but such a situation, even if that be so, is only a hypothetical situation, which are, as discussed above, excluded. One may also have a situation in which there is a receivable or any other debt during the course of business and yet these receivables may not have any bearing on its profits, income, losses or assets, for example, when these receivables are out of cost free funds and these debit balances do not cost anything to the person allowing such use of funds. The situations can be endless, but the common thread is that when an assessee extends an assistance to the associat....
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....d by the Tribunal. Aggrieved by the relief so given by the Tribunal, the matter was carried in further appeal, by the Commissioner, before the Hon'ble Bombay High Court which eventually upheld the relief granted by the Tribunal. The appeal before the Hon'ble I.T.A. Nos. 2618 and 2876/Mum/2014 Assessment year: 2009-10 High Court was by the Commissioner, and not by the assessee, and, therefore, the grievance against the issuance of corporate guarantee being held to be an international transaction could not have come up for consideration. Of course, the assessee had no occasion to challenge the stand of the Tribunal on this aspect since the addition, on merits, was deleted anyway making revenue's success in this respect hollow and of no damage to the interests of the assessee. It was in this backdrop that the action of the Tribunal was upheld in granting relief to the assessee on merits. It is difficult to understand as to how this decision is taken as supporting the proposition that the issuance of corporate guarantee, even in a case in which neither any guarantee commission is charged nor any costs are incurred, is an international transaction. In any case, there is noth....
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....d that the operative portion of this judgment, so far as relevant to this discussion, is as follows: '213. The amendment to section 2(47) raises several important questions of fact and of law. Whether or not it affects the proceedings which were the subject matter before the Supreme Court is not relevant for the purpose of this Writ Petition. But, whether it is relevant or not for the purpose of the assessment proceedings in respect of the petitioner which are the subject matter of this Writ Petition, is relevant. The effect of the amendment would have to be considered. It cannot be brushed aside. 214. Section 2(47), as amended, even on a cursory glance raises various issues. It is necessary to note four preliminary aspects of Explanation 2 to section 2(47). Firstly, as the opening words, For the removal of doubts it is hereby clarified that ......", indicate it is a clarificatory amendment. Secondly, it is an inclusive definition as is evident from the words "transfer" includes ". Thirdly, the amendment is with retrospective effect from 1st April, 1962. Fourthly, the Finance Act 2012 which introduced, inter alia, the amendment to section 2(47) and section 92CA(2B) is a val....
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....one's case obviously considered the ambit of the term "transfer" prior to the amendment. In the present assessment proceedings, it is the amended definition which would have to be considered. 218. We do not find it either necessary or proper to indicate the application of section 2(47) as amended to the present proceedings. The application would depend upon the facts on record or those may be permitted to be brought on record. 219. There is another aspect. The petitioner may well contend that the amended definition makes no difference it being clarificatory in nature. The provisions thereof must, therefore, be deemed always to have been in existence. We will presume that it would be open to the petitioner to contend, therefore, that the judgment of the Supreme Court would remain entirely unaffected for the Supreme Court must be deemed to have considered the term as per its true ambit, as always intended by the Parliament. On the other hand, it may be equally open to the Revenue to contend that certain ingredients of a transfer were not considered by the Revenue itself in the proceedings I.T.A. Nos. 2618 and 2876/Mum/2014 Assessment year: 2009-10 relating to Vodafone's c....
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....ing into account the amendments, the legal implications of this amendment is still an open issue which will have to be adjudicated in the light of pleadings of the parties. Even in these observations, which do not anyway decide anything on merits, effect of a retrospective amendment was not in the context of the precise issue before us, or on the scope of the international transaction, but in respect of connotations of 'transfer'. As learned counsel rightly contends, in the light of Hon'ble Bombay High Court's judgment in the case of Sudhir Jayantilal Mulji (supra) "ratio of a decision alone is binding, because a case is only an I.T.A. Nos. 2618 and 2876/Mum/2014 Assessment year: 2009-10 authority for what it actually decides and not what may come to follow from some observations which find place therein". In view of these discussions, the reliance placed on Vodafone India Services (P.) Ltd. (supra) is also equally misplaced and devoid of legally sustainable merits. In any case, as is noted by Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297/64 Taxman 442 (SC), "It is neither desirable nor permissible to pick out a word or....
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.... by the Tax Court of Canada. In the DRP's order, a reference is made to well known Canadian decision in the case of GE Capital Canada (supra). The said case, to quote the words of the DRP, "also shows that the group company issuing the guarantee (i.e. guarantor) would, in principle, at least need to cover the cost that it incurs with respect to I.T.A. Nos. 2618 and 2876/Mum/2014 Assessment year: 2009- 10 providing the guarantee" and that "these costs may include administrative expenses as well as the costs of maintaining an appropriate level of cash equivalents, capital, subsidiary credit lines or more expensive external funding conditions on other debt finance". The DRP had also noted that "in addition, the guarantor would want to receive appropriate compensation for the risk it incurs" and concluded that "following the above discussions, an arm's length guarantee fees is typically required to be determined by establishing a range of fees that the guarantor would, at least, want to receive and the fees that the guaranteed group company would be willing to pay depending on the prevailing conditions within financial markets in practice". 30. However, while dealing with this....
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....dian Income-tax Act, 1985; http://laws- lois.justice.gc.ca/eng/acts/I-3.3/page-419.html#h-156] coupled with the legal position that arm's length adjustment to the prices of such transaction come into play "Where a taxpayer or a partnership and a nonresident person with whom the taxpayer or the partnership, or a member of the partnership, does not deal at arm's length" [See Section 247(2) ibid]. When one takes into account these variations in the statutory provisions, it will become very obvious that the provisions of the Indian Income-tax Act, 1961 and the Canadian Income-tax Act, 1985 are so radically different that just because a particular transaction is to be examined on arm's length principle in Canada cannot be a reason enough to hold that it must meet the same in India as well. While the Canadian transfer pricing legislation, as indeed the transfer pricing legislation in many other jurisdictions, does not put any fetters on the nature of transactions between the AEs, so as to be covered by the arm's length price adjustment, and, therefore, covers all transactions between the related enterprises, Indian transfer pricing legislation covers only such transaction....
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....cussion paper did not travel beyond the stage of the discussion paper is not really relevant for the present purposes because all that we are concerned with right now is understanding the conceptual basis on which, contrary to popular but apparently erroneous belief, the issuance of corporate guarantees can indeed be kept outside the ambit of services. The relevant extracts from this document are as follows: "102. An independent company that is unable to borrow the funds it needs on a stand-alone basis is unlikely to be in a position to obtain a guarantee from an independent party to support the borrowings it needs. Where such a guarantee is given it compensates for the inadequacies in the financial position of the borrower; specifically, the fact that the subsidiary does not have enough shareholders' funds. ..... 103. It would not be expected that a company pay for the acquisition of the equity it needs for its formation and continued viability. Equity is generally supplied by the shareholders at their own cost and risk. 104. Accordingly to the extent that a guarantee substitutes for the investment of the equity needed to allow a subsidiary to be self- sufficient and raise....
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....d include detailed planning services for particular operations, management or technical advice (trouble shooting) or in some cases assistance in day-to-day management". The shareholder activities are thus seen as conceptually distinct from the provision of services. The issuance of corporate guarantee, as long as it is in the nature of shareholder activity, can not, therefore, amount to a "provision for services". 34. Undoubtedly, pioneering work done by the OECD, in the field of international taxation, has been judicially recognized worldwide by various judicial forums, including, most notably by Hon'ble Andhra Pradesh High Court in the case of CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146/15 Taxman 72 (AP). Their Lordships also referred to Lord Radcliffe's observations in Ostime v. Australian Mutual Provident Society [1960] 39 ITR 210 (HL), which has described the language employed in the models developed by the OECD as the "international tax language". The work done by OECD in the field of transfer pricing is no less significant. No matter which part of the world we live in, and irrespective of whether or not that tax jurisdiction is an OECD member jurisdiction, th....
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.... service under the arm's length principle. 7.7 The analysis described above quite clearly depends on the actual facts and circumstances, and it is not possible in the abstract to set forth categorically the activities that do or do not constitute the rendering of intra-group services. However, some guidance may be given to elucidate how the analysis would be applied for some common types of activities undertaken in MNE groups. 7.8 Some intra-group services are performed by one member of an MNE group to meet an identified need of one or more specific members of the group. In such a case, it is relatively straightforward to determine whether a service has been provided. Ordinarily an independent enterprise in comparable circumstances would have satisfied the identified need either by performing the activity in- house or by having the activity performed by a third party. Thus, in such a case, an intra-group service ordinarily would be found to exist. For example, an intra-group service would normally be found where an associated enterprise repairs equipment used in manufacturing by another member of the MNE group. 7.9 A more complex analysis is necessary where an associated ....
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....comparable facts and circumstances the activity is one that an independent enterprise would have been willing to pay for or to perform for itself.' (Emphasis supplied) 36. We have noticed that the 'OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations' specifically recognizes that an activity in the nature of shareholder activity, which is solely I.T.A. Nos. 2618 and 2876/Mum/2014 Assessment year: 2009-10 because of ownership interest in one or more of the group members, i.e. in the capacity as shareholder "would not justify a charge to the recipient companies". It is thus clear that a shareholder activity, in issuance of corporate guarantees, is taken out of ambit of the group services. Clearly, therefore, as long as a guarantee is on account of, what can be termed as 'shareholder's activities', even on the first principles, it is outside the ambit of transfer pricing adjustment in respect of arm's length price. It is essential to appreciate, at this stage, the distinction in a service and a benefit. One may be benefited even when no services are rendered, and, therefore, in many a situation it's a 'benefit test....
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....ement with these views. There can thus be activities which benefit the group entities but these activities need not necessarily be 'provision for services'. The fact that the OECD considers such activities in the services segment does not alter the character of the activities. While the group entity is thus indeed benefited by the shareholder activities, these activities do not necessarily constitute services. There is no such express reference to the benefit test, or to the concept of benefit attached to the activity, in relevant definition clause of 'international transaction' under the domestic transfer pricing legislation. As we take note of these things, it is also essential to take note of the legal position, in India, in this regard. No matter how desirable is it to read such a test in the definition of the international transaction' under our domestic transfer pricing legislation, as is the settled legal position, it is not open to us to infer the same. Hon'ble Supreme Court, in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 (SC) , took note of the situation before Their Lordships in these words: "We have given anxious thoughts to the pers....
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....half of its clients with the consideration for which the corporates issue guarantees for their subsidiaries, is ill-conceived because while banks seek to be compensated, even for the secured guarantees, for the financial risk of liquidating the underlying securities and meeting the financial commitments under the guarantee, the guarantees issued by the corporates for their subsidiaries are rarely, if at all, backed by any underlying security and the risk is entirely entrepreneurial in the sense that it seeks to maximize profitability through and by the subsidiaries. It is inherently impossible to decide arm's length price of a transaction which cannot take place in arm's length situation. The motivation or trigger for issuance of such guarantees is not the kind for consideration for which a banker, for example, issue the guarantees, but it is maximization of gains for the recipient entity and thus the MNE group as a whole. In general, thus, the consideration for issuance of corporate guarantees are of a different character altogether. 40. At this stage, it would appropriate to analyze the business model of bank guarantees, with which corporate guarantees are sometimes comp....
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....entity in question. Even in a situation in which the group entity is sure that the beneficiary of guarantee has no financial means to reimburse it for the defaulted guarantee amounts, when invoked, the group entity will issue the guarantee nevertheless because these are compulsions of his group synergy rather than the assurance that his future obligations will be met. We see no meeting ground in these two types of guarantees, so far their economic triggers and business considerations are concerned, and just because these instruments share a common surname, i.e. 'guarantee', these instruments cannot be said to be belong to the same economic genus. Of course, there can be situations in which there may be economic similarities, in this respect, may be present, but these are more of an exception than the rule. In general, therefore, bank guarantees are not comparable with corporate guarantees. 41. As evident from the OECD observation to the effect "In contrast, if for example a parent company raises funds on behalf of another group member which uses them to acquire a new company, the parent company would generally be regarded as providing a service to the group member", it is ....
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....ially rational manner". The case of a corporate guarantee clearly falls in the second category as no independent enterprise would issue a guarantee without an underlying security as has been done by the assessee. We may, in this regard, refer to the observations made by Hon'ble High Court, speaking through Hon'ble Justice Easwar (as he then was), as follows: '16. The Organization for Economic Co-operation and Development ('OECD', for short) has laid down "transfer pricing guidelines" for Multi- National Enterprises and Tax Administrations. These guidelines give an introduction to the arm's length price principle and explains article 9 of the OECD Model Tax Convention. This article provides that when conditions are made or imposed between two associated enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises then any profit which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, if not so accrued, may be included in the profits of that enterprise and taxed accordingly. By seeking to adjust the profits in the above manner, the ....
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....ubstance of the transaction are the same, the arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner and the actual structure practically impedes the tax administration from determining an appropriate transfer price. An example of this circumstance would be a sale under a long-term contract, for a lump sum payment, of unlimited entitlement to the intellectual property rights arising as a result of future research for the term of the contract (as previously indicated in paragraph 1.10). While in this case it may be proper to respect the transaction as a transfer of commercial property, it would nevertheless be appropriate for a tax administration to conform the terms of that transfer in their entirety (and not simply by reference to pricing) to those that might reasonably have been expected had the transfer of property been the subject of a transaction involving independent enterprises. Thus, in the case described above it might be appropriate for the tax administration, for example, I.T.A. Nos. 2618 and 2876/Mum/2014 Assessment year: 2009-10 to ....
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....d by independent enterprises behaving in a commercially rational manner". No bank would be willing to issue a clean guarantee, i.e. without underlying asset, to assessee's subsidiaries when the banks are not willing to extend those subsidiaries loans on the I.T.A. Nos. 2618 and 2876/Mum/2014 Assessment year: 2009-10 same terms as without a guarantee. Such a guarantee transaction can only be, and is, motivated by the shareholder, or ownership considerations. No doubt, under the OECD Guidance on the issue, an explicit support, such as corporate guarantee, is to be benchmarked and, for that purpose, it is in the service category but that occasion comes only when it is covered by the scope of 'international transaction' under the transfer pricing legislation of respective jurisdiction. The expression 'provision for services' in its normal or legal connotations, as we have seen earlier, does not cover issuance of corporate guarantees, even though once a corporate guarantee is covered by the definition of international transaction', it is benchmarked in the service segment. In view of the above discussions, OECD Guidelines, as a matter of fact, strengthen the clai....
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....39;s length price adjustment, apart, "Transfer Pricing and Intra-Group Financing - by Bakker & Levvy" (ibid) notes that "the IRS has I.T.A. Nos. 2618 and 2876/Mum/2014 Assessment year: 2009-10 issued a nonbinding Field Service Advice (FSA 1995 WL 1918236, 1 May 1995) stating that, in certain circumstances (emphasis supplied), a guarantee may be treated as a service". If the natural connotations of a 'service' were to cover issuance of guarantee in general, there could not have been an occasion to give such hedged advice. This will be stretching the things too far to suggest that just because when guarantees are included in the international transactions, these guarantees are included in service segment in contradistinction with other heads under which international transactions are grouped, the guarantees should be treated as services, and, for that reason, included in the definition of international transactions. That is, in our considered view, purely fallacious logic. In our considered view, under Section 92B, corporate guarantees can be covered only under the residuary head i.e. "any other transaction having a bearing on the profits, income, losses or assets of such ent....
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..../Mum/2014 Assessment year: 2009-10 that it does not alter the basic character of definition of 'international transaction' under Section 92B. Accordingly, this Explanation is to be read in conjunction with the main provisions, and in harmony with the scheme of the provisions, under Section 92B. Under this Explanation, five categories of transactions have been clarified to have been included in the definition of 'international transactions'. The first two categories of transactions, which are stated to be included in the scope of expression 'international transactions' by virtue of clause (a) and (b) of Explanation to Section 92B, are transactions with regard to purchase, sale, transfer, lease or use of tangible and intangible properties. These transactions were anyway covered by transactions 'in the nature of purchase, sale or lease of tangible or intangible property'. The only additional expression in the clarification is 'use' as also illustrative and inclusive descriptions of tangible and intangible assets. Similarly, clause (d) deals with the " provision of services, including provision of market research, market development, marketing ma....
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....se is not for "contingent" impact on profit, income, losses or assets but on "future" impact on profit, income, losses or assets of the enterprise. The important distinction between these two categories is that while latter is a certainty, and only its crystallization may take place on a future date, there is no such certainty in the former case. In the case before us, it is an undisputed position that corporate guarantees issued by the assessee to the various banks and crystallization of liability under these guarantees, though a possibility, is not a certainty. In view of the discussions above, the scope of the capital financing transactions, as could be covered under Explanation to Section 92B read with Section 92B(1), is restricted to such capital financing transactions, including inter alia any guarantee, deferred payment or receivable or any other debt during the course of business, as will have "a bearing on the profits, income, losses or assets or such enterprise". This precondition about impact on profits, income, losses or assets of such enterprises is a precondition embedded in Section 92B(1) and the only relaxation from this condition precedent is set out in clause (e) ....
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....oordinate bench of this Tribunal held to be the legal position and we are bound by the esteemed views of the coordinate bench. We are, therefore, of the opinion that the Explanation to Section 92B did indeed enlarge the scope of definition of 'international transaction' under section 92B, and it did so with retrospective effect. If, for argument sake, it is assumed that the insertion of Explanation to Section 92B did not enlarge the scope of definition, there cannot obviously be any occasion to deviate from the decision that the coordinate bench took in Four Soft Ltd. case (supra), but if the scope of the provision was indeed enlarged, as is our opinion, the question that really needs to be addressed whether, given the peculiar nature and purpose of transfer pricing provision, is it at all a workable idea to enlarge the scope of transfer pricing provisions with retrospective effect There can be little doubt about the legislative competence to amend tax laws with retrospective effect, and, in any case, we are not inclined to be drawn into that controversy either. On the issue of implementing the amendment in transfer pricing law with retrospective effect, in the case of Bhar....
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....rein Their Lordships had, inter alia, observed that "the law does not compel a man to do what he cannot possibly perform. The law itself and its administration is understood to disclaim as it does in its general aphorisms, all intention of compelling impossibilities, and the administration of law must adopt that general exception in the consideration of particular cases. It was for this reason that a coordinate bench of this Tribunal, in the case of Channel Guide India Ltd. v. Asstt. CIT [2012] 139 ITB 49/25 taxmann.com 25 (Mum.), held that even though the assessee had not deducted the applicable tax at source under section 195, the disallowance could not be made under section 40(a)(i) since the taxability was under the provisions which were amended, post the payment having been made by the assessee, with retrospective effect. All this only shows that even when law is specifically stated to have effect from a particular date, its being implemented in a fair and reasonable manner, within the framework of judge made law, may require that date to be tinkered with. When a proviso is introduced with effect from a particular date specified by the legislature, the judicial forums, includi....
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....essee that corporate guarantees are quasi-capital, or shareholder activity, in nature, and, for that reason, excludible from chargeable services, even if these are held to be services in nature. That plea has been specifically accepted in the present case. Therefore, the question whether issuance of corporate guarantee per se in general constitutes a 'international transaction' under section 92B would have been somewhat academic question on the facts of this case. In any event, in Prolific' Corp Ltd. case (supra), an earlier considered decision on the same issue by coordinate bench of equal strength was simply disregarded and that fact takes this decision out of the ambit of binding judicial precedents. We have also noted that in view of the decision a coordinate bench, in the case of JKT Fabrics v. Dy. CIT [2005] 4 SOT 84 (Mum.) and following the Full bench decision of Hon'ble AP High Court in the case of CIT v. BR Constructions [1993] 202 ITR 222/[1994] 73 Taxman 473 (AP), a decision disregarding an earlier binding precedent on the issue is per incurium. Such decisions cannot be basis for sending the matters to special bench since occasion for reference to special....
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....ts that "the legislature brought in amendment (in Section 92B) by the Finance Act, 2012, after the decision of Four Soft Ltd dated 14/09/2011". He points out that the decision of the Tribunal, in the case of Bharti Airtel (supra), is per incurium because there were two decisions of this Tribunal, in the case of Everest Kanto Cylinders Ltd Vs DCIT [(2012) 34 taxmann.com 9 (Mum)] and Mahindra & Mahindra Ltd Vs DCIT [2012- TII-70-ITAT-Mum], which were not considered by the Bharti Airtel decision. Our attention is also invited to the rectification petition filed by the Assessing Officer, which is said to be pending for disposal before the Tribunal. We donot find merits in this plea. Mahindra & Mahindra decision (supra) was passed on 6 th June 2012, though at a point of time when Finance Act 2012 had just come into force i.e. post 28th May 2012, without even being aware whether or not the Finance Act 2012 was passed as it gave certain directions depending upon the exact amendment by the said Finance Act. The matter was remitted to the file of the Assessing Officer in a rather summary manner. It cannot be, by any stretch of logic, an authority on any legal question arising out of the law....
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....scope and through Bharti Airtel decision as to how fallacious is its logic. Its emphasized that the impact of issuance of bank guarantees, on the profits, income, losses or assets of such enterprises, is 'real' and not 'contingent' as held in Bharti's case. It is also emphasized, apparently to highlight the fact that it is not only the impact on entity issuing the guarantee but also beneficiary of the guarantee that matters in this context, that the word used in section 92 B is 'enterprises' and not 'enterprise'. It is thus contended that the impact on the profits, incomes, losses or assets of the entity issuing guarantee is important, but the impact on the profits, income, losses or assets of the entity, which is beneficiary of the guarantee, is also important. It is pointed out that Bharti Airtel decision has examined this aspect only from the point of view of the entity issuing the guarantee and that has also been decided wrongly. As for these issues being raised by the learned Departmental Representative, suffice to say that even if reasoning adopted by Bharti Airtel decision is incorrect, it is not for us to examine that aspect of the matter....
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....administration, nothing prevents them from going to the higher judicial forum or from so amending the law, with prospective effect, that there is no ambiguity about the intent of legislature and it is conveyed in unambiguous words. 10. Nullifying a judicial interpretation though legislative amendment, much as many of us may abhor it, is not too uncommon an occurrence. Of course, when legislature has to take an extreme measure to nullifying the impact of a judicial ruling in taxation, it is the time for, at least on a theoretical note, introspection for the draftsman as to what went so wrong that fundamental intent of law of law could not be conveyed by the words of the statute, or, I.T.A. Nos. 2618 and 2876/Mum/2014 Assessment year: 2009-10 perhaps for the judicial forums, as to what went so wrong that the interpretation was so off the mark visà- vis fundamental principles of taxation or the sound policy considerations. However, amendment so made are generally prospective, and there is a sound conceptual foundation, as has been highlighted in the binding judicial precedents that we will deal with in a short while, for that approach. There is no dearth of examples on this as....
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....is obscure, ambiguous, may have made an obvious omission, or is capable of more than one meaning. In such case, a subsequent provision dealing with the same subject may throw light upon it. Yet, it is not every time that the legislature characterizes an amendment as retrospective that the Court will give such effect to it. This is not in derogation of the express words of the law in question, (which as a matter of course must be the first to be given effect to), but because the law which was intended to be given retrospective effect to as a clarificatory amendment, is in its true nature one that expands the scope of the section it seeks to clarify, and resultantly introduces new principles, upon which liabilities might arise. Such amendments though framed as clarificatory, are in fact transformative substantive amendments, and incapable of being given retrospective effect. ...................... 37. An important question, which arises in this context, is whether a "clarificatory" amendment remains true to its nature when it purports to annul, or has the undeniable effect of annulling, an interpretation given by the courts to the term sought to be clarified. In other words, does th....
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....icatory' in nature, but a call will have to be taken by the judiciary whether it is indeed clarificatory or not. This determination, i.e. whether the amendment in indeed clarificatory or is the amendment to overcome a judicial precedent, assumes great significance because when it is found that the purpose of such interpretive statute, or clarificatory amendment, is "correct a judicial interpretation of prior law, which I.T.A. Nos. 2618 and 2876/Mum/2014 Assessment year: 2009-10 the legislature considers inaccurate, the effect is prospective" and, as in this case, it deals with transfer pricing legislation which essentially seeks a degree of compliant behavior from the assessee vis-à-vis certain norms- the norms the assessee should know at the time of entering into the transactions rather than at the time of scrutiny of his affairs at a much later stage. 15. It is very important to bear in mind the fact that right now we are dealing with amendment of a transfer pricing related provision which is in the nature of a SAAR (specific anti abuse rule), and that every anti abuse legislation, whether SAAR (specific anti abuse rule) or GAAR (general anti abuse rule), is a legisla....
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....n in the consideration of particular cases. [See : U.P.S.R.T.C. vs. Imtiaz Hussain 2006 (1) SCC 380, Shaikh Salim Haji Abdul Khayumsab vs. Kumar & Ors. 2006 (1) SCC 46, Mohammod Gazi vs. State of M.P. & Ors. 2000 (4) SCC 342 and Gursharan Singh vs. New Delhi Municipal Committee 1996 (2) SCC 459]. 18. It is for this reason that the Explanation to Section 92 B, though stated to be clarificatory and stated to be effective from 1 st April 2002, has to be necessarily treated as effective from at best the assessment year 2013-14. In addition to this reason, in the light of Hon'ble Delhi High Court's guidance in the case of New Skies Satellite BV (supra) also, the amendment in the definition of international transaction under Section 92B, to the extent it pertains to the issuance of corporate guarantee being outside the scope of 'international transaction', cannot be said to be retrospective in effect. The fact that it is stated to be retrospective, in the light of the aforesaid guidance of Hon'ble Delhi High I.T.A. Nos. 2618 and 2876/Mum/2014 Assessment year: 2009-10 Court, would not alter the situation, and it can only be treated as prospective in effect i.e. with e....
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....uction in respect of expenditure relating to the payments of this nature cannot be treated as an "intended consequence" of Section 40(a)(ia). If it is not an intended consequence i.e. if it is an unintended consequence, even going by Bharti Shipyard decision (supra), "removing unintended consequences to make the provisions workable has to be treated as retrospective notwithstanding the fact that the amendment has been given effect prospectively". Revenue, thus, does not derive any advantage from special bench decision in the case Bharti Shipyard (supra). 9. On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source, when such tax deductions are due, but, so far as the legal framework is concerned, this provision is not for the purpose of pen....
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....e's for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. 21. While approving this approach, and upholding the decision of the Tribunal do read these provisions as effective from 1st April 2005, Hon'ble Delhi High Court, in case of CIT Vs Ansal Landmark Townships Pvt Ltd [(2015) 377 ITR 635 (Del)], has observed as follows: 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance. 15. In that view of the matter, the Court is unable to find any legal infirmity in the impugned orde....
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....275-297 of the paper book. 27. In view of the above discussions, and respectfully following the coordinate benches, we uphold the order of the CIT(A) on these aspects and decline to interfere in the matter. 28. In the result, the appeal filed by the Assessing Officer is dismissed. 29. To sum up, while the appeal filed by the assessee is allowed, the appeal filed by the Assessing Officer is dismissed. Pronounced in the open court today on the 31st day of March, 2016". 39. Respectfully following the same, assessee's ground of appeal No.3 is allowed and Grounds 1,2 4 to 6 need no adjudication. 40. As regards grounds 7 and 8, against the disallowance u/s 14A r.w.r 8D of I.T. Rules, the learned Counsel for the assessee submitted that in the draft assessment order, the AO disallowed 0.5% of the average value of investment u/s 14A r.w.r 8D against which, the assessee preferred its objections and the DRP directed the AO to exclude the investments made by the assessee in its foreign subsidiaries while computing the disallowance u/s 14A of the Act. It is submitted that in the final assessment order, the AO has followed the directions of the DRP and arrived at the disallowance at Rs. 3,7....
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.... relief, if any, to the assessee in accordance with law after giving the assessee a fair opportunity of hearing. Ground No.10 is accordingly treated as allowed for statistical purposes. 45. Similarly, grounds 11, 12 & 13 also need factual verification by the AO. Accordingly, these grounds are set aside to the file of the AO for de novo consideration in accordance with law. 46. Ground No.14 against initiation of penalty proceedings u/s 271(1)(c) of the Act is rejected as it is a premature ground. 47. In the result, assessee's appeal is partly allowed. ITA No.434/Hyd/2016 - Revenue's Appeal (A.Y 2011-12) 48. The Revenue has raised the following grounds of appeal: "1. The learned DRP erred in law and on facts of the case. 2. The learned DRP erred in directing the AO to adopt charging fees @ 1.75% instead of 2% towards corporate guarantee without considering upfront fees and credit rating which comes to 2%". 49. We find that while dealing with assessee's ground of appeal No.3, we have already held that for the relevant A.Y, corporate guarantee cannot be treated as an international transaction. Therefore, the Revenue's ground is liable to be rejected. 50. In the result, Revenue'....
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....in not considering the Hon'ble DRP's directions in case of the assessee for the A Y 2009-10, wherein the guarantee fee was determined at 1.25%. 12. Without prejudice, not determining the guarantee fee only on the amount of outstanding loan. CORPORATE TAX MATTER 13. Not providing credit of TCS of Rs. 35,96,567/-. 14. Levy of interest u/s 234B on TP adjustments arising out of retrospective amendment in the Act. 15. Initiating penalty proceedings u/s 271(1)(c) of the Act". 52. As regards grounds 2 to 4 are concerned, the brief facts are that the assessee had entered into various international transactions with its AE and determination of ALP was referred to the TPO. From the annual report of the assessee, the TPO noticed that the assessee has given interest free loan to its subsidiary, Rain Commodities (USA) Inc. and the amount outstanding as on 31.3.2010 was Rs. 138,11,64,534 but the assessee has not shown this as an international transaction in its T.P. documentation. Therefore, the TPO proceeded to conduct the analysis under CUP method and concluded that the average cost of borrowed funds to the assessee was 10.85%, on the total secured and unsecured loans and held t....
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....is directed to follow the directions of the DRP while giving effect to this order. 58. Ground No.14 is against levy of interest u/s 234B of the Act on T.P. adjustment is remitted to the file of the AO to give consequential relief, if any, to the assessee. 59. Ground No.15 is against initiation of penalty u/s 271(1)(c) of the Act is rejected as it is a premature ground of appeal. 60. In the result, assessee's appeal is partly allowed. ITA No.315/Hyd/2015 (Revenue's appeal) 61. The grounds of appeal raised by the Revenue is given below: "1. The learned DRP erred in law and on facts of the case. 2. The Hon'ble DRP ought not have directed the TPO/AO to adopt LIBOR rate for the calculation of interest chargeable on the loans advanced by the assessee to its AE's in USA. 3. The Hon'ble DRP ought to have appreciated that the LIBOR plus cannot be taken as the base for the purpose of TP adjustment in respect of interest on loan advanced to the AE for the international transactions in view of the latest frauds regarding the 'L:IBOR' since Barclays Bank and UBS were fined by the United States Department of Justice for attempted manipulation of the LIBOR and Euribor rates and ult....
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.... opposed to commercial bank guarantee. 11. Determining the guarantee fee on the entire amount of loan guaranteed instead of the actual amount of loan availed by the AE. 12. The Hon'ble DRP erred in not considering its own directions in the Company's own case for the A Y 2009-10 and also, the order of Hon'ble CIT(A) in the Company's own case for A Y 2008-09, wherein the guarantee fee was determined at 1.25%. CORPORATE TAX MATTERS 13. Not providing credit of TDS of Rs. 53,71,764/-. 14. Not providing credit of advance tax of Rs. 50,00,000/-. 15. Not providing the foreign tax credit claimed u/s 90 of the Act, amounting to Rs. 1,14,66,741/-. 16. Not providing credit for adjustment made to current year's demand to the tune of Rs. 3,20,33,679/-, which was adjusted with the refund of AY 2010-11. 17. Erroneous calculation of interest u/s 234D of the Act. 18. Initiating penalty proceedings u/s 271 (l)(c) of the Act. 65. It is seen that Ground 1 is general in nature and needs no adjudication. 66. Grounds 2 to 6 are against the ALP adjustments towards interest on funds advanced to wholly owned subsidiary. We find that these grounds are same as grounds 2 to 4 in ....