TaxTMI 
TaxTMI 
2022 (2) TMI 1279
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....nge loss vi) Ground 18 with regard to Disallowance of expenditure u/s. 40a(ia) vii) Grounds 19, 20 and 22 are not pressed by the assessee viii) Ground 21 is consequential in nature. 3. The brief facts of the case The assessee is a company engaged in the business of manufacture and sale of industrial gases and construction of air separate units. The assessee is a subsidiary of M/s. Praxair India Ltd., Mauritius. The assessee filed its return of income for the asst. year 2012-13 on 29/11/2012 admitting a total loss of Rs. 63,15,18,190/-. The assessee company during the relevant assessment year has entered into certain international transactions with its AEs. Two of the international transactions the assessee entered with its AEs were payment of royalty and payment of interest on Compulsory Convertible Debentures (CCDs). The assessee in its TP study, had aggregated the transaction of payment of royalty with certain other transactions and benchmarked on application of Transactional Net Margin Method (TNMM). The assessee concluded the international transaction of payment of royalty at 4% as being at arm's length....
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....11-12 wherein the coordinate bench of this Tribunal has allowed the appeal in favour of the assessee. 11. The ld. DR relied on the written submissions. 12. We have heard the rival submissions and perused the materials on record. We notice that the coordinate bench of the Tribunal in assessee's own case (Supra) has held that- "7.4 We have heard rival submissions and perused the material on record. The Tribunal in assessee's own case for assessment year 2009-2010 in IT(TP)A No. 315/Bang/2014 (order dated 31.03.2017) and for assessment year 2010-2011 in IT(TP)A No. 361/Bang/2015 (order dated 04.06.2018) had restored the issue of determination of ALP for payment of royalty to the files of the TPO. The TPO, pursuant to the Tribunal's order, passed orders accepting the payment of royalty at 4% to be at arm's length. The relevant portion of the TPO's order for assessment year 2009-2010 reads as follows:- "3. In view of above direction of the ITAT, the assessee was asked to submit the details with respect of all comparables vide letter dated 19.06.2017. In response of the same the submission was f....
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....e adjustment made by the TPO with regard to payment of interest on compulsory convertible debentures (CCDs) by re-characterizing the same to be External Commercial Borrowings (ECB). 15. The Ld. AR submitted that this issue is also covered in assessee's own case (supra) wherein the coordinate bench of this Tribunal has allowed the appeal in favour of the assessee. 16. The ld. DR supported the decision of the lower authorities. 17. We have heard the rival submissions and perused the materials on record. We notice that the coordinate bench of the Tribunal in assessee's own case (Supra) on the issue of interest on CCDs has held that- 8.6 We have heard rival submissions and perused the material on record. The assessee during the financial year 2009-2010, entered into a debenture subscription agreement with its AEs, Praxair International Finance. In the agreement, the term "issue price" is defined as "CCD will be issued at par at Rs. 10 each". Further, the subscription considered shall be converted into INR as per the prescribed exchange rate and the number of CCDs allotted to the holders will be the subscription consideration as converted into INR,....
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.... i. India Debt Management Pvt. Ltd., IT(TP)A No. 7518/Mum/2014; ii, CIT Vs. Cotton Naturals (I) Ltd., ITA No. 23312014 (Deli-HC); iii. M/s. Brahma Center Development Pvt. Ltd., Vs. [TO, ITA No. 373/Del/2016 (ITAT Del). By respectfully following the Co-ordinate Bench and Hon'ble High Court decisions, we agree with the assessee 's contentions that the CCDs cannot be categorised as a loan and LIBOR plus two hundred basis points benchmark cannot be accepted on the facts of the case." 8.6.2 The Hon'ble Delhi High Court in the case of CIT v. Cotton Naturals (I) Pvt. Ltd. (supra) had held that the interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. The relevant finding of the Hon'ble High Court reads as follows:- "....
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....flation and other aspects. Hence, the choice of one particular currency can be just as reasonable as that of another, despite different levels of interest rates. An economic criterion for one party may be that it wants, if possible, to avoid exchange risks (for example, by matching the currency of the loan with that of the funds anticipated to be available for debt service), such as taking out a US $ loan if the proceeds in US $ are expected to become available (say from exports). If an exchange risk were to prove incapable of being avoided (say, by forward rate fixing), the appropriate course would be to attribute it to the economically more powerful party. But, exactly where there is no 'special relationship', this will frequently not be possible in dealings with such party. Consequently, it will normally not be possible to review and adjust the interest rate to the extent that such rate depends on the currency involved. Moreover, it is questionable whether such an adjustment could be based on Art. 11 (6). For Alt. 11 (6), at least its wording, allows the authorities to 'eliminate hypothetically' the special relationships only in regard to the level of interest ra....
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....m in this ground is allowed 19. The next issue is on the disallowance of expenditure u/s. 14A r.w Rule 8D. 20. The ld. AR submitted that this issue is also covered in assessee's own case (supra) wherein the coordinate bench of this Tribunal has allowed the appeal in favour of the assessee. 21. We have heard the Ld. DR and perused the materials on record. We notice that the coordinate bench of the Tribunal in assessee's own case (Supra) has held that- 9.2 We have heard rival submissions and perused the material on record. It is an undisputed fact that the assessee did not earn any exempt income during the year under consideration. It is a settled position that in the absence of any exempt income, no disallowance can be made u/s. 14A of the Act. In this context, reliance is placed on the judgment of the Hon'ble jurisdictional High Court in the case of CIT and Anr. v. Quest Global Engineering Services Pvt. Ltd. (supra), wherein it was held as follows:- "14. Now we may advert to the second substantial question of law. It is pertinent to note that for Assessment Year 2009-10 the assessee has not ear....
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....te that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even that the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes upon order to earn profits. In the result, the appeals filed by the revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove. 15. From per....
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....sp; "7. Regarding question (b) -: The issue is no longer res-integra. The facts are that the assessee had not earned any exempt, income during the year under consideration. As held earlier Delhi High Court which judgment is also followed repeatedly by our Court, in case of Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 1181 : 234 Taxman 761/375 ITR 33 (Delhi), in such a case disallowance of expenditure under section 14A of the Act would not be permissible. The decision of Delhi High Court was carried in the appeal by the revenue. The SLP has been dismissed by the Supreme Court." 9.4 In the light of the aforesaid judicial pronouncements the disallowance made u/s. 14A of the Act ought to be deleted, since the assessee was not in receipt of any exempt income during the relevant assessment year. 22. Considering the binding effect of the decision of the coordinate bench of the Bangalore Tribunal we allow this ground in favour of the assessee to hold that the disallowance made u/s. 14A is to be deleted as the assessee was not in receipt of any exempt income during the relevant assessment year. 23. The next issue for considerat....
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....ages 2164-2166 of the paper book) and the RBI's approval (pages 2216-2218 of the paper book). vi) since the loan was obtained for working capital purposes, the loss arising on account of fluctuation in foreign currency ought to be allowed as a deduction. Without prejudice, even assuming that the loan was utilized for repayment of other short term loans, such short terms loans having been obtained for working capital requirement, the exchange loss would still be an allowable deduction. vii. in the previous assessment years when the Appellant had realised gains in respect of the said loan, the same were offered to tax, which was accepted by the Revenue. The Revenue having accepted the gains to tax, and thereby having accepted the loans to be obtained for working capital purposes, cannot disallow the loss in the year under consideration. 27. The ld. DR relied on the written submissions. 28. We have heard both the parties and perused the material on record. It is a settled law that if the loan borrowed is utilized for revenue purposes, the forex loss arising against the loan should be allowed as a deduction. The Apex court in the ca....
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....e outstanding liability was in respect of trade receivables and payables and therefore loss would be on revenue account. In such circumstances, we are of the view that the CIT(A) was justified in allowing the claim made by the assessee. We find no grounds to interfere in the order of the CIT(A). Accordingly, appeal by the Revenue is dismissed. 29. We have perused the RBI approval letter where it is clearly stated that the loan is required to be used only for the purpose for which it is approved that is the general corporate purposes. We are of the considered view that the cash flow statement does not provide any basis to the finding that the amount is used for the repayment of short term loans unless there is a thorough examination is done on the inflows and outflows in the cash flow statement. We also take into consideration the fact that the assessee has offered the forex gain in respect of the same loan in the previous year and in the interest of justice it is only correct when the loss arises out of forex movement the same be allowed. Pursuant to the binding decision of the coordinate bench of the Bangalore Tribunal and based on the facts placed before us we hold that the lo....