TaxTMI 
TaxTMI 
2026 (8) TMI 1554
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....r. 3. Brief facts of the case are that the assessee e-filed its return of income on 30.11.2013, declaring total income of INR 23,85,28,970/-. The case was selected for scrutiny and since the assessee has carried out international transaction with its Associated Enterprises ("AEs"), therefore, a reference was made to the TPO for determination of Arm's Length Price ("ALP") of the international transactions. The Transfer Pricing Officer ("TPO") in terms of order dated 18.102.2016 has made following adjustments:- Sl. No. Nature of international transaction ALP determined by assessee (Rs.) 1. Loan 47,52,09,333/- 2. Manufacturing segment 11,02,91,500/- 3. Receivables 2,02,11,468/- Total 60,57,12,301/- 4. Thereafter, the AO passed the assessment order u/s 143(3) r.w.s. 144C(3) of the Act wherein total adjustment made by TPO at INR 60,57,12,301/- to the ALP has been made. Besides this, AO has further made an addition u/s 14A of INR 3,14,18,961/-. Accordingly, total income of the assessee company was assessed at INR 87,56,60,232/-. 5. Against the said order, the assessee preferred an appeal before Ld. CIT(A) who in terms of its or....
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....und of not charging interest from its AEs as well as non-AEs. 5. Whether in the facts and circumstances of the case, Ld CIT(A) was correct in law by deleting the addition made under section 14A r.w.r 8D of the Income Tax Act, 1961." 7. First we take appeal of the assessee in ITA No.5194/Del/2019 for Assessment Year 2013-14. ITA No.5194/Del/2019 [Assessment Year 2013-14] [Assessee's apepal] 8. In this appeal, assessee has challenged the action of AO in confirming the addition of INR 1,44,58,500/- out of 47,52,09,333/- made by AO/TPO on account of interest on borrowings where the AO/TPO has applied SBI PLR @ 12.6% to benchmark the interest as against interest charged at 6.5% to 9.5%. Ld.CIT(A) has confirmed the benchmarking based on LIBOR+ 300 instead of SBI PLR. Before us, Ld.AR submits that since the loans were in foreign currency therefore, benchmarking should be done in LIBOR Plus markup based on prevailing rate and further placed reliance on the Jurisdictional High Court in the case of Commissioner of Income Tax v. Cotton Naturals India (P.) Ltd. reported in [2015] 55 taxmann.com 523. 9. Heard the contentions of both the parties at length and perused the ....
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.... that repayments were done in Indian Rupees therefore, the AO/TPO has rightly applied the SBI PLI rate. Ld. CIT DR alternatively prayed that the matter may be remanded back to the file to the AO for making necessary verification of the claim of the assessee that as per the modified agreements, all the loans are receivable in US$ at the time of maturity. 9. Heard the contentions of both parties and perused the material available on record. In the instant case, the main allegation of the Revenue is that the assessee as per the modified agreement has agreed that all these loans are receivable in Indian Rupees. In this regard, Ld. AR for the assessee drew our attention to the Paper Book wherein the original agreements of all the loans are placed and as per terms of each agreement, it was provided that same were repayable in US $. Further all the modified agreements entered with the AEs are also placed in the paper book which are available at page 371 to 388. For verification purposes, we took one modified loan agreement with its AE at Mauritius which is at page 372 of the Paper Book wherein as per clause (1) specifically provides that the repayment of the loan shall be made in....
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....T DR submits that the assessee has taken CPM method as Most Appropriate Method ("MAM") for determination of ALP. The TPO has changed the selected TNMM as MAM and further included various other comparable companies for which the assessee has challenged the action before ld. CIT(A) who in terms of its order while deciding the Ground of appeal No.4 though, had confirmed TNMM as MAM however, excluded one company namely Techno Engineering Company Ltd. From the final set of valid comparable. As per ld. CIT DR while excluding this company, the ld. CIT(A) observed that the said comparable is involved in providing engineering procurement and construction services to various sectors like steel, fertilizers, metals etc. whereas the assessee is engaged in manufacturing and provision of services in the telecom sector which is totaling the different segment. 14.1. Ld. CIT DR submits that the TPO observed that this company has passed all the filters applied and functionally comparable as both are providing high quality engineering and engineering services to core and infrastructure sectors. Though under TNMM, only broader similarity is to be seen however, as observed above, both the assessee a....
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....ce all types of Aluminium Electrolytic Capacitors which conform to national and international standards. The manufacturing technology is constantly upgraded by R&D Centre of the Company which has the recognition of the Department of Scientific & Industrial Research, Ministry of Science & Technology, Govt. of India. The Company's Quality system has been conferred with the ISO 9001 accreditation by M/s KPMG. In view of the above discussion Keltron component complex ltd. shall be retained as a comparable." 18. Claim of the assessee was that it is a Government company and thus, is not comparable at all. So first we have to see whether a company can be excluded merely it is a govt. company. Any govt. company enjoys benefits of exclusiveness, price preferences and since have cheap funding/grants are having distorts operating profit margins. As compared to this, the private companies purely worked on strict environment having competition and high cost funding therefore, they are having same field to operate that a govt. company enjoys, thus broadly the govt. company always be in the better position as compared to a private company. 19. Now coming to the issue whether un....
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....ted party and the comparables. However, that cannot be the consideration for diluting the standards of selecting comparable transactions/entities. A higher product and functional similarity would strengthen the efficacy of the method in ascertaining a reliable arm's length price. Therefore, as far as possible, the comparables must be selected keeping in view the comparability factors as specified. Wide deviations in profit level indicator must trigger further investigations/analysis. 44. Consideration for a transaction would reflect the functions performed, the significant activities undertaken, the assets or resources used/consumed, the risks assumed. Thus, comparison of activities undertaken /functions performed is important for determining the comparability between controlled and uncontrolled transactions/entity. It would not be apposite to ignore functional dissimilarity only for the reasons that its impact may be reduced on account of using arithmetical mean of the profit level indicator." 20. A perusal of the above decision reveals that the following steps ought to be undertaken in identification of comparable transactions/entities. * The principle ....
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....erest should have been charged and accordingly, he supported the order of the AO/TPO. 23. On the other hand, Ld.AR submits that no interest was charged on the delayed payment from AE's and non-AE's and further the assessee has already factored the margins in the price charged from its AE's therefore, by placing reliance on the judgement of Hon'ble jurisdictional High Court in the case of Kusum Health Care Ltd. reported in [2018] 99 taxmann.com 431(Delhi), requested that ld. CIT(A) has rightly deleted the addition made towards interest on receivables and requested for the confirmation of the said order. 24. Heard the contentions of both the parties at length and perused the material on record. It is observed that identical issue was come for consideration before the Co-ordinate Bench in assessee's own case for AY 2011-12 in ITA No. 3641/Del/2017, where the Co-ordinate Bench by following the decision of Hon'ble High Court in the case of Kusum Healthcare Pvt. Ltd. (supra) has deleted the addition so made towards ALP adjustment of interest on delayed payment of receivables from AE's. Following the said order, in AY 2012-13 in ITA Nos. 3874 & 3963/Del/2018 in the assessee's own ca....
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....ions of different High Courts which have decided the issue against Revenue The first was the decision in Commissioner of Income Tax, Faridabad v. M's. Lakhani Marketing Incl (decision dated 2 nd April 2014 of the High Court of Punjab and Haryana in ITA No. 970/2008) which in turn referred to two earlier decisions of the same Court in CIT v. Hero Cycles Limited (2010) 323 ITR 518 and CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204. The second was of the Gujarat High Court in Commissioner of Income Tax-1 v. Corrtech Energy (P) Ltd. [2014] 223 Taxmann 130 (Guj.) and the third of the Allahabad High Court in Commissioner of Income Tax, Kanpur v. Shivam Motors (P) Ltd. (decision dated 5th May 2014 in ITA No. 88/2014). These three decisions reiterated the position that when an Assessee had not earned any taxable income in the relevant AY in question "corresponding expenditure could not be worked out for disallowance." 16. In CIT v. Holcim India (P) Ltd. (supra), the Court further explained as under: "15. Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether i....
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....se was whether the expenditure under Section 57 (iii) of the Act could be allowed as a deduction against dividend income assessable under the head "income from other sources". Under Section 57 (iii) of the Act deduction is allowed in respect of any expenditure laid out or expended wholly or exclusively for the purpose of making or earning such income. The Supreme Court explained that the expression "incurred for making or earning such income", did not mean that any income should in fact have been earned as a condition precedent for claiming the expenditure. The Court explained: "What s. 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income. s. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expend....