TaxTMI 
TaxTMI 
2019 (3) TMI 1999
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....ecompany during the year under consideration had entered into the following international transactions with its Associated Enterprises:- (i) Management Consultancy and Advisory Services Rs. 2,49,42,286/- (ii) Corporate Guarantee Fee received Rs. 1,75,52,320/- (iii) Sale of Long-term Investment made in the shares of Associated Enterprises Rs.71,88,98,240/- In order to determine the Arm's Length Price of the aforesaid international transactions entered into by the assessee-company with its AEs, a reference under section 92CA(2) of the Act was made by the Assessing Officer to the Transfer Pricing Officer. In the order passed under section 92CA(3) on 28th day of October, 2016, the Transfer Pricing Officer accepted the price charged by the assesese-company to its A.E. for providing Management Consultancy and Advisory Services as at Arm's Length. He, however, did not accept the rate of Corporate Guarantee Fees charged by the assessee to its Associated Enterprises as at Arm's Length and by following the view taken by him in A.Y. 2011-12 in assessee's own case on a similar issue which was upheld by the Dispute Resolution Panel, he took the rate of Corporate G....
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....g grounds:- "1. Orders bad in law and on facts 1.1. That the order passed by the Ld. AO under section 143(3) read with section 144C(S) of the Income-Tax Act, 1961 ('the Act') read with the order passed by the Ld. Transfer Pricing Officer ("TPO") under section 92CA(3) of the Act and the directions issued by the Hon'ble Dispute Resolution Panel CDRP') is bad in law and void ab-initio. 1.2. That the Hon'ble DRP erred in not holding that the order of TPO and the order of the AO (in so far it relates to transfer pricing proceedings) are void ab initio as the conditions of section 92C(3) of the Act have not been satisfied. 1.3. On the facts and in the circumstances of the case and in law, the Hon'ble DRP and the Ld. TPO/AO, erred in not demonstrating that the motive of the Appellant was to shift profits outside of India by manipulating the prices charged in its international transactions, which is a pre-requisite condition to make any adjustment under the provision of Chapter X of the Act. 2. Erroneous transfer pricing adjustment on account of investment made in shares of the associated enterprise - 2.1. The Hon....
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....2-13 had held such interest rate to be LIBOR + 350 bps. 2.8. On the facts and in the circumstances of the case the Hon'ble DRP and the Ld. TPO/AO erred in not considering that the Appellant, being the parent company, was concerned with only the total amount to be invested as share capital in the concerned year, and not the number of shares to be invested per se as such, if the value alleged by the learned TPO/AO was to be considered, the Appellant would have only invested in higher number of shares and the total investment in share capital of the AE would have remained unchanged. 2.9. The Hon'ble DRP and the Ld. TPO/AO ought to have appreciated that the Share subscription in AY 2010-11 and AY 2011-12 have been made out of reserves and surplus of the Appellant i.e. out of profits, which were already taxed under the relevant provisions of the Act, and as such adjustment on account of shares subscription/ share purchase, which is made out of taxed profits would lead to double taxation. 2.10. The Hon'ble DRP and Ld. TPO/AO erred in disregarding the fact that investment in shares of the AE was a legitimate business transaction for which the Appella....
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....case, there was no basis for the AO to propose to initiate penalty proceedings under section 271(1)(C) of the Act. The Appellant submits that the above grounds are independent and without prejudice to one another". 5. We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the ld. Counsel for the assessee, Ground No. 1 raised in this appeal of the assessee is general in nature, which does not call for any specific adjudication. 6. As regards Ground No. 2, the ld. Representatives of both the sides have agreed that the issue involved therein relating to the Transfer Pricing Adjustment made on account of interest by treating the investment made by the assessee in the share capital of Associated Enterprises as deemed loans is squarely covered in favour of the assessee by the decision of the Tribunal rendered in assessee's own case for A.Y. 2010-11 vide its order dated 22.09.2017 passed in ITA Nos. 966 & 1053/KOL/2017 vide paragraphs no. 15 & 16, which read as under:- "15. We have heard the rival submissions. The preliminary issue that arises for our consideration is whether international transacti....
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....he deemed income which was charged to tax under Section 42(2) of 1922 Act was done away with under this Act. " c) The tax can be charged only on income and in the absence of any income arising, the issue of applying the measure of Arm's Length Pricing to transactional value/ consideration itself does not arise." d) If its income which is chargeable to tax, under the normal provisions of the Act, then alone Chapter X of the Act could be invoked. Sections 4 and 5 of the Act brings /charges to tax total income of the previous year. This would take us to the meaning of the word income under the Act as defined in Section 2(24) of the Act. The amount received on issue of shares is admittedly a capital account transaction not separately brought within the definition of Income, except in cases covered by Section 56(2)(viib) of the Act. Thus such capital account cannot be brought to tax as already discussed herein above while considering the challenge to the grounds as mentioned in impugned order. e) ..........The ALP is meant to determine the real value of the transaction entered into between AEs. It is a re-computation exercise to be carried out only ....
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.... therefore proceed to uphold the rate of 0.50% for the purpose of determining the arm's length rate of the guarantee commission fee." Para-6 Pg, no.10/11 2. Thomas Cook (lndia) Limited Vs ACIT[20l6]69 taxmann.com 443 (Mumbai - Trib) "6 ..... Considering the entirety of facts and circumstances of the case and on the basis of the material available no record, we, therefore proceed to uphold the rate of 0.50% for the purpose of determining the arm's length rate of the guarantee commission fee." Para-6 pg. No.5 3. Godrej Consumer Products Ltd. Vs ACIT [2016] 69 taxmann. Corn 436 "46 .... Thus, on consideration of overall facts and circumstances in the light of judicial pronouncements referred to above, we are of the considered opinion that the arm's length price of the corporate guarantee should be fixed at 0.5% Para-46, pg. No.16 4. Everest Kanto Cylinder Ltd. Vs ACIT [2015] 56 taxmann.com 361 (Mumbai - Trib.) "15 Following the earlier order of this Tribunal and also considering the internal CUP being the guarantee commission paid by the assessee to the ICICI Bank for obtaining guarantee, we hold that the arm'....
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....above decision rendered for A.Y. 2010-11 has been followed by the Tribunal to decide the similar issue in favour of the assessee even in A.Y. 2011-12 and 2012-13 vide its common order dated 17.11.2017 passed in ITA No. 121/KOL/2016 & 647/KOL/2017. Since the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to that of A.Ys. 2010-11, 2011-12 and 2012-13, we respectfully follow the orders of the Coordinate Bench of this Tribunal for A.Ys. 2010-11, 2011-12 & 2012-13 and delete the addition relating to the Transfer Pricing Adjustment made on account of Guarantee fees charged to the Associated Enterprises. Ground No. 3 of the assessee's appeal is accordingly allowed. 9. As regards the Ground No. 4, it is observed that the issue involved therein relating to disallowance under section 14A is also covered by the order of the Tribunal dated 17.11.2017 for A.Ys. 2011-12 and 2012-13 (supra), wherein the disallowance made under section 14A was deleted by the Tribunal on the ground that there was no exempt income actually earned by the assessee during the relevant previous year. To arrive at this conclusion, the Tribunal relied on th....