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2016 (3) TMI 1396
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....on, risk management and compliance services, transaction processing, technology based and knowledge based services. The assessee has four associated enterprises being wholly owned subsidiaries in the USA, UK and Poland. Apart from the above, the assessee is also having associated enterprise in France with 73% holding, subsidiary SolvCentral Com Inc USA with 90% holding, KPIT Infosystems Limited UK holding company for KPIT Infosystems GmbH, Germany with 60% holding. Thus, in all the assessee company is having 7 associated enterprises. During the period relevant to the assessment year under appeal, the assessee had undertaken various international transactions which inter alia include interest received on loans. During the period under consideration the assessee granted loan of Polish Zloty (PLN) 10,00,000 equivalent to Rs. 1,48,60,000/- to its 100% subsidiary, KPIT Infosystems Central Europe Sp. Z.o.o., Poland. On the said loan, the assessee charged interest of Rs. 1,83,793/- @ 5.47% at Warsaw Interbank Offer Rate (WIBOR) (4.47%) + 1%. The international transaction was benchmarked by assessee following Comparable Uncontrolled Price (CUP) Method. The Transfer Pricing Officer (TPO) he....
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....and 7 raised in the grounds of appeal. Thus, in view of the statement made by the ld. AR of the assessee at Bar, ground nos. 2, 4 and 7 are dismissed as not pressed. 5. The other grounds raised in the appeal in the grounds of appeal are as under: 1. The learned Dispute Resolution Panel (DRP), Transfer Pricing Officer (TPO) and the Income-tax Officer, Ward 11(3) (i.e. ITO) erred in law and on facts in deciding the taxable income of the appellant at Rs. 7,69,28,572/- instead of Rs. NIL as returned by the appellant. 3. The DRP & the TPO erred in law and on facts in making addition of Rs. 2,27,809/- to the transfer price of the International Transaction of "Charge of Interest" without appreciating the facts of the case and business prudence. 5. The DRP & the AO erred in law and on facts in restricting deduction u/s 10A of the ITA, 1961 at Rs. 39,62,57,126/- instead of Rs. 40,25,98,771/- as claimed by the appellant. 6. The DRP & the ITO erred in law in holding that the deduction u/s 10A should be computed at unit / undertaking level but should be allowed only after set-off of losses of other business units / undertakings. 8. The appellant ....
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....ction. The objections raised by the assessee against adopting BPLR are as under: "BPLR or the Lending Rates would not be correct indicative factors for the determination of the charge of Interest on Advance to the subsidiary on account of the following reasons :- • The Assesses Company is neither a banker lending money for earning interest nor has Interest Cost for these funds, since the advance has been granted out of accrual and is in the normal course of its business. • The Borrowing Company, i.e. AE is not located in India and has its operations in Poland. • In terms of the deemed opportunity costs the better relevant comparative rate would be the ''Fixed Deposit Rate" with the bank that the assessee company could otherwise earn on these funds." The ld. AR further pointed that due to frequent changing of the BPLR by all the banks, the prevalent BPLR of all the Indian Banks are not readily available in the Public Domain or any statistical database. Poland being member of European Union, the more appropriate rate for comparison would be the RFC rates for Euros. The average RFC rates for Euros being 2.80% and the highest r....
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....k i.e. Citi Bank. However, the TPO was of the view that loan given to the associated enterprises in the currency of that country was not a foreign currency deposit with associated enterprises. On the other hand, the assessee had borrowed the money on banking prime lending rates and was show caused by the TPO as to why lending rate for the purpose of comparability following CUP method should not be taken. The TPO in view of the related discussion found that the arm's length price computed by the assessee in respect of the international transactions relating to provision of interest, was not acceptable. The view of the TPO was that in normal circumstances where any advance had to be given to any unrelated entity, then the rate of interest chargeable would be higher than the BPLR. Since the higher rate of interest more than BPLR was neither ascertainable nor determinable, the TPO considered it suitable to benchmark the international transactions with benchmark of interest taken as BPLR. Accordingly, rate of 12.25% i.e. the BPLR of the SBI was taken as benchmark rate and the differential quantum of interest on the loan advanced to the subsidiaries, amounting to Rs. 4,41,74,661/- wa....
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....s was that it had advanced the loan to its associated enterprises on LIBOR+ rates i.e. 4.75%. In the totality of the facts and circumstances where the assessee has the internal CUP of operating at international rates available and since the said loan raised by the assessee at international rates was advanced to its associated enterprises, we find no merit in the order of the TPO in applying the domestic loan rates i.e. BPLR rates for benchmarking transaction of charging of interest on the loans advanced to the associated enterprises by the assessee. Where the assessee had made the borrowings on LIBOR+ rates and advanced the same at LIBOR+ rates, then the said transaction is at arm's length price and there is no merit in any adjustment to be made on this account. 16. The Chennai Bench of the Tribunal in M/s. Siva Industries & Holdings Limited Vs. ACIT, Chennai (2012) 26 taxmann.com 96 (Chennai) had held as under:- "The assessee had given the loan to the associated enterprises in US dollars, and assessee was also receiving interest from the associated enterprises in Indian rupees. Once the transaction between the assessee and the associated enterprises was in fo....
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....of the international transactions. Another aspect to be kept in mind is the plea of the assessee with regard to the interest receivable. The assessee had also raised the issue that the TPO had adopted the interest receivable from associated enterprise company at Rs. 2,86,27,089/- instead of Rs. 2,91,82,060/- which is disclosed in the audit report in Form No.3CEB. The Assessing Officer is also directed to verify the claim of the assessee in this regard and compute the arm's length price of the international transactions. Reasonable opportunity of being heard shall be afforded to the assessee by the Assessing Officer / Transfer Pricing Officer. The grounds of appeal Nos.1 and 2 raised by the assessee are thus, allowed as indicated above." 11. In view of the facts of the case and the decision of Co-ordinate Bench of the Tribunal, we hold that the DRP has erred in confirming the findings of the TPO in adopting BPLR rates. The TPO is directed to recompute the interest rate by adopting WIBOR + 1% in respect of the international transaction under appeal. Accordingly, ground no. 3 raised in the appeal is allowed. 12. The second issue raised in the present appeal is with respect t....
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....f the said income. In other words the said income did not form part of the total income and was excluded at the entity level itself. The question which arises for adjudication is whether in view of the amended provisions of section 10A of the Act, under which deduction can be claimed by an enterprises, whether the intra head adjustment of losses of certain units is to be made against the profits of other units of the same assessee, before computing the deduction under section 10A of the Act. 14. The Hon'ble Bombay High Court in Hindustan Unilever Ltd. Vs. DCIT & Anr. (supra) in an appeal relating to assessment year 2004-05 where reassessment proceedings were initiated under section 147/148 of the Act on several issues, considered the reason to believe recorded by the Assessing Officer with regard to set off of loss incurred by unit eligible for deduction u/s. 10B of the Act. The Assessing Officer had reopened the assessment on the surmise that since the income of the Crab Stick Unit was exempted from tax under section 10B, the loss of that unit was wrongly set off against the normal business income. The Hon'ble High Court noted that after the substitution of sectio....
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....e computing the deduction under section 10A of the Act. In the facts of the case before Hon'ble Supreme Court the assessee had claimed deduction from the profits and gains of the business under section 80HH r.w.s. 80-I and 80B of the Act. The Hon'ble Supreme Court held that while working out gross total income of the assessee, losses suffered by it in earlier years have to be adjusted and if gross total income of assessee is nil then the assessee would not be entitled to deduction under Chapter VI-A. 17. The authorities below have further placed reliance on the provisions of section 70(1) for the proposition of set off of loss from one source against income from another source under the same head of income. The provisions of section 10A and 10B of the Act are para materia. In such a situation the ratio laid down by the jurisdictional High Court in Hindustan Unilever Ltd. Vs. DCIT & Anr. (supra) are to be applied. The Hon'ble High Court had held that where three units of the assessee had returned profit during the course of assessment year and one unit had returned the loss, the assessee was entitled to deduction in respect of the profits of three eligible units....