TaxTMI 
TaxTMI 
2018 (11) TMI 1578
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....ng notice u/s 143(2) of the Income-tax Act,1961 [hereinafter referred to as 'the Act'] noticing the following international transactions in Form 3CED along with transfer pricing study report: 3. AO referred the matter to the Transfer Pricing Officer (TPO) for the purpose of bench marking the above international transactions. TPO had chosen to bench mark the international transactions of interest on loans and corporate guarantee. TPO noticed that the assessee-company had advanced loans to its wholly owned subsidiary in USA, Sasken Inc and charged interest on said loan at 3.24% and the same was claimed to be at arm's length as LIBOR rate during the financial year 2010-11 relevant to assessment year 2011-12 was at 0.9%. It was claimed that since interest charged was higher than LIBOR rate of interest, the same was at arm's length and no adjustment was required in respect of interest on loan advanced to Associated Enterprises (AE), USA. As regards transaction of corporate guarantee, it was claimed that corporate guarantee provided to its AE, Sasken, OY was not international transactions at all and reliance was placed on the decision in the case of Bharti Airtel Ltd. in ITA No.5861/201....
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.... to foreign subsidiary LIBOR rate adopted by the assessee should be accepted and also submitted that said loans were subsequently i.e. on 31/03/2015 converted into equity. It was further submitted that loans were advanced only for business purpose therefore no bench marking is required. Without prejudice to the above, it is further contended that rate of interest adopted by the TPO was excessive. 6. Hon'ble DRP, after considering the objections of the assessee, had confirmed the reasoning of the TPO after giving broad analysis, factors to be taken into consideration to decide the rate of interest to be applied. In respect of corporate guarantee also, confirmed the findings of the TPO. Hon'ble DRP also confirmed the addition u/s 14A. As regards exclusion of royalty income from eligible profits for deduction u/s 10A/10AA of the Act, the stand of the AO was confirmed. As regards exclusion of expenditure incurred in foreign currency from export turnover for the purpose of computing deduction u/s 10A, Hon'ble DRP, placing reliance on the decision of the co-ordinate bench of Tribunal in the assessee's own case of for assessment years 2004-05, 2006-07 and 2008-09, directed th....
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....n Inc. USA. The entire basis of making impugned adjustment, inter alia, by considering the annual average yield for BB rated bonds for 5 years or more term at 13.46% instead of LIBOR is contrary to facts, bad in law and consequently the TP adjustment determined amounting to Rs. 1,35,24,952/- is to be deleted in entirety. Grounds on merit in respect of TP adjustment on Corporate Guarantee 6. The learned TPO has erred in concluding that corporate guarantee given to M/s Sasken OY, Finland amounting to Euro 17 Million [INR 1,033,398.000 as on 01.04.2010 and INR1.077,768.000 as on 31.03.2011; average INR 1.055,583.000] constituted 'international transaction' under section 92B of the Act. On facts and in the circumstances of the case and law applicable, corporate guarantee given was not an international transaction since it had no bearing on profits. income, losses or assets and consequently the addition of Rs. 97,I1,364/- is to be fully deleted. 7. Without prejudice, the entire basis of making impugned adjustment, inter alia, by considering the corporate bond rates is contrary to facts, bad in law and consequently the TP adjustment determined amounting to Rs. 97,11,364/- ....
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....nover while computing deduction under section 10A and 10AA of the Act. Ground relating to excessive reduction of communication expenses and insurance charges from export turnover while computing deduction under section 10A 16. The learned AO has erred in a. excluding the communication expenses of Rs. 1,58,11,331/- (comprising off courier charges Rs. 28,04,822/-, Post and Telegraph Rs. 9,37.929/- Telephone charges - office Rs. 96,26,647/- and Telephone charges - mobile Rs. 24.41,934/-) from export turnover of STPI units and SEZ units without appreciating the fact that the aforesaid expenditure were not at all incurred for the purpose of export / delivery of computer software outside India: and b. excluding the insurance charges of Rs. 1.73.99.746/- (comprising of Asset insurance charges Rs. 17.16884/- ECGC Insurance charges Rs. 50,37,621/-. Liability insurance charges Rs. 27.57,920/-. Errors and Omission (E&O) insurance charges Rs. 43,29,936/- and Employee Insurance charges Rs. 35,57.384/-) from the export turnover STPI units and SEZ units without appreciating the fact that the aforesaid expenditure were not at all incurred for the purpose of export / delivery of computer s....
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....nable the Income-tax Appellate Tribunal to decide the appeal according to law. 9. Being aggrieved by that part of directions of the Hon'ble DRP which are against revenue, the revenue is also in appeal before us in IT(TP)A No.627/Bang/2016 raising the following grounds of appeal: 1. "The directions of the Dispute Resolution Panel are opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in directing the Assessing Officer to exclude all items of expenditure from both, the Export Turnover as well as the Total Turnover. 3. For these and other grounds that may be urged at the time of hearing, it is prayed that the directions of the Dispute Resolution Panel, in so far as it relates to the above grounds may be reversed. 4. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above." 10. First, we shall take up the assessee's appeal i.e. IT(TP)A No.550/Bang/2016. Ground No.1 is general in nature and does not require any adjudication. Grounds No.2 to 4 are dismissed as not pressed during the course of hearing. 11. Ground No.5 challenges addition on account of ALP adju....
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....he Hon'ble Bombay High Court in the case of CIT vs. Tata Auto Comp. System Ltd. (374 ITR 316) rules that ALP in case of loans advanced to AE would be determined on the basis of rate of interest being charged in the country where loan is received and consumed. In the light of this position of law, we are required to adjudicate the issue of rate of interest to be charged by the assessee from its AE. In the present case, we find from the perusal of TP study report filed before us at pages 179 to 182, we find that assessee as well as TPO had not undertaken the exercise of analyzing the transaction. No material was brought on record indicating the terms of loan i.e. tenure of loan, security offered, terms of repayment of loan, currency in which loan is to be repaid etc. and RBI policy governing advancing of loans by Indian holding company to its foreign subsidiary companies credit rating etc. determination of credit rating of the lender and borrower, identification of comparable, third party loan agreements. Therefore, we remand the matter back to the TPO with a direction that assessee-company shall submit the TP study on the above loans and the TPO shall consider the analysis and bench....
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.... providing bank guarantee to its AE by adopting comparable unrelated transactions. We make it clear that as held by the Hon'ble Bombay High Court in Tata Auto Comp. System Ltd (supra), the considerations applied for issuance of corporate guarantee are distinct from that of bank guarantee. Therefore, bank guarantee commission cannot be applied. Accordingly, this ground of appeal is partly allowed for statistical purposes. 14. The next ground of appeal (Nos.10 to 13) relates to disallowance u/s 14A of the Act. During the previous year relevant to assessment year under consideration, assessee earned dividend income of Rs. 6,98,25,510/-. The assessee-company itself offered disallowance under the provisions of section 14A offering to tax a sum of Rs. 8,32,554/-. However, the AO was of the opinion that the amount of disallowance should be computed having regard to provisions of the rule 8D of Income-tax Rules, 1962. Accordingly, he computed disallowance as under: 14.1 Applying rule 8D of IT Rules, AO computed disallowance at Rs. 1,13,24,151/- after reducing disallowance offered by the assessee a sum of Rs. 8,32,564/-. The balance amount of Rs. 104,91,588/- was brought to tax by the AO.....
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....0AA of the Act. It is contended that the AO has denied the benefit without appreciating the fact that royalty income was earned from 10A and 10AA eligible units. AO denied benefit on the ground that royalty income was not derived directly from the industrial undertaking and therefore, cannot form part of eligible profits for deduction u/s 10A. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of Liberty India v. CIT [2009] 317 ITR 218. 15.1 Being aggrieved, objections were filed before the Hon'ble DRP. Hon'ble DRP also confirmed addition. 15.2 Being aggrieved, assessee is in appeal before us in the present grounds of appeal. 15.3 Learned AR of the assessee contended that royalty income was derived from eligible 10A units and there was direct nexus between business undertaking and royalty income and therefore, eligible for deduction u/s 10A. Reliance in this regard was placed on the decision of the jurisdictional High Court in the case of CIT vs. Wipro (ITA No.3204 of 2005 dated 28/02/2012) and CIT vs. Motorola India Electronics P.Ltd. (46 taxman.com 167). 15.4 On the other hand, Learned CIT(DR) vehemently contended that there was....
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....nce can be placed on the following decision of the ITAT: i. Asst. CIT vs. Anima Investment Ltd. (2000) 73 ITD 125(Delhi); ii. Asst. CIT vs. Arunodoi Apartments (P) Ltd. (2002) 123 Taxman 48(Gau.) The Courts have held that appeals are not to be decided for giving one more innings to the lower authorities in the appellate jurisdiction. i. Rajesh Babubhai Damania vs. CIT (2001) (251 ITR 541)(Guj). ii. CIT vs. Harikishan Jethalal Patel (1987) 168 ITR 472 (Guj) Remand not for the benefit of the party seeking it to fill up gaps. Even the Hon'ble jurisdiction High Court in the case of Karnataka Wakf Board vs. State of Karnataka, reported in AIR 1996 Kar.55 at pages 63 & 64 held as under: "Where the party had an opportunity of adducing evidence in the case but with open eyes failed to adduce that evidence, the case should not be remanded to give a second chance to the party to adduce that evidence. The policy of the law is that once that matter has been fairly tried between the parties, it should not, except in special circumstances, be reopened and retrieved. In a recent decision their Lordships of the Supreme Court laid down that power to order retrial after remand, where the....
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....cision of the Hon'ble Karnataka High Court in the case of CIT/ACIT vs. M/s. Mphasis Ltd.in ITA No.1075/2008 & ITA No.196/2009 and CIT/ACIT vs. M/s. Kshema Technologies Ltd.- in ITA No.703/2009 16.3 We find that the Hon'ble DRP had set aside the issue to the AO to verify exact nature of the expenditure incurred and directed the AO to follow decision of the Tribunal in assessee's own case for assessment years 2004-05,2006-07 and 2008-09 after due verification and therefore, we do not find any grievance in the direction of the Hon'ble DRP. Accordingly, we dismiss this ground of appeal as infructuous. 17. Ground No.16 challenges the amount of reduction of communication and insurance charges from export turnover so that the AO has adopted excessive amount as the amounts were not incurred on export or delivery of software outside India. This requires verification of facts. Accordingly, we remand this issue back to the file of the AO to verify the contention of the assessee. Thus, this ground of appeal is partly allowed for statistical purposes. 18. Ground No.17 challenges disallowance of loss on account of foreign exchange fluctuation on repayment of loan of Rs. 4780862/-. Dur....