TaxTMI 
TaxTMI 
2018 (5) TMI 1945
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....on 29.01.2016 proposing Transfer Pricing adjustment and, accordingly, a draft assessment order was passed. Against such draft assessment order, the assessee preferred its objections before the DRP, and DRP has passed directions u/s 144C(5) of the IT Act on 09.12.2016. Consequent thereto, the final assessment order was passed, against which, the assessee is in appeal before us. 3. At the time of hearing, the Ld. Counsel for the assessee submitted that assessee does not wish to press grounds of appeal No. 2 and 3. Therefore, the same are rejected as not pressed. Ground No. 1 being, general in nature, needs no adjudication. 4. As regards ground no.4, we find that the assessee has raised its objections on the various issues relating to the Transfer Pricing Adjustment. One of the issues so raised in ground No. 4(i), is that the assessee as well as its AE have incurred losses and hence no Arm's Length Price adjustment can be made in respect of the international transactions with its AE. In support of his contentions, the Ld. Counsel for the assessee has placed reliance upon the following decisions: i. Apollo Health Street Vs DCIT, reported in (2014) 45 taxmann. Com 507. ii. APP....
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....issue. In view of the same, the assessee's ground of appeal No. 4(l) is rejected. 5. The next objection of the assessee in ground No. 4(b)is on the method adopted by the TPO. The assessee has adopted CPM method, whereas the TPO has adopted TNMM as the most appropriate method. At the time of hearing, the Ld. Counsel for the Assessee submitted that the assessee has no objection to the adoption of TNMM as the most appropriate method but submitted that only the segmental results of the comparable companies should be considered. He sought for such a direction to the TPO. 5.1 The Ld. DR, though relied upon the orders of the authorities below, fairly submitted that the issue may be remitted to the file of the TPO for considering the segmental results of the assessee as well as comparable companies. 5.2 In view of the agreement of the both parties, we remit the issue to the file of the TPO with a direction to consider only the segmental results of the assessee as well as the comparables, for determining at the Arm's Length Price of the international transaction.. In the result, the ground of appeal No. 4 is partly allowed. 6. As regards Ground No. 5, the Ld. Counsel for the assesse....
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....e meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect. 6.1 Respectfully following the same, we hold that the corporate guarantee is not an international transaction for the A.Y 2012-13 and the ground of appeal No. 5 is accordingly allowed. 7. As regards ground No. 6, brief facts of the case are that assessee had made advances to the tune of Rs. 23,12,33,188/- to M/s Cura Global GRC Solutions Ltd. The assessee submitted before the A.O, that no outside funds were utilized and no interest expenditure is incurred by the company in relation to giving advances to subsidiary companies. It is also submitted that the assessee did not charge any interest on similar transactions to unrelated parties. Without prejudice to the said objection, the assessee has also submitted that if rate of interest is to charged, then the appropriate rate of interest would be LIBOR plus percentage and not domestic rates as proposed by the A.O as the AE is a foreign company. The TPO, however, observed that no independent party would advance such huge funds without suitable returns. He held that under Arm's Length situation, how much rate of interest could be ear....
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....ted 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 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....
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....e documents placed on record. From the orders of the TPO as well as the AO it is not clear whether the amount advanced is for the purpose of equity or the amounts advanced originally as loans and later converted to equity. Since facts are not clear, we are unable to give any finding whether the amounts advanced were in the nature of equity or not? TPO order in fact shows that the sums were shown as outstanding and he categorized them as interest free loans. There are also opening balances pertaining to earlier year to an extent of Rs. 43,12,68,000/-. It is not known whether department has accepted the advances in earlier year without any TP adjustment. In the absence of relevant facts, it is difficult to give a finding and apply various case law. Therefore, we are of the opinion that the facts required to be examined by the AO afresh. First of all, AO has to ascertain the nature of advances given to assessee whether it is loan or equity and how they are reflected in the respective accounts in the respective years. If assessee has invested them as investment in subsidiary they would be done under the head 'investment' otherwise, the same would figure under the head 'loans and advanc....
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.... find that the assessee had outstanding receivables of nearly 37.94 crores from its AE's. The TPO held that they partake the nature of advances and therefore the assessee should have charged interest on the same after allowing reasonable period, i.e. one month credit perid. The DRP confirmed the view of the TPO and the assessee is in second appeal before us. 8.1 The Ld. Counsel for the assessee relied upon the decision of the Tribunal in the case of Batronics India Ltd. Vs DCIT (supra) and also GSS infotech Ltd. Vs ACIT (supra) in support of his contentions that no interest is chargeable on outstanding receivables from the AE and even if it is chargeable, the credit period cannot be only one month, has held by the TPO. 8.2 The DRP relied on the orders of the authorities below. 8.3 Having regard to the rival contentions and material on record we find that in the case of GSS infotech Ltd. Vs ACIT (supra), the coordinate Bench of the Tribunal, has considered similar issue and at paras 9 to 11, has held as under: "9. It was the submission of assessee that first of all, there cannot be any levy of interest as assessee is not charging interest from any other person whether AE or....
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....nable and so no interest can be levied, just because amounts are shown as 'outstanding'. Accordingly, we cancel the interest levied and allow assessee's contentions. Grounds are considered allowed". 8.4 In the case of Batronics India Ltd. Vs DCIT (supra) also the Tribunal at para 21 to 23 has held as under: "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. ....
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.... necessarily it has to provide mobilization advances to the parties. It is also noticed that assessee has advanced mobilization advances to both AEs and non -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.....