TaxTMI 
TaxTMI 
2015 (4) TMI 1253
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....ding that rule 8D of the income tax rules, 1961 (IT rules) has not been applied despite the fact that the mode of computation of the disallowance is similar as that has been mentioned in Rule 8D of the IT rules. 1.2 Not appreciating the directions of the DRP in correct sense that the methodology prescribed in the Rule 8D of the IT rules, should not be followed while making the disallowance. 1.3 Making the disallowance without establishing the nexus between dividend income and the expense debited to the Profit and Loss Account for the year under consideration. 2. That the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO has not recorded any reasons in the draft assessment order based on which he reached the conclusion that it was 'necessary or expedient 'to refer the matter to the Ld. Transfer Pricing Officer ('TPO') for computation of the Arm's Length Price (ÁLP'), as is required under section 92CA (1) of the Income Tax Act, 1961 ('the Act'). 3. The Ld. DRP erred both on facts and in law in confirming the Ld. AO/TPO's action of making an adjustment of Rs. 4,61,99,357 to the in....
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.... grossly erred in proposing to levy interest u/s 234B of the Act. The above ground are without prejudice to each other The appellant craves leave to alter, amend or withdraw all or any of the grounds herein or add any further grounds as may be considered necessary either before or during the hearing." 2. We have heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon. 3. The basic facts of the case are that the assessee company i.e. Motherson Sumi System Ltd. ( in short MSSL) is a leading solutions provider for automotive electrical distribution systems. The assessee company is a joint venture between Motherson Auto Pvt. Ltd., Sumitomo Wiring Systems Ltd., Japan and Nishho Iwai Corporation, Japan. MSSL's operations are mainly divided into four broad division i.e. The first division i.e. the Wiring Harness Division, manufactures Integrated Wiring Harnesses. The second division, SPBU Division, is into manufacturing of cooling fans for computer server. The 3rd Division, the PVC Wires Division, manufactures a wide range of wires for the automotive applic....
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....October 2003 7.79% 7.26% Euro 5,000,000 Motherson Sumi Systems Limited Mides (FZE) 5% April 2005 8.29% 7.26% Euro 150,000 Motherson Sumi Systems Limited Handels GmbH 4.2% October 2004 7.49% 7.26% USD 2,000,000 Motherson Electrical Wires Lanka (PVT) Ltd ('Mew. Sri Lanka) 6% April 2005 8.11% 7.26%" 4. For transfer pricing the assessee clubbed its international transactions into three classes. While manufacturing activity has been categorized into class one, receipt of interest on loan has been categorized into class two and reimbursement of expenses have been categorized into class three. The dispute in the present appeal is restricted to class two transaction raised in ground Nos. 3, 4 and 5 so far as transfer pricing is concerned. The same will be adjudicated upon in the succeeding paragraphs. 5. Besides in ground No.2, the issue raised is regarding the validity of disallowance of Rs. 20,42,826 under sec. 14A of the Act. 6. Ground No.1 is general in nature, hence, it does not need independent adjudication. 7. Ground Nos. 2, 2.i, 2.iii & 2.iii: The Assessing Officer made disallowance of Rs. 20,42,826 under s....
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....bove, the international transaction was classified by the assessee in three categories. In Class-I, was manufacturing activities. In Class-II was receipts of interests on loan and in Class-III was reimbursement of expenses. "For class-I and class-III transactions, TNNM has been selected as the most appropriate method. OP/TC has been selected as the PLI. The OP/TC of the assessee is calculated at 16.69%, while the mean OP/TC of 25 comparables has been calculated at 9.47%. For class-II transactions of receipt of loan, the assessee has used CUP method for benchmarking. The assessee has used alternate investment opportunity in the bank FD as the benchmark. It is stated that the average return earned on a bank deposit was 7.26% p.a., during the year. After adjusting for 6 months average forward premium, it is stated that the effective earning was higher than the bank FD interest amount. Therefore, the transaction are stated to be at Arm's Length. Loans to the Subsidiaries: 6MSSL has extended foreign currency loans to four of its Subsidiaries. As per TP Report, the details of these loans are provided in following table: Loan Amount Borrowing entity ....
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....ates cannot be changed year after year, therefore, the same should be considered at arm's length this year also. It was submitted that the alternative investment opportunity available with the assessee company was bank FD and the average return on a bank FD was 7.26% per annum during the period April 2006 to March 2007. The effective rate earned by the assessee was in the range of 7.79% to 8.11%. It was submitted that the assessee had conducted a corroborative analysis by examining third party loan agreements for bench marking the loan transactions by taking the overseas subsidiaries as the tested party. The credit rating of the subsidiary was determined using S&P Corporate rating criteria. Based upon the implied credit rating, a search was conducted in the LPC loan connector data base. The result of search were as under: Borrowing entity Implied Credit Rating Interest Charged Interest Rate as per the Search Motherson Sumi Systems Limited Mauritius Holdings Ltd BB- 4.5% (Euro) 4.54% Motherson Sumi Systems Limited Midest (FZE) A 5%(Euro) 2.03% Motherson Sumi Sustems Limited Handels GmbH B- 4.2% (Euro) 6 months Euribor + 205bps ....
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....r the first time, raised a contention that the assessee might have taken loan in the earlier year to advance the same to its AE in the earlier year, in fact neither the TPO nor the DRP has considered the aspect from that angel and the assesses consistently prayed before the tax authorities that the assesses has not incurred any interest cost on funds given to the AE as the source of fund is surplus available with the assessee. In the absence of any material to prove to the contrary, merely because some interest has been paid in the immediately preceding year, it cannot be assumed that the assessee borrowed funds in the immediately preceding year was the source for the purpose of advancing loans to its AE. Having regard to the overall circumstances of the case we are of the view that the issue stands squarely covered by the decision of the ITAT Delhi Bench in the case of Cotton Naturals (I) P. Ltd. Wherein the Bench observed that the CUP method is the moist appropriate method in order to ascertain arm's length price of the international transaction i.e, where the lending of money was in foreign currency to its AE the domestic prime lending rate would have no applicability and th....
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....irming the addition made by the ld. Assessing Officer ('A.O') /Ld. Transfer Pricing Officer ('TPO') to the appellant's income. 2. The Ld. A.O.Ld. DRP erred in law in making a disallowance of INR 3,980,801 under sec. 14A of the Income-tax Act ("the Act") and in doing so have grossly erred in: 2.1. making the disallowance without establishing the nexus between dividend income and the expense debited to the Profit and Loss account for the year under consideration. 2.1 Applying the provisions of Rule 8D of the Income-tax Rules, 1962 ('the Rules') in complete disregard to express provisions of sec. 14A(2) wherein it is mandate that the ld. A.O. should record its satisfaction on incorrectness of the claim of the assessee in respect of the exempt income. 2.2 Without prejudice to the contention of the Appellant that no disallowances is warranted under sec. 14A of the Act read with Rule 8D of the Rules, the Ld. A.O. erred in making the disallowances of Rs. 3,890,801 which is excessive and unreasonable as dividend income received during the year is merely Rs. 292,753. 3. That the reference made by the A.O. suffers from ....
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....y the assessee to benchmark the international transaction of interest received on loan on various incorrect/baseless statements with several infirmities in the TP Order so as to mislead the cause of justice, thereby clearly demonstrating a prejudiced mindset driven with the single-minded intention to recommend a TP adjustment. 4.6 disregarding judicial pronouncements in India in undertaking the TP adjustment. 5. The Ld. A.O. grossly erred in proposing to levy interest under sec. 234B of the Act. 6. That on the facts and circumstances of the case, and in law, the ld. A.O. grossly erred in withdrawing interest under sec. 244A of the Act. 7. That on the facts and circumstances of the case, and in law, the ld. A.O. erred in initiating penalty proceedings under sec. 271(1)(c) of the Act. The above grounds are without prejudice to each other." 23. Ground No.1 is general in nature, hence, does not need independent adjudication. 24. Ground Nos. 2, 2.1 to 2.3: In these grounds, the disallowance of Rs. 39,80,801 made under sec. 14A of the Act read with Rule 8D of the I.T. Rules, has been questioned. Since, there is no dispute that Rule 8D wa....