TaxTMI 
TaxTMI 
TaxTMI 
2017 (12) TMI 259
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....tments 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 good external comparable for the loans advanced to its AE incorporated and fun....
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....ned 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 Autocomp Systems Ltd. In ITA No.1320 of 2012, the claim of assessee to adopt Singapore PLR as stated before the TPO and DRP is reasonable and ....
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....as 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 have recorded the same before the authorities instead of maintaining silence. This kind of behavior leads to unnecessary wasting of judicial time at the different appella....
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....ercial 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 2% 140680360 0 140680360 LRAPL 37983701000 2% 759674020 0 759674020 Total 90,03,54,380 Thus the arm's length price of the corporate guarantee fee was determined at Rs. 90,03,54,380/- and the shortfall of Rs. 9....
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..... 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 principle that corporate guarantee is to be considered for the purpose of Transfer Pricing adjustments as the transaction of providing corporate guarantee is considered as 'international transaction'. To be consistent with the opinion already taken in earlier decisions, Ld. Counsel was given an option to press or not to press the issue on this. Ld. Counsel however, submitted that if reasonab....
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....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), which also took into account the judgment dated 07/10/2010 of ITAT Bangalore Bench in the case of M/s Logix Micro Systems Ltd. Vs. ACIT (ITA No. 524/Bang/2009) and in the absence of details and furnishing of information by the assessee, the TPO computed the interest chargeable as under: Outstanding receivables from AE Rs. 8889642223 Interest @ 14.75% on Rs. 888964223 Rs. 1311222228 Les....
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..... 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 case) 2. EKL Appliances Ltd. Vs. CIT, ITA No. 1068/2011 of Delhi HC 3. CIT Vs. Indo American Jewellery Lt., ITA No. 1053 of 2012. 6.7 The ld. DR, on the other hand, relied on the orders of TPO and DRP. 6.8 Considered the rival submissions and perused the material facts on record. Similar issue arose in assessee's own case for AY 2011- 12, wherein the coordinate bench has held as under: "9. We have considered the rival contentions. It is well accepted....
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....PO 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 raised by assessee including additional grounds are allowed." As the issue under consideration is materially identical to that of AY 2011-12, following the decision therein, we allow the grounds raised by the assessee on this issue and accordingly interest charged on mobilization advances are deleted. 7. Ground Nos. 10a to 20g relate to ALP adjustment in respect of international transaction of work contract expenses for an amount of Rs. 195,72,44,551/-. 7.1 The TPO observed that the analy....
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.... 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 After applying the average margins of the comparables to the financials of the assessee, the results are as under: Description Amount Arm's length price 4.95% Actual works contract expenses paid 29836044988 Arm's Length Margin (%) (ALM(OP/OR) 3.92% Transfer price (Margin of Singapore Pte) with higher range +/-5% of 10.19%), hence not within arm's length 10.48% Excess margin over and above the arm's length 6.56% Adjustment u/s 92CA (29836044988*6.56% 195,72,44,551 7.4 Aggrieved, the assessee raised following objections before the DRP: * The ld. TPO erred in not providing an opportun....
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.... 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 carried out but no objection was raised by the assessee even in those years, obviously because no adjustments were proposed and made. In the current year the assessee is objecting the same which clearly shows it is taking contradictory stands year on year on similar analysis i.e. objecting to the adjustment when made and not objecting when no adjustment made on similar facts and circumstances. Hence, we have no hesitation in upholding the order of the TPO and rejecting contentions of the assessee." 7.6 Aggrieved by the order of DRP, the assessee is in appeal before us. 7.7 Ld. AR of the assessee submitted that the tested party for bench marking a transaction should always be the Indian assessee and not the foreign entity. He su....
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..... 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 income returned. 8.2 When the assessee objected before the DRP, it held that mere certificate without supporting evidence to indicate the expenditure had been incurred would not substantiate the claim of the assessee and the onus of discharging the claims or evidence in support of its contentions had not been met by the assessee and relying on the earlier decision, DRP upheld the action of the AO. 8.3 Aggrieved by the order of the DRP, the assessee is in appeal before us. 8.4 Ld. AR of the assessee submitted that AO may be directed to accept the sub-contract payments, as assessee received the corresponding amounts from main contractor and offered the same for taxation. He submitted that no corroborative evidence was collected to establish that the sub-contractors were bogus and only profit embedded in the purchase can be added to the income of the ass....
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.... 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 purposes." As the issue under consideration is materially identical to that of AY 2011-12, following the decision therein, AO is directed to accept the sub contract payments, as assessee received the corresponding amounts from main contractor and offered the same for taxation. following the principles laid down by the Coordinate benches, 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 purposes. 9. Ground No. 5a to 5C relate to disallowance of loss on account of foreign exchange fluctuation of Rs. 1,19,18,79,013/-. 9.1 The AO noticed that the said claim had been made as additional claim during the course of assessment proceedings by the assessee, which was not accepted by the....
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....d 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 assessment proceedings and is entitled to claim the deduction which was not claimed in the original or revised return. He relied on the following case law: 1. Mahindra & Mahindra Ltd., Vs. Addl. CIT [2013] 40 Taxmann.com 522 (Mum. Trib.) 2. Aban Offshore Ltd. Vs. DCIT, ITA No. 450/Mds/2017 Ld. AR submitted that foreign currency loss incurred on revenue account shall be allowed as revenue expenditure. For this proposition he relied on the decision in the case of CIT Vs. Woodward Governor India Pvt. Ltd., 312 ITR 254 9.5 Ld. DR relied on the orders of AO and DRP. 9.6 Considered the rival submissions and perused the material facts on record as well as the case law cited by the ld. AR. The coordinate bench of Chennai Bench in the case of Aban Offsore Ltd. (supra) held as under: 18. We have heard both the parties and perused the material on record. The issue raised by the assessee goes to the root of the matter and the assessee has taken a plea before the D....