TaxTMI 
TaxTMI 
TaxTMI 
2017 (9) TMI 1649
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....icer (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 16.17 The TPO noted that the assessee company had discussed in brief the search procedu....
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....ethod 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 credit period allowed, and if not, would normally charge interest. Reliance was placed on the case of Logix Micro Systems Ltd. 42 SOT 525, wherein the tribunal held that a reasonable period shoul....
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....ial 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 vs. ACIT,ITA No.5816/Del/2012. iv) Redington India Ltd. Vs. JCIT,ITA No.513/Mds/2014. v) M/s. Four Soft ltd Vs. DCIT, ITA No 1495/Hyd/2010. c) A liability could arise for the guarantor if a default took place, however, this was hypothetical situa....
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.... 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 bound to verify and ensure that the IT Returns filed by the citizens are proper and as per the Law. However, considering the shortage of resources and to ease some hardship to tax payers in attending to the requirement of tax audit/TP Proceedings, the Government over the period of time, have brought down the percentage of....
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....mpare 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 annum for the relevant year is reasonable and accordingly, direct the TPO/AO to adopt the same, in place of 2%." 8. As regards the objection relating to adjustment of Rs. 48,10,26,558/- towards charging interest @ 14.75% on advances of Rs. 326,11,97,000/-, the DRP following the decision of ITAT, "D" Bench, Chennai in the case of M/s TVS logi....
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....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 length price with respect to Corporate guarantee was Rs. 1,22,27,058/-. 2. As regards the interest on loan and advances given to AE and the interest on receivables, the assessee has not furnished information within 15 days of the receipt of the DRP order. The DRP gave specific direction that in case, information is not submitted within 15 days of the receipt of the DRP ....
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....en 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 addition of Rs. 48,10,26,558/- u/ s.92CA of the IT Act, 1961 by computing the interest @ 14.75% on advances made towards investment in Bartronics Asia Pte Ltd - Singapore, Bartronics America Inc USA and Bartronics Middle East FZE. b. Ought to have appreciated the fact that the investment is made out of the internal accruals and equity raised by the assessee company for which no cost has been incurred and that no interest can be charged on such advance made. c. Ought to have appreciated the fac....
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....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, the action of the AO in not allowing the benefit of set off of unabsorbed depreciation loss against current year's profit is incorrect. 11. Furthermore the AO while making the assessment of the earlier years has not made any adjustment to the income under normal provisions, so accordingly the unabsorbed depreciation loss is available for set off against the profits of the year under consideration. 12. As regards ground Nos. 1 & 2 regarding invalid transfer pricing proceedings and invalid draft assessment order, the ld. AR submitted that the AO erred in not issuintg draft assessment order as ....
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....und 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 section 92B under Finance Act, 2012 w.e.f. AY 2013-14. It is not applicable to the current AY. For this proposition, he relied on the following cases: 1. Dr. Reddy's Laboratories, ITA No. 294/Hyd/2014 & ITA No. 458/Hyd/2015. 2. Siro Clinpharm Pvt. Ltd. Vs. DCIT, ITA No. 2876/Mum/2014 3. Bharati Airtel Ltd. Vs. ACIT, ITA No. 5816/Del/2012 4. Asian Paints Ltd. Vs. ACIT, ITA No. 7801/Mum/2010 5. Lanco Infratech Ltd. Vs. DCIT, ITA No. 450/hyd/2016 16. Ld. DR, on the other hand, submitted that even though the amended section is introduced in Finance Act, 2012, but, it is introduced with retrospective effect from 01/04/2002. Accordingly, he supported the findings of revenue authori....
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....sible 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 guarantee it would not constitute "International Transaction" within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect." Respectfully following the above decision, we reject the treatment of corporate guarantee as international transaction and consequently, ALP adjustment is not warranted on this aspect. Accordingly, the ground raised by assessee is allowed. 18. As regards addition of Rs. 48,10,26,558/- towards interest on advances given to AE, ld. AR submitted that the TPO erred in recharacterizing the nature of transactions from investment to loan which is not permissible u/s 145 of the Act. He submitted that if the amount is advanced as the share capital, the same would also be shown as share applicati....
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...." 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 unsecured loan and repayable on demand in their financial statement. In the next AY, the subsidiary company has allotted the shares on 15/03/2012. Now, can these transactions be treated as international transaction, which qualifies for ALP adjustment. In our considered view, the amount $ 732.385 is towards investment in share capital of the subsidiary outside India and the transactions are not in the nature of international transaction referred to section 92-B of the IT Act and transfer pricing provisions are not applicable as there is no income as well as there is no mutual agreement between the companies for such payment of interest. Moreover, the subsidiary company also disclosed as 'interest free. Moreover, in the similar situation with uncontrolled transaction, the allottee company in normal course of tr....
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....he 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 revenue authorities and further submitted that assessee has not submitted any details of outstanding before the TPO. 23. Considered the rival submissions and perused the material facts on record. This issue is squarely covered by the decision of the coordinate benches of ITAT, Hyderabad. In the case of GSS Infotech Ltd. (supra), the coordinate bench has held as under: "11. We have considered the issue and examined the contentions. As seen from assessee's contentions, assessee is neither charging interest on any of the receivables outstanding. There is also no basis for adopting only two months as credit period. RBI itself allows an year for the amounts to be realised, if they are in foreign exchange. Whether it is AE or non-AE, it is in the interest of business that assessee receives the foreign exchange early so that it can claim deduction u/s. 1....
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....al 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 special adjustment. Moreover, these business advances cannot be categorized as 'loans and advances' so as to consider them for adjustment. 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 g....