TaxTMI 
TaxTMI 
2021 (4) TMI 485
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....Without prejudice, he has also erred in not appreciating the fact that the items referred for the purpose of disallowance have been given to marketing personnel during various conferences and sales meets, to the customers, distributors etc. 1.4. Without prejudice, he has erred in confirming the approximate disallowances which is arbitrary without any base. 2. Adjustment made to Arm 's Length Price (ALP): 2.1. Guarantee Fees 2.1.1. The learned Commissioner of Income Tax (Appeal) has erred in confirming CUP method to arrive at ALP in respect of guarantee fee chargeable to AE for guarantee given to bank for AE & proposing the adjustment of Rs. 7,33,100/- ignoring that there is no cost incurred to the appellant and the same was for appellant's business interest. 2.2. Interest on loan to AE 2.2.1. The learned Commissioner of Income Tax has erred in directing the AO to apply the rate of interest prevalent in Romania plus a spread of 300 bps ignoring the fact that the borrowing cost of foreign currency borrowing of the appellant company works out to 1.15%." 2.1. The assessee has also raised additional grounds, the same read as under: "Additional Ground - Deduction i....
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....ent in respect of loan to AE, the ld. Counsel for the assessee submitted that the assessee had advanced loan to its AE in Romania. The assessee charged interest @3.5% from its AE. The Transfer Pricing Officer (TPO) computed arm's length interest rate @ 11.75% per annum. In first appeal, the CIT(A) held that since the loans were given in EURO, the rate of interest prevalent in Romania needs to be considered for determination of arm's length interest rate. The CIT(A) applied 300 BPS on the rate prevalent in Romania as arm's length interest rate. The ld. Counsel for the assessee pointed that the Assessing Officer so far has not given effect to the order of CIT(A). The ld. Counsel for the assessee made two fold submissions. First, the CIT(A) after having observed that the loan was given in EURO should have applied EURIBOR interest rate, as it is difficult to find interest rate prevalent in Romania. To substantiate that loan was granted in EURO, he referred to Loan Agreement at page 110 to 112 of the Paper Book. It was pointed that clause -1 & 2 of the agreement clearly state that the loan of EURO 2,50,000/- is granted by the assessee to Unique Pharmaceutical Laboratories, ....
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.... have heard the submissions made by rival sides and have examined the orders of authorities below. In ground No. 1 of the appeal, the assessee has assailed disallowance of expenditure towards gifts and sales promotion holding the same to be freebees given to doctors and medical practitioners. We find that in the immediate preceding assessment year similar disallowance on expenditure incurred towards gifts and sales promotion was made by Assessing Officer. The issue travelled to the Tribunal. The Co-ordinate Bench after considering CBDT Circular No. 5 of 2012 (supra) and various decisions rendered on this issue held as under: "7. We have considered rival submissions and perused material on record. Undisputedly, the assessee has incurred expenditure of Rs. 2,26,34,864 towards gifts, travel facilities and hospitality provided to doctors customers and medical practitioners in medical conferences held both in India and abroad. Out of the aforesaid amount, the AO Has segregated an amount of Rs. 1,25,44,723, for computing disallowance towards expenditure incurred in India. As could be seen from the assessment order, the gift items provided by the assessee are T-shirts, suit lengths, umb....
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....ailed transfer pricing adjustment of Rs. 7,33,100/- in respect of guarantee fee. The ld. Counsel for assessee has pointed that the issue of guarantee fee was decided by the Tribunal in assessee's own case for assessment year 2009-10. We find that the Co-ordinate Bench after placing reliance on the decision rendered in the case of Everest Kento Cylinders Ltd. 378 ITR 57(Bom.) held that Corporate Guarantee fee paid @ 0.5% would be at arm's length. Respectfully following the decision of Tribunal in assessee's own case in ITA No. 6317/Mum/2014 for assessment year 2009-10, the ground No. 2.1 of the appeal is partly allowed in the same terms. 8. In ground No. 2.2 of the appeal the assessee has assailed charging of interest on loan to A.E. by applying rate of interest prevalent in Romania + 300 B.P.S. The assessee has advanced loan to its Romanian A.E. As per terms of Loan Agreement the assessee has charged interest @ 3.5%. The TPO computed the ALP of interest to AE at 11.75%. In first appeal, the CIT(A) held that since the loan was granted to a Romanian entity the interest be charged at the rate prevalent in Romania + 300 B.P.S. The contention of the assessee is that since t....
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...., the Tribunal held that loan having been advanced by assessee to its AE in foreign currency, rate of interest has to be with reference to foreign currency in which loan has been advanced. Similar view has been taken in the case of DCIT vs. Teleperformance Global Services (P) Ltd. 120 taxmann.com 405 (Mum. - Trib.). The Tribunal has been consistently holding that where assessee has advanced loan to its AE, the rate of interest would be based upon rates prevailing in country where loan is utilised. 10. Thus, in the light of the facts and decisions discussed above, we find merit in the contentions of the assessee. In the instant case, it is evident from the loan agreement that the assessee had advanced loan to its AE in Romania in EURO, therefore, the interest should be charged in EURIBOR. In principle, we accept the assessee's submissions, however, to determine interest rate we deem it appropriate to restore this issue to the Assessing Officer with a direction to applying EURIBOR + base points, if required. Consequently, the ground No. 2.2 of the appeal is allowed for statistical purpose. 11. The ground No. 3 of the appeal is general in nature, hence, require no adjudication. ....
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....ice of Income Tax" (Tenth Edition), several decisions have been analyzed in the context of provisions of Section 40(a)(ii) of the IT Act, 1961. There is reference to the decision of Privy Council in CIT Vs Gurupada Dutta 14 ITR 100, where a union rate was imposed under a Village Self Government Act upon the assessee as the owner or occupier of business premises, and the quantum of the rate was fixed after consideration of the 'circumstances' of the assessee, including his business income. The Privy Council held that the rate was not 'assessed on the basis of profits' and was allowable as a business expense. Following this decision, the Supreme Court held in Jaipuria Samla Amalgamated Collieries Ltd. Vs CIT [82 ITR 580] that the expression 'profits or gains of any business or profession' has reference only to profits and gains as determined in accordance with Section 29 of this Act and that any rate or tax levied upon profits calculated in a manner other than that provided by that section could not be disallowed under this sub-clause. Similarly, this sub-clause is inapplicable, and a deduction should be allowed, where a tax is imposed by a district board on b....