TaxTMI 
TaxTMI 
2020 (1) TMI 607
X X X X Extracts X X X X
X X X X Extracts X X X X
....iii) of the Act. 2. Disallowance under section 14A read with Rule 8D of Rs. 5,13,050/- and also section 115JB adjustment in this regard. 3. Mismatch in Form 26AS data 4. Short grant of TDS credit of Rs. 1,95,103/- 5. Penalty under section 271(1)(c) of the Act." 4. Brief facts of the case are that Laqshya Media Private Limited (LMPL) is a specialist out of home advertising company engaged into the business since the year 1997. The assessee entered into following international transaction during the financial year 2012-13 with its associated enterprises AEs :- Sr.No. Nature of transaction Amount (Rs.) Method adopted by assessee 1 Interest free loan given During the year Other method 2 Rs. 1,90,91 ,655/- earlier years Rs. 92,38, 10,856/- Other method 3 Fees for technical services Rs. 1,09,07,956/- Cost plus method 4 Reimbursement of expenses Rs. 5,77,387/- Other method Total 95,43,87,854/- The Transfer Pricing officer noted that assessee has given loans in tranches to the AE at an interest rate of 13% to 14% per annum a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....antee given by the assessee to AE :- 1 Name of the AE Laqshaya Media International (Mauritius) 2 Country of the AE Mauritius 3 Bank name and country Not Applicable as the Corporate Guarantee given to AE and not to the Bank 4 Currency AED (Arab Emirates Dirham) 5 Interest rate at which the loan was taken by the AE Not Applicable as the loan taken by the step down subsidiary M/s. Right Angle Media FZ LLC 6 Exchange rate during the year Rs. 14.80 (as on 31.03.2013) 7 Whether any security was given by the assessee company to the lender bank? Not applicable as the assessee company has issued the Corporate Guarantee to its AE and not to the lender bank of step-down subsidiary 8 Whether any security was taken by the assessee company from the AE? No 9 Whether the AE has taken any loan from the third party / bank without corporate guarantee? AE has not taken any loan from third party. But AE as used set corporate guarantee in turned provide guarantee to HSBC Midlist Ltd., Dubai and National Bank of Dubai, Dubai for due payment of term loan availed by right angel media FZLLC, State Subsidiary of the company form....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... year it has provided Rs. 1,90,91,655 to AE but it has not charged any interest. 10. The assessing officer obtained response from the assessee in this regard however, he held that the same was not acceptable and he computed the interest receivable on outstanding loan issued by the assessee to its AE at Rs. 12,98,09,060 benchmarking the same by adopting cup method. The observations of the Transfer Pricing officer in this regard are as under:- "At the outset, the decisions relied by the assessee not charging of interest on loan, citing the reason that it is not an international transaction cannot be accepted as per the provisions of section 92B of the Act, due to the fact that non-charging of interest has direct impact on the income of the assessee. Further, in the earlier years, the assessee itself has benchmarked the interest receivable on the above loan transactions @13 to 14% interest rate and offered the same as income. It is further seen from the annual accounts of Laqshva Media International Mauritius, for year ending 31/03/2013. the Company has received interest of USD 24,63.219 from the loans advanced to Gulf Media holding @ 15% per annum and loan advanced to Air....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te and offered the same as income, which has been accepted by the Revenue to be at ALP. Accordingly, for this year as well, the rates as per the agreement of the assessee are considered appropriate to determine the ALP of the Interest to be received on the loan advanced. 5.17.5 The details of loan outstanding at the year end 31.03.2012 is as under : Sr No Nature of transactions Details of AE Amount (Rs.) Status 1 Loans Laqshya Media International, Mauritius Loans granted during the year Rs. 1,90,91,655/- Outstanding Loans granted in earlier years Rs. 92,38,10,850/- Outstanding 5.17.6 Accordingly, the interest receivable on the above outstanding loan issued by the assessee to its AE is benchmarked as per CUP method as under : Sr.No Amount of loan Interest Rate as per the original agreement Interest receivable (Rs) 1 76,81,00,940 14% 10,75,34,132 2 15,57,09,915 13% 2,02,42,289 3 1,90,91,655 14% 20,32,638 Total 942902505 Total 12,98,09,060 5.18 The ALP interest on loan advanced by assessee to its AE is determined at Rs. 12,9....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent of business of the assessee in India/abroad. The DRP also rejected the assessee's contention that ALP of guarantee fee has been computed on ad hoc basis. It noted that assessee has not discharged its onus to benchmark the transaction and since direct cup was not available with the TPO, he has adopted an indirect cup by obtaining the rates of guarantees given by the Indian banks. The DRP also referred the TPO has given due consideration to the jurisdictional High Court order in the case of Everest canto cylinder Ltd versus DCIT 378 ITR 57 wherein following was held "In the matter of guarantee commission, the adjustment made by the TPO were based on instances restricted to the commercial banks providing guarantees and did not contemplate the issue of a Corporate Guarantee. No doubt these are contracts of guarantee, however, when they are Commercial banks that issue bank guarantees which are treated as the blood of commerce being easily encashable in the event of default, and if the bank guarantee had to be obtained from Commercial Banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing Corporate Guarantee to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsideration. That therefore for the financial year 2012-13 in the eyes of law corporate grantee was in existence and could be validly invoked against the assessee. DRP also noted that though the assessee has claimed that its statutory auditors had removed the mention of corporate guarantees from its Final Accounts, the same is not correct. The Balance Sheet of the assessee as at 31/03/2013 mentions the corporate guarantees on behalf of subsidiaries under the head 'Contingent Liabilities and Commitments'. It noted that it is also relevant to note that the DRP for AY 2011-12 and 2012-13 have also dismissed similar arguments of the assessee on the issue of corporate guarantee. Hence, it concluded that the objection no.1 of the assessee is dismissed. 14. On the issue of assessee's objection relating to adjustment of Rs. 13,98,09,060/- made by the Transfer Pricing officer on account of interest chargeable on interest free loans given to AE's the Dispute Resolution Panel referred to the order of DRP for assessment year 2012-13. Finding itself in agreement with its earlier decision it rejected the objections raised by the assessee. Aggrieved with the transfer pricing adjustm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the banks. In this regard assessee had accepted that banks were informed about the withdrawal of the corporate guarantee on 7/8/2013 which is after the date of the previous year under consideration. Therefore authorities below are quite correct in holding that in the eyes of law corporate guarantee was in existence and could be validly invoked against the assessee. The above view is also corroborated by the fact that the balance sheet of the assessee as on 31/3/2013 mentioned the corporate guarantees on behalf of subsidiaries under the head 'contingent liabilities and commitments'. Furthermore, even information to the RBI for the aforesaid withdrawal was communicated in the next financial year in the month of August. 18. In the background of aforesaid discussion in our considered opinion, the view taken by the ITAT, as above, is fully applicable and we concur with the same as we find that facts are identical. We order accordingly. 19. Adjustment pertaining to interest on loan to AE Learned counsel of the assessee reiterated the submissions that no adjustment on account of interest on loan to AE is warranted. He made various submissions in this regard. However learned couns....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e advancing an interest free loan to anyone but when such transactions are covered by the international transactions between the associated enterprise, Section 92 of the Act mandates that the income from such transactions is to be computed on the basis of arm's length price. The judicial precedents relied by the assessee, such as in the case of SA Builders Ltd. (supra), in support of the proposition that interest free advance to the subsidiary, in which assessee has deep interest, are justified on the grounds of commercial expediency are in the context of the question whether such a use of borrowed funds can be said to be for the purposes of business, and, accordingly, whether interest on borrowings for funds so used can be allowed as a deduction in computation of business income of the assessee. That is not the issue here, and these judicial precedents on the commercial expediency, therefore, have no relevance in computation of arm's length price of loan given to an associated enterprise. Similarly, learned counsel's contention that a notional income cannot be taxed, and reliance on Shoorji Vallabhdas & Co. 's case (supra) in this regard, is wholly misplac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urt rendered in Cotton naturals India Pvt. Ltd. [supra]. Since additional evidences have been placed before us for the first time which are germane to the adjudication of the issue and the fact as to the currency in which the loan was granted and the currency in which it was repayable is not quite certain, the issue requires re-appreciation by lower authorities. For the aforesaid limited purpose, the matter stand remitted back to the file of Ld. AO / TPO with a direction to the assessee to provide requisite details & information to substantiate the claim. This ground stand partly allowed for statistical purposes." 4.8 Further, against the said order, Appellant had filed the Miscellaneous Application (MA) with the Hon'ble IT AT to make the certain rectification in the above order passed by the Hon'ble Tribunal. The Hon'ble Tribunal passed the order for the MA on 12th March 2019 (Refer page no 339 to 343 of paper-book) which is duly served to the assessee as well as to the department wherein the Hon'ble ITAT while giving directions to calculate the ALP within the framework of law keeping in view the principle laid down in para 5.6 of the sai....