TaxTMI 
TaxTMI 
2018 (12) TMI 1647
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....- made by the AO on account of Arm's Length Price adjustment. 2. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 17,94,174/- made by the AO on account of excess claim of depreciation u/s 32 of the IT Act. 3. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing." 4. Vide ground no. 1, the grievance of the department relates to the deletion of addition of Rs. 17,76,54,391/- made by the AO on account of Arm's Length Price. 5. Facts related to this issue in brief are that the assessee filed the return of income on 23.09.2008 declaring an income of Rs. 185,85,27,524/- which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act). Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO made a reference to the transfer pricing officer (TPO) in respect of international transaction entered into by the assessee with its AEs. The TPO passed the order u/s 92CA(3) of the Act on 31.10.2011 and proposed to make an addition of Rs. 17,76,54,391/- on two international transactions, namely Corporate Gu....
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....n its TP study report, has justified arm's length compliance by following TNMM. The appellant has taken a position that provision of corporate guarantee is integral part of sale transactions and hence it need not be separately benchmarked. However, the appellant has not explained how this transaction of providing corporate guarantee is part and parcel of sales transactions. I therefore, do not agree with such contention of the appellant because provision of corporate guarantee is not at all linked with sales transactions and it being an independent transaction, cannot be clubbed with sale transactions and need to be benchmarked separately. The TPO has rejected the approach of the appellant and has applied CUP as most appropriate method The TPO has gathered information from different banks in India regarding bank guarantee commission charged by the bank. Even the approach followed by TPO does not appear to be quite reasonable. Comparability norms as required for applying CUP have not been satisfied In present case, the appellant has given corporate guarantee to a foreign bank for providing loan to its foreign AE in foreign currency The situation adopted by the TPO in CUP method is o....
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.... the opinion, the GC rates of 0.53% and 1.47% benchmarked by the assessee are fair and reasonable and they should be accepted without any modification." In the case of ACIT Vs Nimbus Communications Ltd(supra), the Hon'ble ITAT Mumbai has held "We, accordingly modify the impugned order of the Id. CIT(A) on this issue and direct the A.O. to recompute the commission for guarantee given by the assessee to its Associated Enterprises @ 0.5% being the arm's length price." 5.6 As regards the loan of GBP 2.5 Million availed by Dabur Oncology Ltd UK (Dabur UK), the appellant has contended that Dabur UK has not been benefitted from the corporate guarantee given by the appellant. In my view, the contention of the appellant is not correct. The letter dated 27/05/2014 written by RBS reveals that since Dabur UK has been benefitted by the corporate guarantee provided by the appellant, the appellant needs to be remunerated for it, because in non-AE situation, no third party would have given corporate guarantee without charging any fee. The appellant contended that rate of 4.75% charged by the AO/TPO is improper and un-realistic. Further, in various rulings cited by the appellant, the rate of ....
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.... As regards the loan of USD 5.20 Millions from Hospira INC, US, the appellant has submitted that ABN AMRO Bank, UK has given a bank guarantee to Hospira Inc, US which has given the loan of USD 5.20 Millions to Dabur Oncology PLC, UK @ Libor Plus 2%. For this loan, ABN AMRO Bank UK has given bank guarantee to Hospira INC, US and charged fees @0.6% from Dabur Oncology PLC, UK. In this regard, the appellant company had given the counter guarantee to ABN AMRO Bank UK for the equal amount. For giving the said counter guarantee in the form of the corporate guarantee, the appellant company had not charged any guarantee charges/fees from Dabur Oncology PLC, UK. However, ABN AMRO Bank, UK, had charged a fee @0.6% from Dabur Oncology PLC. The appellant has submitted that Dabur Oncology Pic, UK has already paid a service fee to ABN AMRO Bank for the bank guarantee and the former cannot be asked to pay twice the guarantee for the same purpose. The appellant has further submitted that the guarantee agreement was entered between ABN Amro Bank UK and Dabur Pharma Ltd India and no guarantee charges were levied on the appellant by ABN Amro Bank. The guarantee fee was directly paid by the UK subsidi....
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.... Interest Amount in INR Crores Benchmarking in TP Study Dabur Oncology Plc, UK (in short 'Dabur UK') GBP 7% PA 143.35 Internal CUP @ 6.5%. Loan from HSBC and ABN Amro (PCFC) Dabur Pharma (Thailand) Company Ltd., Thailand (in short 'Dabur Thailand') THAI BHAT 7% PA 13.54 156.89 The interest earned on the above loans is Rs. 8,99,76,604/- The appellant has stated that the foreign loan given by the appellant was justified to be arm's length on the basis of internal CUP (availing loan from HSBC @6.50%PA) and complete details were provided to the TPO in the course of the assessment. However, the TPO disagreed with the approach of the appellant on the ground that while benchmarking the interest the appellant has not only taken the interest it is paying in India. The TPO has observed that in a situation when the Indian company has been chosen as the tested party, the comparables rates for benchmarking the interest have to be selected from the Indian domain and the rates charged by a third party to Dabur Oncology cannot be treated as CUP. The appellant has relied on different case laws and submitted that if internal CUP @ 6.5% based on loan fr....
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....ed to delete the addition made in this regard. These grounds of appeal are allowed." 8. Now the department is in appeal. The ld. Counsel for the assessee at the very outset sated that this issue is covered by the earlier common order dated 03.10.2018 of this Bench of the ITAT in assessee's own case in ITA Nos. 575 & 3495/Del/2014 for the assessment years 2005-06 and 2007-08 respectively (copy of the said order is placed at page nos. 87 to 124 of the assessee's compilation). 9. In his rival submissions, the ld. CIT DR strongly supported the order passed by the AO but could not controvert the aforesaid contention of the ld. Counsel for the assessee. 10. After considering the submissions of both the parties and the material available on the record, it is noticed that an identical issue having similar facts has already been adjudicated by this bench of the Tribunal in ITA Nos. 575 & 3495/Del/2014 for the assessment years 2005-06 and 2007-08 respectively. The relevant findings have been given in paras 10 & 10.1 of the said order which read as under: "10.0 Coming to the department's appeal for assessment year 2007- 08, it is seen that the transfer pricing adjustment comprise of two ....
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....A) in this regard that the benefit of interest saving of 1% should be shared between the AE and the assessee equally as no cogent reasoning has been given for the same and, accordingly, we deem it fit to modify the order of the Ld. Commissioner of Income Tax (A) in this regard to the extent that corporate guarantee fee @1% should be applied in the case of the assessee in place of 0.5% as has been applied by the Ld. Commissioner of Income Tax (A). We accordingly direct the Assessing Officer to re-compute the ALP for corporate guarantee fee @1%. Thus, this ground stands partly allowed. 10.1 Coming to the second limb of the transfer pricing adjustment which pertains to interest on loan, it is seen that the assessee had given loan to two foreign subsidiaries in UK and Thailand and had charged interest rate of LIBOR plus 1.1% and 7% respectively whereas the TPO had applied the interest rate at 14%. The reason for the TPO in applying interest rate of 14% was that since the assessee has chosen itself as the tested party, the rate to be applied was to be seen from the perspective of the tested party in the Indian bank and further for the reason that the loan advance of Dabur Thailand wa....
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.... reduced depreciation by Rs. 17,94,174/-. 14. Being aggrieved the assessee carried the matter to the ld. CIT(A) who deleted the addition by following the order of his predecessor for the assessment year 2007-08 and the relevant findings have been given in para 8.4 of the impugned order which read as under: "8.4 I have carefully considered the facts of the case. The issue whether subsidy of Rs. 1.50 crores received by the appellant in FY 2006-07 is revenue or capital has already been decided by the Ld. CIT(A)-XXIX in AY 2007-08 in favour of the appellant. In AY 2007-08 the Ld. CIT(A) has held that subsidy received by the appellant is in nature of capital receipt and it would not go to reduce cost of acquisition of fixed assets. In view of it, the AO is directed to delete the disallowance of depreciation of Rs. 17,94,174/- in this regard. These grounds of appeal are allowed." 15. Now the department is in appeal. The ld. Counsel for the assessee at the very outset sated that this issue is squarely covered by the earlier order dated 03.10.2018 in ITA No. 575 & 3495/Del/2014 (supra). 16. In his rival submissions, the ld. CIT DR supported the order of the AO. 17. After considering ....