TaxTMI 
TaxTMI 
2023 (3) TMI 352
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....nd 118 of 2016 Brightcom A.Y 2011-12. Since identical issues are involved in all these appeals filed by the assessee, and the only appeal filed by the Revenue, therefore, for the sake of convenience, these appeals were heard together and are being disposed of by this common order. ITA 365/Hyd/2015 A.Y 2010-11 (By Assessee) 2. Facts of the case, in brief, are that the assessee is a company engaged in the business of export of articles or things and computer software. It filed its return of income on 24.9.2010 declaring income of Rs. NIL after claiming deduction u/s 10A of Rs.5,24,25,966/-. The case was selected for scrutiny and statutory notices u/s 143(2) and 142(1) were issued to which the AR of the assessee appeared from time to time and filed the details Since the assessee in this case has entered into certain international transaction with its AEs, the Assessing Officer referred the matter to the TPO for determination of the ALP. The TPO vide order dated 13.01.2014 passed u/s 92CA(3) of the Income Tax Act, 1961 proposed an upward adjustment of Rs.6,14,62,097/- being the ALP of the international transactions by treating the investment of Rs.50,17,31,400/- in the subsidiaries ....
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.... under consideration. 4. The AO erred in re-categorizing the nature of asset by treating the| "Investment" as "Loan" which is not permissible u/s 145 of the Act. 5. Erred in not appreciating the fact that the transaction relating to investment doesn't fall under the purview of Transfer Pricing u/s 92B, as no income is generated from the transaction of providing Rs loans and advances to the subsidiaries of the appellant company. 6. Erred in treating the Investment in subsidiaries as "Interest free Loans" without appreciating the fact that the same is shown under the head "Investments" in the Balance Sheet as reflected from the Annual report of the assessee for the FY 2009-10. 7. Erred in not appreciating the statement of changes in stockholder's Equity in the financial statement of the AE viz., Global IT Inc, USA for the year ended 31.03.2010 wherein it is evident that the investment is disclosed as additional capital of the A.E. had increased by $1,08,82,000/-. 8. Ought to have appreciated that the assessee company has earned substantial profit from the AE (i.e., Global IT Inc, USA) which is due to investment and same is included in assessee's consolidate....
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....ed as not pressed. 6. So far as the grounds of appeal No.2 to 10 relating to part relief granted by the DRP on account of TP adjustment is concerned, the facts, in brief, are as under: 7. The TPO during the course of TP assessment noted that the assessee in its TP study has reflected the following international transactions: Name of the AE Nature of Transaction Amount in (Rs.) Method Lanco Global Systems Inc. USA Rendering of software development services 5477946 TNMM Global IT Inc. UISA - do - 541680 TNMM Techorbit Inc. USA -do- 1354200 TNMM Global IT Inc. USA Investment 501731400 CUP 8. He, therefore, asked the assessee vide show-cause notice dated 17.12.2013 to furnish the relevant details and documentary evidence with respect to investment in subsidiaries amounting to Rs.50,17,31,400/-. He also asked the assessee to explain as to why the investment should not be treated as interest free loan and interest @ 12.25% should not be charged. In response to the same the assessee filed its reply which has been reproduced by the Assessing Officer in the assessment order and which reads as under: "1. During the financial year 2009-10,....
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....The panel agrees with the views of the TPO that in respect of loans/ investments, Arms' Length interest rate to requires be determined. The transactions were entered by the taxpayer in foreign currency and the interest rates as applicable to the loans taken in the interest international financial markets should be adopted for bench marking in the rates. The panel does not agree with the contentions of the assessee. The loans were given international market by the assessee and the interest rate prevailing in the markets international should be adopted for the purpose of benchmarking the international the view of transactions. in the panel, the appropriate interest rate MUJRALT & receivable by assessee is the LIBOR. A mark up is also required on the LIBOR. The panel considers that a 2% markup on LIBOR is appropriate. Therefore, the interest rate that needs to be adopted for determination of the ALP in respect of loans given by assessee to its AE's is the LIBOR+2%. Accordingly, we direct the TPO to ascertain the LIBOR rate for 12 months period prevailing in FINANCIAL YEAR 2009-10 and adopt LIBOR+2% for interest receivable on loans given by assessee to its AE. For statistical purpo....
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....vs. ACIT reported in 48 TAxmann.com 94 iv) ITAT Hyderabad in the case of Vijay Electricals Ltd vs. Add. CIT in ITA 842/Hyd/2012 dated 31.05.2013 v) ITAT Ahmedabad in the case of Micro Inks Ltd. v. ACIT in ITA No.1668/Ahd/2006 15. He accordingly submitted that the addition made by the Assessing Officer should be deleted. 16. The learned Counsel for the assessee submitted that recategorizing the nature of the asset by treating investment as loan is not permitted u/s 145 of the I.T. Act For the above proposition, he relied on the following decisions: i) DRP Hyderabad in the case of M/s. Visu International Ltd ii) ITAT Hyderabad in the case of Hill Country Properties vs ACIT (48 Taxmann.com 94) iii) ITAT Delhi in the case of CIT v EKL Appliances. 17. The learned Counsel for the assessee in another plank of his arguments referring to the following decisions submitted that the procedure laid down u/s 92C of the Act relating to computation of ALP should be followed. i) ITAT Hyderabad in the case of Social Media India Ltd vs. ACIT in ITA No.1711/Hyd/2012 ii) ITAT Mumbai in the case of Dresser Rand India (P) Ltd vs. Add. CIT in ITA No.8753/Mum/2010 iii) ITAT Mumba....
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....stment of Rs.50,17,31,400/- in their wholly owned subsidiary M/s Global Inc, USA and the investment in equity was made for the purpose of development of software products and new technology products. It was categorically stated that against this investment the company M/s. Global I.T. Inc, US has allotted the shares copy of which is placed at page 161 of the Paper Book. Under these circumstances, the allegation of the TPO that the taxpayer did not submit the details of the investment in the AE claimed as equity investment despite numerous opportunities given by the TPO is incorrect. 21. We further find the DRP in assessee's own case for the A.Y 2008-09, copy of which is placed at page 1 to 9 of the Paper Book, at Para 21 of the order has deleted the addition of Rs.2,56,18,200/- being the ALP of the international transaction pertaining to the Arm's Length interest on the investment of Rs.14,84,25,259/-. The relevant observation of the DRP at Para 21 of the order reads as under: "21.0 The above submissions of the appellant have been duly considered by the Panel. It is clear from the consolidated profits submitted by the assessee company that the profits attributable to its wholly ....
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.... accruing to such transaction. Accordingly, the Assessing Officer/TPO is directed to delete the addition of Rs.2,56,18,200/-". 22. The Revenue has accepted the same and no appeal has been filed by the Revenue, a statement made by the learned Counsel for the assessee at the Bar which could not be controverted by the learned DR 23. Further, we find the Hon'ble Bombay High Court in the case of Vodafone India Services (P) Ltd vs. Union of India reported in (2014) 368 ITR 1 has held that the issue of shares at a premium by the assessee to its nonresident holding company does not give right to any income from an admitted international transaction and therefore, there is no occasion to apply Chapter X in such cases. 24. We find the Coordinate Bench of the Tribunal in the case of Prithvi Information Solutions Ltd vs. DCIT in ITA No.472/Hyd/2014 dated 25.12.2014 for the A.Y 2009-10 has also decided an identical issue and held that if the investment is in the nature of equity then they cannot be treated as loans and advances and therefore, it cannot come within the purview of section 92B of the I.T. Act. Since admittedly the assessee has furnished the relevant details before the TPO ....
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.... the FIRCs and consider the export turnover to the extent the proceeds are released in convertible foreign exchange within the stipulated time limit or within the extended time if any given supported by relevant certificates and accordingly recompute the deduction allowable u/s.10A. For statistical purpose, we treat the grounds at S.No.15, 16 as partly allowed and ground No.12 is rejected considering as general in nature. 26. We have heard the rival arguments by both sides. We find the provisions of section 144C(8) reads as under: "(8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order." 27. As per the above provision, although the DRP has no power to set aside any proposed variation or issue any direction under sub-section (5) for further inquiry and passing of the assessment order, however, the Tribunal has the power to set aside any issue to the file of the Assessing Officer with direction to verify the details. Since the onus is on the assessee to prove to the....
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....n the result, appeal of the assessee is partly allowed for statistical purposes. ITA No.451/Hyd/2015 - A.Y 2010-11 (By assessee) 32. The grounds raised by the assessee are as under: "1. Erred in passing the order u/s 143(3) r.w.s 144C(13) on date 27.02.2015 which is beyond one month from the end of the month in which such DRP directions are received dated 24.12.2014. 2. Erred in making the addition of Rs.7,05,54,464/- u/s 92CA of the Act 2. in relation to the international transactions by charging interest on 3.34 (i.e. LIBOR + 2%) on investment in Associated Enterprises (AE's). 3.Erred in rejecting the TP documentation submitted by the assessee by showing inappropriate reasons and not supported by any material evidence, which is not correct. 4. The AO erred in re-categorizing the nature of asset by treating the "Investment" as " Loan" which is not permissible u/s 145 of the Act. 5. Ought to have appreciated that during the financial year 2009-10, the assessee has invested an amount of Rs. 96,07,30,000/- in its wholly owned subsidiaries as additional equity investment towards expansion of its Business and shares has been allotted to the assessee Company. 6. ....
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....t Free loan" which is not permitted u/s 145 of the Act. 15. Ought to have appreciated that the provisions of transfer pricing are not applicable to the transaction of Rs. 24,58,52,364/- towards initial set up cost, as there is no income. 16. Without prejudice to the above grounds, erred in applying interest rate3.34% (i.e. LIBOR + 2%) for the whole year on the consolidated amount of advances, without considering the actual date of advances. 17. Erred in treating gain on foreign exchange fluctuation of Rs.4,22,579/- as other income without appreciating that the gain is a notional income and not a real income. 18. The assessee may add, alter or modify any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal". ITA 480/Hyd/2015 - A.Y 2010-11 (BY Revenue) 33. Aggrieved by the part relief granted by the DRP, the Revenue is in appeal before the Tribunal by raising the following grounds: "1. The Hon'ble DRP erred in holding that interest rates should be taken at LIBOR+2% as against 12.25% adopted by the Assessing Officer. 2. The Hon'ble DRP erred in holding that telecommunication charges should be excluded from "the to....
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....telecommunication charges from the total turnover for the purpose of computing deduction u/s 10B of the I.T. Act. 38.1 After hearing both sides, we find that the Assessing Officer while calculating the export turnover u/s 10A in the final order has excluded the communication expenses of Rs.33,21,679/- from the export turnover but has not excluded the same from the total turnover. When the assessee approached the DRP, the DRP directed the Assessing Officer to deduct the same from the total turnover while calculating exemption u/s 10A of the I.T. Act. We find the issue stands squarely covered in favour of the assessee and against the Revenue by a plethora of decisions. We find the Hon'ble Supreme Court in the case of HCL Technologies Ltd reported in 404 ITR 719 has observed as under: "17. The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT v. Tata Elxsi Ltd. [2012] 204 Taxman 321/17/taxman.com 100/349 ITR 98. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under Section 10A of the IT Act, the amount of communication expenses should be excluded from the total turnov....
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....ia, or where the tax rate in the country of the AE's is higher than the rate of tax in India and where the establishment of tax avoidance or manipulation of prices or establishment of shifting of profits is not possible. 3. Erred in making the addition of Rs.3,35,01,076/- u/s 92CA of the| Act by charging interest @ 2.91% (i.e.LIBOR + 2%) on investment| of Rs. 115,05,06,437/- made in Associated Enterprises during the year under consideration. 4. Ought to have appreciated the fact that out of total investment of Rs. 115,05,06,437/- in AE's, an amount of Rs. 115,05,06,437/- and Rs.7,33,277/- has been invested in AE's towards the additional equity capital and equity capital respectively. 5. Erred in making the adjustment without appreciating the fact that 5. the share were already allotted to the assessee and have produced| share certificates. 6. Ought to have appreciated that for the AY 2008-09 in the appellant's own case, the Honourable DRP has deleted the addition made in respect of investment made in respect of| interest charged in investments in subsidiaries. Erred in not appreciating the fact that the transaction relating to 7. investment doesn'....