TaxTMI 
TaxTMI 
2023 (6) TMI 915
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...., it does not intend to press Ground nos. 2 & 3 of cross-objection relating to the action of the Ld. CIT(A) confirming transfer pricing adjustment in relation to arm's length pricing for Liaison Services and Agency Services rendered to the head office to the extent of Rs. 9,76,282/- and Rs. 17,16,207/- respectively. The Ld. AR submitted that the assessee intended to press only the Ground no. 1 raised in the cross-objection which is against the action of the Ld. CIT(A) upholding the addition made in relation to interest income of Rs. 1,98,63,023/-, which the Ld. AR has now alternatively raised by taking recourse to Rule 27 of the ITAT Rules. 3. The Ld. DR, on the other hand, opposed the admission of Cross Objection due to the inordinate delay of 1212 days and the fact that the explanation regarding the reasons for such delay was not supported by an affidavit. He also opposed the admission of the Ground No. 1 of the Cross Objections raised by the assessee through Rule 27 of the ITAT Rules. 4. We note that the assessee has been unable to justify the inordinate delay of 1212 days in filing of cross objection and has therefore sought to withdraw the same. Accordingly, the Cross Object....
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....in appeal before us. On the other hand, the assessee in Rule 27 has challenged the Ld. CIT(A)'s action of confirming the addition made by the AO in relation to the interest income earned by the HO in the hands of the assessee Branch. 6. We have heard both the parties. At the onset, the Ld. AR brought to our notice that both these issues have since decided and answered in favour of the assessee by the Hon'ble Calcutta High Court in the case of ABN AMRO Bank Vs CIT (198 taxmn 376). It is noted that identical question was framed by the Hon'ble Calcutta High Court which was as follows: "1. Whether interest payment made by the Indian branch of the appellant to its head office abroad was to be allowed as a deduction in computing the profits of the appellant's branch in India? 2. Whether in making such payment to the head office, the appellant's said branch was required to deduct tax at source under section 195 of the said Act?" 7. Answering the same in favour of the assessee, the Hon'ble High Court had held as under: "18. An unnecessary complication has been created by the interpretation made of section 40(a) (i) of the Income-tax Act read with section 195 of the Act by both th....
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....on of its income." (emphasis supplied) 8. The Ld. AR particularly brought to our notice that the Hon'ble High Court had categorically held that, (a) the Indian Branch is under no obligation to deduct tax at source u/s 195 of the Act on the interest paid to Head Office, (b) the interest income of HO is not taxable in India by virtue of Article 7 of the DTAA and (c) although the interest income of HO is not taxable in India but the Indian Branch would be entitled to claim deduction for such interest paid in its computation of income. 9. To further buttress his contention that, although the interest income of HO was not chargeable to tax in India by virtue of Article 7 of DTAA, the assessee Branch was entitled to claim deduction for the interest paid in computing its total income, the Ld. AR invited our attention to the Protocol signed between India and Germany on 19th June, 1995 of the Agreement, wherein, with reference to Article 7 (business profit), it was provided that no deduction shall be provided in respect of amount paid or charged by any PE (branch) to the Head Office by way of interest on money lent to PE (branch), except in case of banking institution. The relevant extra....
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....efit of proviso to Section 92C(2) of the Act. The TPO accordingly worked out the arm's length price at USD 4,09,416 as against the actual interest payment of USD 4,15,922 and accordingly made transfer pricing adjustment of Rs. 3,29,347/- [(415922 - 409416) * Rs. 47.69/USD]. Aggrieved by the action of the TPO, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to delete the addition by observing as follows: "4.3 I have considered the arguments of the AR and I have also examined the facts. Reuter rate quoted by the appellant are LIBOR rate. In the international money market deals for borrowing and lending for short term and long term are made between related and unrelated banks. It goes without saying that the transactions entered during the day between the unrelated parties are at arm's length prices with which the transaction between related parties can be compared. The Reuter rates are computed based on the averages of the rate of interest at which the deals are made during the day. It is therefore inherent in Reuter/LIBOR rate that they primarily represent the arithmetical mean of the rates of the interest offered and accepted in transaction between unrelate....
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....h remuneration for rendering the liaison services at Rs. 2,16,36,753/- and accordingly made transfer pricing adjustment of Rs. 65,75,135/- [Rs. 2,16,36,673 - Rs. 1,50,61,618]. Aggrieved by the order of the TPO, the assessee preferred an appeal before the Ld. CIT(A). In the appellate proceedings, the assessee objected to its FAR profiling undertaken by the TPO, and also contended that the functional & business profile of the three (3) comparable identified by the TPO were completely distinguishable. The assessee also pointed out that the computation of profit rates of these three (3) comparables suffered from apparent errors and infirmities. The assessee placed on record the financial statements of these three (3) comparables in support thereof. 17. Taking note of the above, the Ld. CIT(A) called for a remand report from the TPO, who sent his report of 31.07.2006. Considering the submissions of the assessee, findings & report of the TPO, the Ld. CIT(A) only rejected Pioneer Investcorp Ltd as a comparable. The Ld. CIT(A), however, noted that manner computation of profit rates by the TPO was not proper and worked it out at, (a) Centrum Finance Ltd. - 8.5% and (b) Integrated Enterpris....
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....n interest and finance charges and also the earning of interest formed integral part of its operating business and therefore the operating profit cannot be computed by excluding the same. We therefore do not find any infirmity in the action of the Ld. CIT(A) including both the interest income as well as interest expense & finance charges for computing the operating profit of these companies. The relevant findings of the Ld. CIT(A) in this regard, are noted to be as follows: "4.18 Centrum Capital Ltd.: The AR has taken the total receipt as per balance sheet and has not taken into account preliminary expenses of Rs. 2,700/- and loss on sale of assets of Rs. 98,151/- debited in accounts. The AR has accordingly computed the total expenditure at Rs. 7,29,14,038/- and the profit before tax of Rs. 61,96,401/-. The increase in profit is on account of exclusion of preliminary expenses of Rs. 2,700/- and loss of sale of assets of Rs. 98,151/ The AR has accordingly computed the ratio of PBT to total expenses at 8.5%. On the other hand, the TPO has computed the ratio at 44.38%, Examination of the TPO's working reveals that the TPO has excluded interest and other income of Rs. 47,93,758....
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.... Rs. 4,21,000/-and loss on sale of investments of Rs. 80,00,000/- The TPO has thus computed profit at Rs. 5,45,65,000/- and operating expenses at Rs. 17,00,28,000/-. The AR has submitted that the company is engaged in the business of providing depository participant activities, personal financial services and share transfer and registry income, etc. Expenditure on interest & bank charges is linked with the business of the company and cannot be separated from it. Similarly income from other sources consisting of interest and misc. income is also interlinked with the business. The AR has further submitted that similarly profit on share trading and loss on sale of Investment should also be taken into account for computing the expenses and operation profit. I have considered the arguments of the AR and I have examined the case records. Integrated Enterprises (India) Ltd. has earned income from brokerage, services and partly interest. Expenditure on interest and bank charges is part of the business activity and it cannot be separated. Similarly income from other sources is also interlinked with the business of providing services and therefore cannot be separated. However, profit on sh....
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....iefly stated, the facts relating to this issue are that, the assessee branch is involved in coordination and liaison between Commerzbank, Luxembourg and customer banks in India for purchase & sale of precious metals. The assessee Branch communicated enquiries/purchase/sale orders to the Luxembourg branch, which in turn, sends quote to the assessee branch. The assessee branch liaises with the customer-bank and communicates their agreement or disagreement to the deal/price to Luxembourg branch. Thereafter, the Luxembourg branch independently purchases/sales gold metals with the customer branch. The role of the assessee Branch is restricted to providing agency services to the Luxembourg Branch for which it charges a compensation of 8% markup on the cost incurred. 23. It is noted that although the TPO did not dispute the mark-up of 8% charged by the assessee but objected to the manner of quantification of the cost incurred for rendering the services. According to the assessee, it had incurred direct & indirect costs of Rs. 56,77,000/- whereas according to the TPO the total cost attributable to this activity was Rs. 97,62,858/-. Accordingly, after taking mark-up of 8%, the arm's length....
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....ndon were employed for this agency bullion division. However, as this business had significantly reduced, these two employees were also utilized for treasury operations. The assessee had accordingly allocated 50% of their salaries towards personnel cost for this agency business. The TPO, on the other hand, had allocated the entire 100% of their salaries. Additionally, the TPO noted, that the assessee had paid severance pay to one employee Mr. R Vijay Anand who left the job in April 2001, which had been not included in the personnel cost by the assessee. The TPO added the payment to Vijay Anand as well to the total personnel cost. Before the Ld. CIT(A), the assessee had substantiated with evidences like deal tickets etc., that the two employees, Shri Amit Juneja & Shri Tarun Tandon were indeed engaged in treasury division also. The Ld. CIT(A) taking note of this fact accepted the contention of the assessee that their entire 100% salary could not be allocated to the agency business but, to meet the ends of justice, he found it appropriate to hold 75% of their salaries to be allocable. We do not see any infirmity in this approach/action of the Ld. CIT(A). 29. As far as the severance ....
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....ly counted. Expenditure on EDP, HRD, legal compliance and service department are not the cost of the agency business for precious metal. That business was very small and was being taken care of by two employees alongwith their other duties. The AR has accordingly submitted that the allocation of support cost of Rs. 7,98,773/- is not justified. 5.8 The appellant had mentioned before the TPO that the support cost being the expenditure incurred on EDP, HRD, legal & compliances and service department are not to be allocated to the bullion business. The TPO had however computed these amounts and allocated a certain portion towards the bullion business as under: Support Cost : Total Support Cost : Rs. 1,54,89,780/- Total Number of employees : 59 Cost of 3.0425 employees : Rs. 7,98,773/- 5.9 The AR has submitted before me that the AO has wrongly allocated the support cost towards the bullion business. He has mentioned that this is against the industry norm. The AR has however failed to produce any documents to show as to how the allocation of support cost is against the industry norm. On the other hand, the accounting principle requires that all direct and indirect cos....