AI Drafter 
TaxTMI 
TaxTMI 
2020 (4) TMI 522
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....e assessee were heard together hence, consolidated order is being passed for the sake of brevity and convenience. I.T.A.No.507/AHD/2013/A.Y. 2008-09/ By the assessee: 3. Ground No. 1 & 2: are general in nature; hence, does not require our separate adjudication. 4. Ground No.3: States that on appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income-tax (Appeals) has erred in confirming the addition made by the Learned Assessing Officer to the tune of Rs. 38,36,27,838/- being surplus on sale of shares received as gift to the book profit for taxation under section 115JB. The action of the Learned Commissioner of Income-tax (Appeals) is contrary to facts and law and deserve to be deleted. 5. Succinct facts are that the assessee company has disclosed income by way of long-term capital gain from sale of shares. The said shares were claimed by the assessee company to have been received as gift from Bilakhia family members, who are the promoters, directors of the assessee company. The assessee company had computed the holding period of the said shares as the period held by the previous owners as well as the assessee company. Since the ....
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....hat M/s. Bilag Industries Pvt. Ltd. were received by the company from three brothers mainly and other family members as a gift without any consideration. Three brothers have also transferred the shares only to their family holding company where their economic interest are equal even though the company is in substance entirely owned and run by three brothers as a separate legal entity which is the investment of three brothers. Therefore, shares received by the assessee company were held to be gift in the hands of the assessee company. Since the facts of the case for the assessment year under consideration are identical as that of assessment year 2003-04, as held by his predecessor's Ld. CIT(A), the Ld. CIT(A) held that shares which has been received by the appellant company from the Bilakhia family members constitute a gift in its hand. This ground of appeal was therefore, dismissed. 7. Being, aggrieved the assessee filed this appeal before the Tribunal. At the outset, the learned Counsel for the assessee submitted that the assessee company relied on the decision of Honourable Supreme Court in the case of the Apollo Tyres v. CIT, 255 ITR 273 (SC). However, it was submitted that t....
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.... Co. P. Ltd [2011] 338 ITR 94 (Bom), and g. CIT Vs. Akshay Textiles Trading and Agencies P. Ltd [2008] 304 ITR (Bom) 2. Proceeds on sale of gifted shares cannot be credited to P &L A/c a. Shares received as gift do not constitute 'investment' and hence gains on sale of the aforesaid shares are not required to be routed through the profit and loss account. Learned Sr. Counsel submitted that since the gift cannot be equated with investment, the Appellant is justify in crediting the sale proceeds of the gifted shares directly to capital account without routing through profit and loss account. He therefore submitted that the said credit should not be taken into account for purposes of calculation of profits under Section 115JB and the provisions of Section 115JB is not applicable in such situation. b. Reliance is placed on the following decisions: i. CIT Vs. Insanyat Trust (173 ITR 248) ii. 203/349 (Guj) iii. 209/390 (Guj) iv. 209/865 (Guj) v. 252/610 (Guj) vi. 258/712 (Guj) 3. Adopting notes to accounts does not amount to qualification. Reliance is placed on Paragraph 3.9 and in particul....
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.... rightly added the long term capital gain from sale of shares to the book profits u/s 115JB of the Act, and accordingly this grounds of appeal is decided against the assessee. This ground of appeal of the assessee is therefore dismissed. 12. Ground No.4: States that on appreciation of the facts and circumstances of the case and law, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Learned Assessing Officer/Transfer Pricing Officer in making upward adjustment of Rs. 1,80,56,250/- out of interest on loan to the AE to the income of the appellant company on account of determining the Arm's Length Price of International Transactions. The action of the learned Commissioner of Income tax (Appeals) is contrary to the facts and law and deserve to the deleted. 13. Briefly stated facts of the case are that the assessee has been created an investment company promoted by Bilakhia Group. The assessee credited a Special Purpose Vehicle (SPV) known as M-3 Holdings (Singapore) Pte Ltd [M3]". The assessee company was holding 46.2% shares in a Printing Ink Manufacturing company known as Sterling + Hostag. M3 is the subsidiary company which wholly own....
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.... the AE in the form of loan, then the provisions of transfer pricing mandate that such loan be bench marked in terms of arm's length price of the loan. A loan per se cannot be termed as quasi equity and the assessee may claim zero bench marking under this plea. Therefore, a show cause notice was issued to the assessee as to why the interest free loans to the AE should not be bench marked with reference to loans given to third party at 7.33%. The assessee furnished its reply vide letter dated 03.10.2011 which has been reproduced by the TPO at page 4 to 11 of the order of TPO. However, the TPO observed that the main contention of the assessee company is that the loan has been advanced to the AE in its capacity of only shareholder advancement of interest free loan is to ensure continuity of business and hence this substance of the transaction should be examined not its form. Once funds have been made available to the AE in the form of loan, the character of such funds remained loan unless the agreement for circumstances covering loan prove otherwise. Accordingly, the contention of the assessee company was not accepted on this issue. The TPO further observed that the action of advancin....
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....ked out to Rs. 1,80,56,250/-. Accordingly, an upward adjustment of Rs. 1,80,56,250/- was made on this account. 15. Being aggrieved, the assessee filed an appeal before the ld. CIT(A). Wherein, it was submitted that the assessee has considered the transaction to be in the shareholders domain and did not charge any interest or charges from the SPV M3. According to him, the TPO did not accept its contention that the loan transaction be considered as quasi equity or otherwise falling in the domain of shareholder's activity. The assessee has reiterated the submissions as made before the TPO. It was contended that the AE was formed as an SPV only with the object of investing in an operating Printing Ink Company and not for any financing activity/operations. The loan of USD 7 million has been given for meeting the working capital requirement of M3 and not for further lending. Therefore, the interest free loan has been given to ensure continuity of investment and easy repatriation of the money from Singapore to India as and when the AE earns any profit. In view of the same, even though the transaction has been shown as an interest free loan, the same amounts to quasi-equity. Therefor....
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....aken by Standard Chartered Bank, Mauritius for its requirements. However, the CIT(A) observed that the transaction is a loan to the AE in Singapore to meet its day to day needs if an entity in Singapore raises loan from a third party or bank, the Cyber rate would have been a bench mark at interest rate pay such loans. Apart from, this Cyber rate of interest from mark-up payable for risk margin as well as standard chartered account of transactions. The TPO has considered that the SPV's credit rating will be down by 9 notches as comparable to the rate enjoyed by the parent company. Accordingly, he has determined 4% as the risk premium apart from the SIBOR rate as per ALP for the transaction as per the transfer pricing provisions. As regards, alternative rating that if at all the ALP has to be computed as provided in Rule 10B which is the machinery provision in this regard. Apparently, the TPO has considered and compared the rate of interest, risk margin and other factors applicable to corporate bonds and similar rated instruments in India. Thereafter he has arrived at the risk premium of 4% over and above the SIBOR rate of interest. The TPO has also considered the credit rating of....
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....y expenses and for achieving the above redemption. From the aforesaid foreign loan and quasi-equity contribution from BHPL, the AE redeemed the preference shares held by BHPL and also recovered a sum of Rs. 3,22,19,944/- which is much more than the guarantee charges paid to the bank. Therefore, the ld. counsel for the assessee contended that the AE is only a SPV to hold shares in company sterling + Hostage Europe and hence not authorized to carry any other activity. Once the above shares are sold when decided by BHPL, it has to wind up itself, and bring back the proceeds to India and BHPL has to pay taxes. It was submitted that as per OECD guidelines the substances over form has not been considered by the TPO/CIT(A). The entire transactions carried out with AE is a single inter linked transaction during the year which has not been considered as such as an integrated transaction by the lower authorities. BHPL had filed TP Study report justifying the transactions as shareholder's activity and after detailed analysis justified the ALP for interest at Nil. The TPO/CIT(A) has rejected the aforesaid T P Study report and arbitrarily adopted the CUP method. The finding in the case of Perot....
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....action which could not be compared with simple loan transaction for purpose of determining ALP. The ld. counsel further has also drawn out attention, Para 10 to 14 of the said decisions in support of his contentions. 18. In the case of the assessee company, the loan has been given for ensuring continues working of the AE at Singapore. It is undisputed facts that the AE is an SPV only to hold investment and not permitted to engage in other activity and liable for bringing all the capital and profit back to India on winding up. Thus, the loan is not mere loan simplicitor as the amounts advanced are authorized with obligation to be paid up along with profits and accrued profits. The lending is thus, in the nature of quasi capital in the sense that substantive reward or true consideration for such a loan transaction is not interest simplicitor on amount advanced but opportunity to own profits and capital on certain favourable terms. It was submitted that the consideration for extending the loan simplicitor is materially distinct and different from extending a loan which is given in consideration for or mainly in consideration for, option to convert the same into capital on certain t....
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.... (Hyderabad-Trib.) relied upon by the assessee. Therefore, the transaction have to be considered as quasi-equity in nature. It was further contended that the TPO has not carried out any FAR analysis as in the case of assessee, the AE is just an extension of BHPL to hold investments and have not carried out any functions. The entire risks are borne by BHPL only and the entire investments in Sterling + Hostag has been funded as equity capital, preference capital and loan only by BHPL as part of its shareholder function. The AE itself has not employed any assets. As per the contractual terms and law, the moment this investment is sold the entire proceeds of capital and profits are to be repatriated to India compulsorily and subject the same to taxation in India. Therefore, in this manner the entire risks are to be borne by and rewards accrue to BHPL only as a result of the investments made. As per Rule 10B, adjustment for contractual terms are to be considered while applying CUP method. In this case the AE is not authorised by law to undertake any functions or pursue any business. Once BHPL decides to sell investments held, the AE has to wind up and BHPL has to bring back the en....
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....fore, considering the AE as a tested party, this becomes an internal CUP for the loan taken by the AE from BHPL. Since, there is a perfect internal CUP available, the ALP of the loan transaction should have been determined at LIBOR rate +0.75% per annum. 19. Per contra, the ld. CIT (DR) submitted that for benchmark interest rate. The AO relying on the lower authorities submitted that the benchmark rate has been correctly applied. Further, the TPO has correctly relied on the decision in the case of Perot Systems TSI v. DCIT [2010] 37 SOT 358 (Delhi-Trib). The Ld. CIT (DR) submitted that the decision of Bartronics India Ltd v. DCIT (2017) 86 taxmann.com 254 (Hyderabad-Trib.) and Cadila Healthcare Ltd. v. ACIT-Circle-1, Ahmedabad [2017] 80 taxmann.com 24 (Ahmedabad-Trib) are not applicable to the facts and circumstances of the case, in arriving at the conclusion, hence these decisions have no application in the case of assessee. 20. We have heard the rival submissions and perused the relevant material available on record. We find that the assessee is an investment company and was holding 46.2% shares in a Printing Ink Company known as Sterling + Hostag and for that purpose creat....
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....vity. This view is further supported by the letter dated 02.11.2006 placed at Paper Book Page No.18, wherein the proposal submitted by the assessee vide letter dated 07.07.2006 (Placed at Paper Book Page No. 15 to 17] was approved wherein in it is clearly mentioned that M3 Holdings (Singapore) Pte Ltd. is a SPV formed to hold investment and do not propose to engage in any other activity being SPV. Once the above shares are sold as and when decided by BHPL, it has to wind up itself, and bring back the proceeds to India and BHPL has to pay taxes. The perusal of annual accounts for A.Y. 2012-13 [placed at Paper Book Page No. 54 to 82 and particularly Paper Book Page No. 78 note 35 appended therein would show that the assessee company has resolved to wind up of M3 Holdings (Singapore) Pte Ltd. as per applicable laws of Singapore and accordingly, received dividend of Rs. 1,27,25,34,505 during A.Y.2012- 13 and Rs. 4,01,73,520/- in A.Y.2013-14 which has been duly reflected in annual accounts placed at Paper Book Page No. 55 (and Chart filed with written submissions filed by the counsel). Therefore, we are in agreement with the assessee that as per OECD guidelines, the substances over f....
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....omething much more valuable which is given as a reward to the lender and that valuable thing is the right to own capital on certain favourable terms. Therefore, the true reward as we have noted earlier, is the opportunity and privilege to own capital of the borrower on certain favourable terms. It is for this reason, that the transactions before us belong to a different genus than the act of simply giving the money to the ^borrower and fall in the category of 'quasi capital'. 11. As for. the connotations of 'quasi capital', in the context of determination of arm''s -length price under transfer pricing regulations, we may refer to the observations made by a coordinate bench of this Tribunalspeaking through one of us (i.e. the" Accountant Member), in the case of Soma Textile & Industries Ltd. v. Asst.ClT [2015] 154 ITD 745/59 taxmann.com 152 (Ahd.), as follows: '5 ........ The question, however, arises as to what are the connotations of expression 'quasi capital in the context of the transfer pricing legislation. 6. Hon'ble Delhi High Court, in the case Chryscapital Investment Advisors India Ltd. v. ACIT [(2015) 56 taxmann.co....
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.... transaction with the A E and the transaction it is being compared with. Under Rule 10B(l)(a), as a first step, the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified, and then such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the o pen market. Usually loan transactions are benchmarked on the basis of interest rate applicable on the loan transactions simplictor which, under the transfer pricing regulations, cannot be compared with a transaction which is something materially different than a loan simplictor, for example, a nonrefundable loan which is to be converted into equity. It is in this context that the loans, which are in the nature of quasi capital, are treated differently than the normal loan transactions. 9. The expression 'quasi capital', in our humble understanding, is relevant from the point of view of highlighting that a quasi capital loan or adva....
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....h loans. In the case before us, the consideration for having given the loan is, as we have noted earlier, opportunity and privilege of owning capital of the borrower on certain favourable terms. If at all the comparison of this transaction was to be done with other loan transaction, the comparison should have been done with other loans giving rise to similar privilege and opportunity to the lender. The very foundation of impugned ALP adjustment is thus devoid of legally sustainable basis. 13. Let us, at this stage, take note of the US Tax Court decision, relied upon by the TPO, in the case of Pepsi Cola Bottling Co of Puerto Rico Inc (Docket Nos. 13676-09,13677-09; order dated 20th September 2012). It has been referred to by the TPO as decision of the US Supreme Court but in fact it is a decision of the US Tax Court, broadly at the same level of judicial hierarchy as this Tribunal. This decision deals with the limited question whether a particular transaction is required to be treated as debt or as equity. The precise question, which came up for consideration of the US Tax Court, were (1) whether advance agreements issued by Pepsi Co's Netherlands subsidiaries to certa....
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....as met the approval of the DRP as well, does not, therefore, meet our approval. 15. As regards the stand of the authorities below that Irish subsidiary has shown huge profits and high operational profits @ 93%, and this fact shows that the assessee should have charged interest on commercial rates, we are unable to even understand, much less approve, this line of reasoning. It is incomprehensible as to what role profits earned from the funds raised can have in determining arm's length consideration of raising the funds, unless profit sharing is implicit in the consideration for raising the funds itself- which is neither the normal commercial practice nor the case before us. The cost of raising funds is determined much before the returns from funds so raised is even known. To hold that cost of funds raised should have been higher because the returns from funds employed by the enterprise is higher is putting cart before the horse. In the commercial world, interest does not represent any participation of profits, and it does not vary because of the profits made by the borrower from monies so raised. In any event, while determining arm's length price of a transaction, i....
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.... number of closely linked transactions. Hence, the nature of transaction as carried out by BHPL as per its objective effected a redemption of preference shares held by it to bring back its money to India which will increase its asset base and income into India. In order to redeem the preference shares, the AE do not have any funds and the BHPL has extended the loan of Rs. 22.125 Crores and carried out all necessary activities to a facilitated redemption of preference shares. This is a closely linked integrated transaction under Rule 10A(d) i.e. functioning his shareholder's function and as well as the loan extended for form shall be considered also a quasi-equity capital for the purpose of determining ALP. 22. The ld. counsel relied in the case of Bartronics India Ltd v. DCIT (2017) 86 taxmann.com 254 (Hyderabad - Trib.). "15. As regards ground No. 3 regarding addition of Rs. 1,22,27,058/- in respect of corporate guarantee provided to AE, ld. AR submitted that the corporate guarantee given to AE does not fall within the scope of international transaction u/s 92B. He submitted that the corporate guarantee is provided to AE for commercial and business expediency and the a....
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....was re-affirmed in the case of Siro Clinpharma Pvt. Ltd., Vs. DCIT (order dated 31 st March, 2016). The bench observed that transfer pricing is a legislation seeking the tax-payers to organise their affairs in a manner compliant with the norms setout. In short, it is an anti abuse legislation which tells you as to what is the acceptable behaviour but it does not trigger levy of tax in a retrospective manner because no party can be asked to do an impossibility.. Analysing further the Bench observed that though Explanation to Section 92B is stated to be c1arificatory, it has to be necessarily treated as effective from the A.Y. 2013- 2014 and in this regard, relied upon the observations of the Hon'ble Delhi High Court in the case of Skies Satellite. We have also analysed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd., (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable to the assessee has to be adopted even though other Benches ha....
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....r of funds were duly treated as investment and accordingly shares were allotted in the subsequent AY. Assessee has submitted share allotment certificate as evidence. Since the transfer of funds were duly accounted by the AE and there is no restriction on the part of the AE to allot shares in the same AY of receipt of funds, as long as the shares allotted, it gives true nature of the transaction. In the given case, even there is no outstanding balance in the books of assessee as loans and advances, the same transaction was duly justified by receiving allotted 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, 20 ITA No. 259 /Hyd/2017 Bartronics India Ltd., Hyd.. 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 fa....
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....e above transaction as not an international transaction and accordingly ground No. 1 of the assessee is allowed. Since we have adjudicated ground No. 1 as allowed, the ground Nos. 2 & 3 are only academic in nature and accordingly, dismissed." Respectfully following the decision of the coordinate bench in the said case, we are inclined to treat the above transaction as not an international transaction and accordingly the ground raised on this issue is allowed." 23. In the light of ratio of above decision, we find that the Tribunal has held that the advancing interest free loans must not necessarily be deemed to be interest earning activity and activity to capitalize opportunity cost for investing in new territories-The funds were raised for the purpose of investment in subsidiaries and on the fact that these funds were interest free and ultimately, shares were allotted, it shows that there is no adjustment need to be made, on the CUP method adopted by the AO/TPO, even if the transaction is considered as one that of international transaction. (AY. 2008-09 to 2011-12). We also note that it is only a classification of accounting entry in the books, but, what is relevant and importan....
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....x regimes to bring down the aggregate tax incidence of a multi-national group, whereas in the present case, the transaction have resulted into increase in cash inflow into India and possibility of increase of tax base in India. Further, there is no finding of fact that the transactions have been undertaken for shifting of profits to a low tax jurisdiction as against the finding given in Perot System (supra). Therefore, on an analysis of transaction as a whole and considering the observations and analysis by Hon'ble Tribunal Ahmedabad and Hyderabad in the decisions relied upon by the assessee, the transaction has to be considered as quasi-equity in nature. It was further contended that the TPO has not carried out any FAR analysis as in the case of assessee, the AE is just an extension of BHPL to hold investments and have not carried out any functions. The entire risks are borne by the assessee company only and the entire investments in Sterling + Hostag has been funded as equity capital, preference capital and loan only by BHPL as part of its shareholder function. The AE itself has not employed any assets. As per the contractual terms and law, the moment this investment is sold the ....
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.... adjustment. Therefore, reliance placed by the Learned Counsel ld. counsel has placed reliance on the following decision of Vibhav Gems Limited (2017) 88 taxmann.com 12 (Raj.)- SLP dismissed (2018) 99 taxmann.com 2 (SC) also supports his case. We have noted that, as noted by the TPO, it is wholly immaterial as to whether or not the assessee, by the virtue of this transaction, is entitled to subscribe to capital of the AE on certain concessional terms, because, in any case, the AE is a wholly owned subsidiary of the assessee and none else can subscribe to the AE's capital. What has been overlooked, however, in this process of reasoning is that the very concept of arm's length price is based on the assumption of hypothetical independence between AEs. Essentially, what is, therefore, required is visualization of a hypothetical situation in which AEs are independent of each other, and, as such, impact of intra AE association on pricing of transaction is neutralized. Once we do so, as is the compulsion of hypothesis involved in arm's length price, the fact that normally a parent company has a right to subscribe to the capital of the subsidiary at such price as suits the assessee ....
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....ngs (Singapore) Pte Ltd. has redeemed its preferential shares to the extent of Rs. 1749.06 million (US$ 38 million). Since M3 Holdings (Singapore) Pte Ltd. is a SPV and has no liquid funds, it had to borrow from the above bank for repaying the preferential shares of BHPL. The assessee company relied upon the OECD guidelines at para 1.37 and para 7.9 while submitting that in special circumstances, a loan can be treated a subscription to capital and also characterization of stewardship activities or shareholder activities undertaken by the parent companies. The assessee has further claimed that because of providing of guarantee, the AE has been able to raise funds through which it has been able to repatriate the redeemed preferential shares into the country resulting in overall at this assets base of the assessee company initiation country. The assessee company submitted that by letting the AE has raised funds in Singapore, effectively the cost of the funds have been shifted to Singapore while assets brought in the country would enable it to earn more from its investments. In support of his contention, the assessee company relied in the case of Four Soft Ltd. v. DCIT [I.T.A.No. 14....
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.... other party or not. If yes, the amount should have been recovered as cost from the AE. On both these counts, the arguments of the assesse company fail. As already stated above, as per the provisions of section 92, any cost incurred by the assessee company while providing any service or benefit to the assesse company needs to be recouped from the AE. Since the assessee has claimed that the guarantee has been given to the bank for issue of loan to the AE. The result of the loan taken by the AE is that the assessee has received redemption of the entire preferential shares 'which have been redeemed on account of the loan taken by the AE. Hence, by providing the comfort letter, the asset base of the assessee has been protected and effectively cost of funds have been shifted from the assessee to the AE. In addition, the funds of the assessee, having been invested earlier as preferential shares, have now been brought back into the country. Hence, while assessee has a bigger asset base resulting in higher income in India, the cost of funds will be borne by the AE. Without provision of the guarantee, there was no way to bring in the preferential shares issued earlier. However, the e....
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....dition to the guarantee given the appellant company also incurred bank charges to the tune of Rs. 1,78,86,359/- levied by Standard Chartered Bank. Since the AE is an SPV having no liquid funds it had to borrow from the above bank to redeem the preferential shares held by the appellant company. Accordingly to the TPO the appellant company failed to appreciate that while determining the arm's length value of a transaction, it is not relevant whether the amount has been reduced from its taxable income or not. The observations of the TPO while rejecting the submission made before him by the appellant company can be summarized as under:- The fact that an item of expenditure which has not been claimed as a deduction for taxable income do not decide the arm's length value of that transaction to be Nil. The important point to be ascertained is whether the amount has gone in to contribute towards the cost of the loan and that whether a nonrelated party would have charged this amount from other party or not. It was submitted that as per provisions of Section 92 of the Act, any cost incurred by the assessee company while providing any services or benefit to its AE, the same needs to be cha....
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....hich has not been claimed as a deduction do not result in any reduction of tax base in India. Accordingly it was submitted that the TPO ought to have accepted the fact that provision of corporate guarantee is not an international transaction as per the decision of Hon'ble ITAT Hyderabad in the case of Four Soft Limited v/s. DCIT (supra). It was requested to delete the amount of quantum of bank charges Rs. 1,78,86,359/- as ALP of the transaction. However, the CIT (A) was not satisfied with explanation and submissions of the assessee and accordingly, confirmed the findings and addition made by the AO. 29. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee has submitted that the Guarantee given for bringing back funds into the country which will increase asset base and taxable income in India. This does not result in any shifting of profit abroad rather shifts the future profits into India. The TPO has relied on plain reading of Section 92(1) and 92(2) which is not applicable owing to facts that there is no mutual arrangements to provide any service and the guarantee has been provided to enable the AE to repatriate Rs. 174.90 C....
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....14 and the corporate guarantee transaction will not be applicable to the current AY. The same view was upheld by the coordinate bench in the case of Dr. Reddy Laboratories and other benches of Tribunal. The findings given by the coordinate bench in the case of Dr. Reddy Laboratories (supra) are extracted below: "29. We have carefully considered the rival submissions and perused the record. The ITAT, Delhi Bench in the case of Bharati Airtel Ltd. (supra) has considered an identical issue which was re-affirmed in the case of Siro Clinpharma Pvt. Ltd., v. DCIT (order dated 31st March, 2016). The bench observed that transfer pricing is a legislation seeking the tax-payers to organize their affairs in a manner compliant with the norms set- out. In short, it is an anti-abuse legislation which tells you as to what is the acceptable behavior but it does not trigger levy of tax in a retrospective manner because no party can be asked to do impossibility. Analyzing further the Bench observed that though Explanation to Section 92B is stated to be clarificatory, it has to be necessarily treated as effective from the A.Y. 2013- 2014 and in this regard, relied upon the observati....
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.... and adding back the ALP and the price recorded in the books of accounts to the total income to levy tax. In the instant case BHPL itself has not claimed it as a deduction from any income and guarantee charges accordingly has been offered to taxation. The amount paid as guarantee charges has already suffered disallowance while filling return of income itself. Hence, again addition the same to total income results in double taxation. TP Study report rejected without a speaking order. BHPL has filed Transfer Pricing Documentation and has undertaken T P Study on the basis of Interest Saver (IS) approach. The conclusion of the T P Study report is in Page no.163 of the Paper Book. The TPO CIT(A) has not considered and rejected the TP Study report without a speaking order. The accuracy of the T P Study report is not disputed by the TPO/ CIT(A). When the T P Analysis of BHPL has not been disputed TP adjustment made in this regard is not as per Law. Hence, same needs to be deleted. 31. Per contra, the Ld. CIT (DR) submitted the argument of the counsel are misleading fact that Rs. 171.68 crores profit shown in year 2005 and brought back Rs. 174.90 crores. No such claim was made before TP....
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.... Crores by redeeming the preference shares issued to the AE by raising a loan from Standard Chartered Bank Mauritius which has resulted in increase in asset base and taxable income of the assessee in India. This it is a shareholder function, hence, does not amount to an international transaction. The AE had no funds available to redeem preference shares. Redemption of preference shares was undertaken by the assessee to bring back the money to India which will increase the asset base and tax base in India. The guarantee was given and guarantee commission paid to facilitate granting of loan to the AE and achieve the goal of bringing back the moneys back to India. The guarantee fee paid to the foreign bank was incurred to achieve this objective which increases the asset base and tax base in India and not as a service to the AE. In-fact when the preference shares were redeemed the aforesaid expenses has been received back along with the principle amount and there is no loss to the assessee and no deduction has been claimed on account of such payments under any head of income by the assessee. We are also of the view that the Corporate guarantee provided before 2012 is not an internat....
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....Explanation to Section 92B is stated to be clarificatory, it has to be necessarily treated as effective from the A.Y. 2013- 2014 and in this regard, relied upon the observations of the Hon'ble Delhi High Court in the case of Skies Satellite. We have also analyzed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable to the assessee has to be adopted even though other Benches have taken a different view. We, therefore, hold that the Explanation to Section 92B cannot be applied retrospectively and for the years under consideration the assessee having not incurred any costs in providing corporate guarantee it would not constitute "International Transaction" within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect." Respectfully following the above decision, we reject the treatment of corporate guarantee as internation....
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....n double taxation. TP Study report rejected without a speaking order. BHPL has filed Transfer Pricing Documentation and has undertaken T P Study on the basis of Interest Saver (IS) approach. In view of the foregoing, the upward adjustments on account of bank guarantee of Rs. 1,78,86,359/- are therefore, deleted. This ground of appeal is therefore, allowed. 36. In the result, the appeal of the assessee is allowed from A.Y. 2008-09. I.T.A.No.1415/AHD/2015/A.Y.2009-10/By Assessee: 37. Ground No. 1 & 2 are general in nature; hence, does not require our separate adjudication. 38. Ground No. 3 & 4 are against the confirmation of upward adjustment of Rs. 1,23,03,414/- out of total upward adjustment of Rs. 1,94,15,214/- made by AO/TPO on account of interest on loan to AE's while determining arm's length price of international transactions. 39. We have heard the rival submissions and perused the relevant material on record. We find that both parties have agreed that the fact for this assessment year are identical as in assessment year 2008-09 in assessee`s own case. Therefore, our findings as given in assessment year 2008-09 in Ground No. 4 above, would mutatis mutandis apply....