AI Drafter 
TaxTMI 
TaxTMI 
2023 (3) TMI 1296
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.... (-the Act"). 2. The learned AO/ learned TPO/ Hon'ble DRP have erred in not accepting the transfer pricing analysis undertaken by the Appellant in accordance with provisions of the Act read with Income-tax Rules, 1962 ("the Rules"). 3. The learned TPO erred in law and facts by holding that the payment of interest to Associated Enterprise ("AE:) on Compulsory Convertible Debentures (``CCD") is not at arm's length and thereby erred in making an addition of INR 2,56,46,77,836/- thereby: a. Erred in transgressing their jurisdiction by questioning a genuine transaction and referring to irrelevant arguments and BEPS action plans, and thereby, concluding that CCDs are colorable instrument used to erode the base and shift profits. b. Erred in determining the ALP for payment of interest on CCDs as 'Nil' as against the interest payment made at 9% and 12%. c. Erred in not appreciating the fundamental difference between a CCD and an Equity while determining the ALP for payment of interest on CCD. d. Erred in not appreciating that CCDs are nothing but debt till the date of conversion. e. Erred in placing reliance in ....
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....e the arm's length nature of the international transaction pertaining to payment of royalty. f. Erred in not appreciating the similar licensing arrangement entered among group companies as these agreements provide persuasive value and support that the licensing of intangibles and services has been compensated as per the group policy. g. Erred in restricting royalty payment to 1% of net sales on ad-hoc basis using Comparable Uncontrolled Price Method ("CUP") despite not following the provisions prescribed in clause (a) of the sub-rule (1) of Rule 10B of the rules for determination of ALP in relation to an international transaction under CUP. 6. Without prejudice. the learned AO/ learned TPO/ Hon'ble DRP erred in ignoring the justification of ALP of payment towards royalty using TNMM as provided in the TP Report and erred in not appreciating the fact that OECD guidelines and the Tribunal rulings have approved of aggregation of closely linked transactions by applying TNMM. II. Corporate Tax 7. Disallowance of expenditure under section 14A of the Act by applying the provisions of Rule 8D of the Income-tax Rules, 1962 ("the Rules") ....
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....siness reasons, they are to be treated on a different footing from investments made only for earning exempt income. On Appeal by the Department, the Honourable ITAT has dismissed the grounds, in view of the categorical finding of the CIT(A). 7.7. The Honourable DRP erred in holding that the Appellant has not maintained separate books of account in regard to the investments made that are eligible to earn exempt income. The DRP also erred in stating that based the books of accounts maintained by the Appellant it is not possible to ascertain expenditure incurred in earning exempt income without appreciating the fact that it has not incurred any expenditure during the year towards the investments. 8. Addition of INR89,46,750 as per clause (f) of Explanation 1 to section 115JB of the Act for computing book profits 8.1. The learned AO/ Honourable DRP has erred in adding INR 89,46,750 as per clause (f) of Explanation 1 to section 115JB of the Act for computing book profits without appreciating the fact that - i. The computation provisions of section 14A(2)/(3) of the Act read with Rule 8D cannot be applied to the book profit computation and only the amo....
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....nstruction of air separate units. It is also a subsidiary of M/s. Praxair India Ltd., Mauritius. For the year under consideration, it filed its return of income on 30/11/2016 declaring a loss of Rs.315,09,87,295/-. The case was selected for scrutiny and the Ld.AO from the details filed by the assessee observed that assessee had international transaction with its associated enterprise, the details of which are as under: International Transactions as per 3CEB Particulars Payable Receivable Method used Sale of goods 48,339,693 TNMM Purchase of materials 570,079,099 TNMM Purchase of assets TNMM 2.2 The Ld.TPO observed that assessee has paid interest on Compulsory Convertible Debentures (CCDs) issued by assessee to its AE. The assessee in the TP study had aggregated the transaction of payment with other transactions and bench marked by applying TNMM as the most appropriate method. It computed its margin and held it to be at arms length. The Ld.TPO recharacterised the transaction of CCDs with as ECB loans and proposed to determine the ALP at Nil. 2.3 The Ld.TPO then noted that during the year assessee had p....
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....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, divided by face value of the CCD instrument. The debenture certificates issued clearly reflect the face value of debenture at INR at Rs.10 each. The CCDs are recorded in the financial statements in INR. The CCDs were also subsequently repaid in INR. The true copy of the statement setting out the details of payment and demand deposit transaction clearly demonstrate that the remittance is in INR. 8.6.1 The TPO and DRP erred in treating CCDs as ECBs and benchmarked the interest rate against LIBOR rate. The CCDs is a hybrid instrument and cannot be per se treated as ECB / loan. The Hyderabad Bench of the Tribunal in the case of Adama India (P.) Ltd. v. DCIT (supra) ha....
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....rrency concerned in which the loan has to be repaid. The relevant finding of the Hon'ble High Court reads as follows:- "39. The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country, in our considered opinion, must be answered by adopting and applying a commonsensical and pragmatic reasoning. We have no hesitation in holding that the interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. Interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters. Interest rates payable on currency specfic loans/ deposits are significantly universal and globally applicable. The curr....
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....#39; the special relationships only in regard to the level of interest rates and not in regard to other circumstances, such as the choice of currency. If such other circumstances were to be included in the review, there would be doubts as to where the line should be drawn, i.e., whether an examination should be allowed of the question of whether in the absence of a special relationship (i.e., financial power, strong position in the market, etc., of the foreign corporate group member) the borrowing company might not have completely refrained from making investment for which it borrowed the money. 40. The aforesaid methodology recommended by Klaus Vogal appeals to us and appears to be the reasonable and proper parameter to decide upon the question of applicability of interest rate. The loan in question was given in foreign currency i.e. US $ and was also tobe repaid in the same currency i.e. US $. Interest rate applicable to loans granted and to be returned in Indian Rupees would not be the relevant comparable. Even in India, interest rates on FCNR accounts maintained in foreign currency and different and dependent upon the currency in question. They are not dependent upon t....
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.... "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 filed by the assessee on 11.06.2017 which have been considered. As per submission, assessee has stated that out of the total 17 comparable agreements, the related party relationship between licens....
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....or year under consideration. It is also submitted by the Ld.AR that similar issue has arose in the case of the assessee for A.Ys. 2011-12 and 2012-13(supra) wherein the disallowance u/s. 14A stood deleted as there was no exempt income earned by assessee. The Ld.DR relied on orders passed by authorities below. 6.2 We have perused the submissions advanced by both sides in the light of records placed before us. 6.3 We note that Coordinate Bench of this Tribunal for A.Y. 2012- 13 has deleted the disallowance u/s. 14A by following the view taken by this Tribunal for A.Y. 2011-12 in assessee's own case as under: "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 C....
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.... kept in mind that in those cases where shares are held as 'stock-intrade', it becomes a business activity of the assessee to the deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate 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 ear....
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....air India Private Limited. 15 assessee does not receive any dividend income, no disallowance can be made u/s 14A of the Act. The relevant finding of the Hon'ble High Court of Bombay, reads as follows:- "7. Regarding question (b) -: The issue is no longer resintigra. 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 Chemvinvest Ltd. v. CIT [2015] 61 taxmann.com 1181234 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. 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 du....