AI Drafter 
TaxTMI 
TaxTMI 
2017 (12) TMI 259
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....f Arms Length Price, who has proposed adjustments in respect of assessee's international transactions for the year under consideration, as under: Transaction Adjustment (Rs.) Interest received on loans 1,29,54,309 Corporate Guarantee 90,03,54,380 Interest on receivables 131,12,22,228 Work Contract Expenses 195,72,44,551 Total 418,17,75,468 2.1 Assesse had filed objections against the TP order before the AO, however, AO finalized the draft order by incorporating the adjustments proposed by TPO. Assessee preferred objections before the DRP and the DRP vide their order dated 23/11/2016 upheld the ALP determined by the TPOI on all the transfer pricing issues. 3. Aggrieved, the assessee is in appeal before us. TRANSFER PRICING ISSUES 4. Ground No. 7a to 7d is relating to transfer pricing adjustment of Rs. 1,29,54,309/-. 4.1 Before the TPO, the assessee stated that CUP was considered as the most appropriate method for the purpose of determining the arm's length considering the nature of transaction of loans provided to Lanco International Pte Ltd., Singapore, because, the Prime Lending Rate (PLR) of the Singapore commercial bank is a goo....
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....so not providing the relevant information and facts, we are constrained to uphold the ALP determined on the said transaction by adopting interest rate at 14.75%. 4.5 Before us, the ld. AR of the assessee submitted that assessee has given loan outside India in foreign currency i.e. in Singapore and PLR of Singapore should be charged as CUP instead of Indian market rate. He relied on the following decisions: 1. Lanco Infratech Ltd. Vs. DCIT, AY 2011-12, ITA No. 450/Hyd/2016 (Assessee's own case) 2. CIT Vs. Cotton Naturals India Pvt. Ltd., [2015] 276 CTR 445 (Del.) 3. EKL Appliances, Delhi High court in ITA No. 1068/2011. 4.6 Ld. DR, on the other hand, relied on the order of DRP. 4.7 Considered the rival submissions and perused the material facts on record. In assessee's own case for AY 2011-012 (supra), the coordinate bench of this Tribunal has held as under: "5. We have considered the rival contentions and perused the details available on record. There is no dispute that assessee has advanced amounts in foreign currency. Therefore, following principles laid down by the Hon'ble Bombay High Court in the case of CIT Vs. Tata Autoco....
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.... also by various judicial pronouncements of the High Courts relied upon, we are of the opinion that there is no need for any adjustment on this account, as assessee has already received 6.37% interest which is more than the Singapore prime lending rate of 5.38%. In view of that, we delete the addition made by the AO/TPO/ DRP. Assessee's grounds on this are allowed." As the issue under consideration is materially identical to that of AY 2011-12, following the decision of the coordinate bench in that year, we delete the addition made on this count. At the same time, the DRP has confirmed the addition simply because the assessee has not submitted information before AO. It was represented before DRP, DRP has to find out the real transaction & appropriate ALP adjustment based on the information available at their disposal. In case it is not, then, they can call for remand report from TPO. It is not proper to confirm the ALP adjustment without proper verification. In the same breath, we also condemn the action of the assessee in not properly submitting the required information to lower authorities. In case of inability to submit the information before lower authorities, they could hav....
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.... Rejecting the submissions of the assessee, the TPO observed that the provision of corporate guarantee is an international transaction for which Arm's length price has to be determined as per the provisions of section 92 of the IT Act and the commercial considerations advanced by the assessee cannot be considered for determining the ALP of the transactions. Accordingly, the TPO had collected information from various websites of the banks regarding how the corporate guarantee fee is computed. The TPO had also referred to the Government Policy of the Ministry of Finance, Govt. of India, September 2010. It was thus gathered that the banks charge corporate guarantee upfront at the time of issue of the guarantee itself. He opined that in case of guarantees covering more than one financial year the fee is charged by the banks at the beginning of the financial year on the outstanding amount. Therefore, the TPO had adopted the same method of computation and accordingly, computed the ALP of corporate guarantee fee as under: Name of the AE Effective Guarantee Value (INR) Arm's Length Guarantee fee in % Arm's length guarantee fee Fee charged Adjustment LRIPL 7034018000....
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....t a reasonable percentage at 0.27% as held in assessee's own case before DRP. He relied on the following cases: 1. Dr. Reddy's Laboratories Vs. ACIT, ITA No. 294/Hyd/2014 & ITA No. 458/Hyd/2015 2. Siro Clinpharm Pvt Ltd. Vs. DCIT, ITA No. 2876/Mum/2014 3. Bharti Airtel Ltd. Vs. Addl. CIT, ITA No. 5816/Del/2012 4. Asian Paints Ltd. Vs. ACIT, ITA No. 7801/Mum/2010/ [2014] 41 Taxmann.com 71 (Mum. 5. Lanco Infratech Ltd. Vs. DCIT, AY 2011-12 in ITA No. 450/Hyd/2016 (assessee's own case) 5.8 Ld. DR, on the other hand, relied on the order of DRP and submitted that in earlier AY, it was adjudicated by this Bench as international transaction. 5.9 Considered the rival submissions and perused the material facts on record. We find that in assessee's own case for AY 2011-12 (supra), while adjudicating similar issue, the coordinate bench has held as under: "7. We have considered the rival contentions and perused the documents placed on record. There is a difference of opinion as far as in the corporate guarantee fee to be considered as international transaction. However, the Hyderabad Benches of ITAT is consistently following the princ....
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....cal to that of AY 2011-12, following the decision therein, we direct the AO/TPO to fix the fees at 0.27% as guarantee commission on the amount involved. Accordingly, the grounds raised by the assessee are partly allowed. 6. Ground No. 7a to 7d relate to ALP adjustment in respect of international transaction of interest on mobilization advances for an amount of Rs. 131,12,22,228/-. 6.1 The TPO asked the assessee to show cause vide letter dated 14/01/2016 as to why interest should not be charged @ 14.75% on the outstanding receivables. The assessee neither furnished the month-wise break up of receivables nor has objected to charging of interest in its reply dated 22/01/2016. However, in its reply assessee stated that the balances are receivable against the mobilization advances and no further clarification or the details as called for had been submitted, as noted by TPO. 6.2 After considering the submissions of the assessee, the TPO observed that with the retrospective introduction of explanation to section 92B, receivables form a part of international transaction for which ALP needs to be determined. Relying on the decision of Chiel India Pvt. Ltd. (TS-145-ITAT-2014(DEL)-TP....
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.... opportunity was given and additional information filed before it, which was forwarded to the TPO for their comments. The TPO submitted her report dated 02/11/2016 negating the claims of the assessee as well as relying on the order of the earlier panel of DRP. Considering the same, the DRP held that as the onus of proving the claims made has not been discharged by the assessee, the objections raised were rejected and order of the TPO was upheld. 6.5 Aggrieved, the assessee is in appeal before us. 6.6 Before us, the ld. AR submitted that since assessee company is not paying any interest on the amounts received by it from the contractor, the adjustment is not warranted. He further submitted that change of nature of transaction from mobilization advances to loans and advances is not warranted. He also submitted that as the case of non charging of interest in the controlled transactions is comparable with that of non-charging from uncontrolled transactions, in these international transactions, no transfer pricing adjustment can be made on this count. He relied on the following cases: 1. Lanco Infratech Ltd. Vs. DCIT, AY 2011-12 in ITA No. 450/Hyd/2016 (assessee's own cas....
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....tment. Relying on the various case law relied upon by the Ld. Counsel, we are of the opinion that since assessee-company is not charging any interest from the AEs and non-AEs and also not paying any interest on the amounts received by it from the main contractor, this adjustment is not warranted. Respectfully following the principles laid down in various case law relied upon by assessee above, we have no hesitation in deleting the above adjustment. As seen from the order of the TPO in the next year AY 2013-14, he has considered the same issue and has not made any adjustment by stating as under: "7.5 Receivables: With regard to receivables it is noticed from the information filed that the company is not exporting and supplying any goods or services to AEs. The balances appearing in the Balance Sheet are mobilization advances which are to be adjusted against future supply bills and hence no adverse inference is drawn. " Since the TPO order is in tune with the provisions of the Act and the principles laid down on this issue, we are of the opinion that no adjustment is required on the issue of mobilization advances during the impugned year also. Accordingly, grounds r....
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.... Operating Revenue 793371018 Cost of Sales 677847841 Add: Operating expenses 32380775 Less: Loan interest 0 Operating Cost 710228616 Operating profit 83142402 OP/OC 11.70 OP/OR 10.48 7.3 TPO observed that 'Onesource' database was used to identify the comparable companies in Singapore which are in similar line of business. Turnover fileter of Mil USD to 200 Mil USD was considered as the turnover of the AE is 95 Mil USD. Companies with no financial information, no business description, no data were not considered. Companies which are functionally different were also not considered. Wherever the financial information for the entire year is not available, pro-rata approach was adopted. (Mil.USD) OP/OC OP/OR CW Group holdings Ltd. 14.02 12.29 Hai Leck Holdings Ltd. 5.57 5.28 Beng Kuang Marine Ltd. 3.39 3.28 JEP Holdings Ltd. -13.24 -15.26 Koyo International Ltd. 13.76 12.10 Tritech Group Ltd. 6.20 5.84 Arithmetic mean 4.95 3.92 ....
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....lar comparable to the AE. The TPO ought to have appreciated the fact that the comparables selected by the TPO are engaged in diversified businesses Whereas the Singapore Entity fetches its revenue only from EPC Business. 7.5 After considering the submissions of the assessee, the DRP upheld the order of TPO rejecting the contentions raised by the assessee, by observing as under: "Having considered the submissions, the additional information filed in support of its contentions was forwarded to the AO/TPO for their comments in the interests of justice. The TPO sent her report, a copy of which was furnished to the assessee for its comments, which has not been submitted till date. In the absence of the same, directions are issued based on information already available on record. The assessee has submitted FAR analysis of itself and its AE, in relations to international transactions on account of work contract expenses. It is very interesting to note that similar analysis was done by the TPO for the previous year i.e. 2011- 12 in the same manner, which was not objected to by the assessee. The TPO further points out that even prior to AY 2011-12, similar analysis was ....
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....mputing operating margin of comparable companies for arriving at ALP in relation to international transaction. Accordingly, we direct the TPO to eliminate this comparable and determine the ALP afresh. The fresh result may be considered for ALP adjustment by removing the above from comparables, in case the final ALP is within the +/- 5% range, claim of the assessee may be accepted. CORPORATE TAX MATTERS 8. Ground No. 4a to 4i relate to addition of Rs. 88,51,02,720/- on account of sub-contract expenses. 8.1 The AO observed that during the course of hearing, the assessee company had submitted the copies of RA bills, work orders, etc. and on verification of the same, the AO was of the view that the same were not amenable for verification after lapse of over three years and these documents did not establish that the services had been actually rendered. Therefore, the AO held that the expenditure amounting to Rs. 88,51,02,720/- claimed by the assessee for the year under consideration under the head sub-contract expenses in respect of 5 companies was treated as non-genuine and bogus and was not allowed to be claimed as expenditure u/s 37 of the Act and disallowed and added to the....
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....be examined. Question of disallowance of an amount which was not claimed should not arise. Consequently, without relying on the so called statements which has no evidentiary value considering that no action was taken either in those companies or in the companies in whose cases the said enquiries were conducted( L& T, PACL), we direct the AO to independently examine the claim of sub contract expenditure. In case assessee billed and offered the said contract receipts, AO is directed to accept the sub contract payments, as assessee received the corresponding amounts from main contractor and offered the same for taxation. In case there is any failure or the nexus was not fully established, Assessee agrees that being a subcontractor a small percentage of the expenditure can be estimated for disallowance, following the principles laid down by the Coordinate Benches as relied upon above. In that event, AO is directed to disallow only a certain percentage of the above amount, if necessary. The addition made is accordingly deleted and the issue of examination of impugned sub contract payments is restored to AO to consider afresh as directed. Grounds are considered allowed for statistical pu....
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....the claim of the assessee, accordingly, the objection is not found acceptable, Even otherwise, as per provisions of section 144C, the DRP is empowered to deal with the issues arising out of variation to returned income or loss and therefore the same cannot be considered by the Panel and is rejected." 9.3 Aggrieved by the order of DRP, the assessee is in appeal before us. 9.4 The ld. AR of the assessee requested the bench to allow the claim of foreign excahange loss of Rs. 1,19,18,79,013/- due to the following: * The Courts have directed tax officers to allow the relief even if it has been claimed for the first time during the assessment proceedings. * Any difference, loss or gain arising on conversion of the said liability at the closing rate, should be recognized in the profit and loss account for the reporting period as per Accounting Standard 11. * Foreign currency loss incurred on revenue account shall be allowed as revenue expenditure. * The assessing officer should assist the tax payer in claiming any relief to which he is entitled to under the law. He further submitted that the assessee has made a claim during the course of assess....