TaxTMI 
TaxTMI 
2017 (9) TMI 1649
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....ted reference to the Transfer Pricing Officer (TPO) as per the provisions of section 92CA for determination of Arm's Length Price. Accordingly, the case was referred to the TPO on 25/03/2015 for determination of Arm's Length Price with the prior approval of the CIT-I, Hyderabad. 2.1 Assessee's Profile: M/s Batronics India Ltd. is formed in the year of 1990 and it has been engaged in introducing newer technologies and solutions in India based on Biometrics, RFID, POS, EAS, and smart cards etc. 2.2 International Transactions: As per 3CEB report/TP Document submitted, the international transactions are as under: AE Nature of transaction Amount (Rs.) Bartronics Middle East FZE Rendering of Software Services 11,38,06,700 Bartronics Asia Pte Ltd. Rendering of Software Services 3,42,126 2.3 Examination of TP study conducted by assessee: The assessee has carried out the economic analysis and has summarized it as under: Nature of international transaction Amount (Rs.) MAM PLI Margin of assessee Margin of compalrable Provision of software development and consulting services 1141488261 TNMM OP/OC 23.57 16.1....
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....out of the sale made to the AE. The assessee has also received certain advance from AE on which no interest is charged by AE. One of the most appropriate method to compute ALP is CUP and therefore, when there exists an internal CUP it should be considered for determining ALP of the transactions. The assessee did not charge any interest on any delayed payment irrespective of whether the sale are made to unrelated customers or AE during the year under consideration on any delayed payment irrespective of whether the sales are made to unrelated customers or AE during the year under consideration. The assessee placed reliance on the following case laws: 1. CIT Vs Indo American Jewellery Ltd(ITA No. 1053 of 2012 2. Lintas India P. Ltd vs ACIT (2013)152 TTJ 706(Mum) 3. Mastek Ltd. Vs ACIT(ITA No. 3120/Ahd/2010) 4. Evonik Degussa India Pvt Ltd Vs ACIT (2013) 55 SOT 566(Mum) 5. M/s. Nimbus Communications ltd Vs. ACIT(2013)145 ITD 582(Mum - Trib) 3.3 Comments of TPO were as under: After considering the assessee's submission, TPO concluded that in an arm's length situation any independent party would like to receive its funds within the c....
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....ll of Rs. 7,05,11,490/- was treated as adjustment u/s 92CA of IT At and the total income of the assessee was enhanced accordingly u/s 92CA(3) of the Act. 3.4 Corporate Guarantee: The TPO noticed from the financial statement that the assessee had given corporate guarantee to the AE for the amount of Rs. 67,92,81,000/- which were not reported in Form 3CEB of the year. When the assessee was show caused to submit the details of the same, it was submitted that benchmark proposed by TPO @ 2% for the corporate guarantee transaction is not required as it is not based on any scientific external or internal comparable rate for the following reasons: a) The assessee company has provided a corporate guarantee of $15 million on 08.04.2011 which was equivalent to Rs. 6792.81 lakhs keeping in view of the growth and interest of the company and well being of its subsidiaries. b) Corporate guarantee is not an international transaction based on the following judgements: i) Hon'ble ITAT, Ahmedabad in the case of Micro Ink Ltd. (ITA No. 2873/Ahd/10). ii) Videocon Industries ltd. Vs. Addl. CIT Range-3(3), Mumbai, (2012). iii) Bharti Airtel Limited....
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....r objection, other than the said statement, TPO charged the interest @ 14.75%, which was prevalent in India during FY 2011-12 and computed the interest from 01/04/2011 to 31/03/2012 as under: Rs. 3,26,11,97,000 x 14.75%/100 = Rs. 48,10,26,558/-. Thus, the arm's length price of interest on advance was Rs. 40,10,26,558/- and the shortfall of Rs. 48,10,26,558/- was treated as adjustment u/s 92CA of the Act and enhanced the total income of the assessee accordingly u/s 92CA(3) of the Act. 4. Aggrieved by the order of the TPO, the assessee preferred an appeal before the DRP. 5. As regards the objection relating to invalid transfer pricing proceedings, the DRP was, inter-alia observed that the reference to the TPO as per the CBDT guidelines is part of the scheme of verification of certain aspects of the Returns filed by the assessee for scrutiny/TP ALP verification to cross check the accuracy of the contents. This cannot be assumed to be hurting the assessee or adversarial. Therefore, the very reference to the TPO per se has no harm or damage to the assessee. Further, the DRP observed that the sovereign Government as a matter of scheme of filing of Returns is duty ....
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....count the Fee charged by the Commercial Banks. Thus, there cannot be a standard fixed rate of fee to be adopted in all the cases and that to for all the years. Therefore, it depends on the assessee to assessee and year to year, based on the prevailing circumstances. In the present case, the assessee has not produced any evidence to compare the fee by way of internal benchmark or external benchmark in the form of guarantee fee charged by the commercial Banks, before the TPO. Considering the reasoning given by the TPO in the TP order, the assessee should have produced the evidence at least before us, which he failed to do so. The TPO has adopted the guarantee fees of 2% by considering the rate of monthly bank guarantee charges indicaed by SBI for facilitating the loans to its customers as benchmark for determining the ALP of corporate guarantee given by the Assessee to its AE(para 2 page II of TP Order). Considering the facts of the matter, when there is no internal benchmark and also considering the fact that the judicial pronouncements confirmed the fee in the range of 0.25% to 3.0% year on year, we are of the view, that for the current FY, the SBI rate which is 1.8% per a....
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.... under section 92CA(3), has charged for the delay in receipt of amounts from AEs in respect of the amount outstanding for the period 01.04.2011 to 30.09.2012 stating that the assessee had not provided the details of date of invoice and actual date of realisation. Accordingly, we direct the Assessing Officer to restrict the adjustment for delay in payment till the end of the financial year in respect of the entire receivable, provided the assessee furnishes the complete details of amount due date wise in respect of each invoice raised during the current year including the balance amount due in respect of invoices raised during the earlier years, if the assessee furnishes the necessary details within 15 days of receipt of this order. However, if the assessee .fails to furnish such information and the information relating to the interest cost discussed above, within the specified time, the objection may be treated as rejected. 10. After taking into consideration the directions of the DRP, the AO passed final assessment order on 16/01/2017, as under: 1. As per the directions of the DRP, the AO adopted corporate guarantee fee of 1.8% in place of 2%. Hence, the arm's lengt....
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....fact that the appellant provided the corporate guarantee for its own investment and benefit, as a parental act/ obligation to its newly created AEs and was a procedural compliance for availing the loan. c. Erred in not considering the fact that the amendment to section 92B relating to international transaction of issuance of corporate guarantee is effective from 01.04.2012 and is prospective in nature. d. Ought to have appreciated the fact that when two divergent views are possible, the view which is favourable to assessee should be adopted e. Ought to have appreciated that the Corporate Guarantee was on account of commercial expediency as such does not have any bearing on the profits/ income of the Appellant/ AE. f. Erred in using Bank rates (SBI) for charging Corporate Guarantee fee which is not a suitable CUP as it is only a quotation but not an actual uncontrolled transaction. g. Ought to have appreciated the fact that Bank guarantees are different from corporate guarantees as the former is highly secured than the latter. 4. Addition of Rs. 48,10,26,558/- towards Interest on advances given to AE: a. Erred in making an add....
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.... respect of which international finance markets are to be adopted. Initiation of Penalty Proceedings: 6. Erred in initiating penalty proceedings under section 271 (l)(c), 271AA and 271BA of the Income Tax Act, 1961. 7. The assessee may add, alter or modify any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal. 11.1 The assessee has filed the following additional grounds of appeal relying on the judgment of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd., Vs. CIT, 229 ITR 383.: 8. The Ld. AO in his final assessment order has erred in not allowing the benefit of set off of unabsorbed depreciation loss, without giving any prior notice to the assessee in the Draft Assessment Order u/s 143(3) r.w.s 144C(1) of the I.T. Act, 1961. 9. The Ld. AO ought to have given an opportunity of being heard to the assessee regarding the disallowance of unabsorbed depreciation loss to be set off against the current year's profit in his draft assessment order thereby allowing the assessee to object the same before the Dispute resolution panel (DRP). 10. Without prejudice to the above....
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.... Accordingly, the order passed by the AO, thus, lacks jurisdiction. 14.1 In the light of the above, in the present case, the AO has passed the Draft 'Assessment' but sent demand notice and penalty notices along with the draft assessment order. Since the facts are not identical to the facts of the case laws relied on by the assessee, moreover, the AO has to pass draft assessment order as per provision and was accordingly passed by him. The accompanying notices along with the draft assessment order are only procedural mistakes, it cannot tantamount to passing of final assessment order. Accordingly ground raised by the assessee is dismissed. 15. As regards ground No. 3 regarding addition of Rs. 1,22,27,058/- in respect of corporate guarantee provided to AE, ld. AR submitted that the corporate guarantee given to AE does not fall within the scope of international transaction u/s 92B. He submitted that the corporate guarantee is provided to AE for commercial and business expediency and the assessee has not incurred any cost for providing such guarantee. 15.1 Without prejudice to the above, ld. AR submitted that the Corporate Guarantee was brought under....
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.... with the norms setout. In short, it is an anti abuse legislation which tells you as to what is the acceptable behaviour but it does not trigger levy of tax in a retrospective manner because no party can be asked to do an impossibility.. Analysing further the Bench observed that though Explanation to Section 92B is stated to be c1arificatory, it has to be necessarily treated as effective from the A.Y. 2013- 2014 and in this regard, relied upon the observations of the Hon'ble Delhi High Court in the case of Skies Satellite. We have also analysed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd., (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable to the assessee has to be adopted even though other Benches have taken a different view. We, therefore, hold that the Explanation to Section 92B cannot be applied retrospectively and for the years under consideration the assessee having not incurred any costs in providing corporate guarant....
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....ion on the part of the AE to allot shares in the same AY of receipt of funds, as long as the shares allotted, it gives true nature of the transaction. In the given case, even there is no outstanding balance in the books of assessee as loans and advances, the same transaction was duly justified by receiving allotted shares in the subsequent AY. In our considered view, there is no element of profit in the above transaction. Moreover charging of interest is depending upon the contractual obligations between the parties. In the given case, assessee has transferred funds with an intention to make investment, it cannot be treated as international transaction as held by various courts, particularly, in the case of KAR Therapeutics & Estates Pvt. Ltd. (supra) wherein the coordinate bench has held as under: " 9. Considered the submissions of both the parties and perused the material facts on record as well as the orders of revenue authorities. There is no dispute that the assessee had remitted $ 3387182 towards investment in share capital. The shares were allotted to the extent of $ 2654797 in the same AY. The subsidiary company has treated the balance remittance as interest free u....
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....ve transaction as not an international transaction and accordingly the ground raised on this issue is allowed. 21. As regards the addition of Rs. 7,05,11,490/- towards interest on receivables, the ld. AR submitted that change of nature from mobilization advances to receivables is not warranted. He submitted that as the case of non-charging of interest in the controlled transactions is not comparable with that of non charging from the international transactions, no transfer pricing adjustment can be made on this count. He submitted that since assessee company is not paying any interest on the amounts received by it from the contractor, this adjustment is not warranted. He submitted that no interest can be charged on receivables as assessee is not charging interest from both AE and Non AE for delayed payments. He relied on the following cases: 1. EKL Appliances Ltd. Vs. CIT, Delhi High Court, ITA No. 1068/2011 2. CIT Vs. Indo American Jewellery Ltd., ITA No. 1053 of 2012 3. GSS Infotech Ltd., Vs. ACIT, Hyd., ITA No. 497/Hyd/2015 4. Lanco Infratech Ltd. Vs. DCIT, ITA No. 450/Hyd/2016 22. Ld. DR, on the other hand, relied on the orders of reven....
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.... -AEs arid no interest has been charged from either party. Not only that assessee is also not required to pay any interest on the mobilization advances received, which are in fact more than the amounts advanced by assessee. Thus, there is complete uniformity in the act of assessee' in not charging interest from both AE and non-Ali; and also not paying interest/claiming interest for the advances received. Following the principles laid down by the Hon'ble Bombay High Court in the* case of Indo American Jewellery Ltd. Vs. CIT, Hon'ble Bombay High Court (ITA No. 1053 of 2012), we are of the view that there is no need for charging any interest on the amounts advanced as receivables. Since this amount is part of contract work, in our view it does not attract any adjustment under TP provisions. Moreover, advances given as part of contract work does not require any special addition, when the TPO was already examined and held that the transaction relating to 'work contract expenses' are within the ALP during the year. Thus, when the whole work contract is considered within the ALP, we are of the opinion that the advances given in the course of contract does not call for ....