TMI Blog2018 (5) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... pted the same approach and held that when there is no tax exempt earnings, there cannot be any occasion for disallowance under section 14A. Clearly, therefore, the very foundation of the impugned disallowance under section 14A is devoid of legally sustainable substance. For this short reason alone dealing with the basic stand of the Assessing Officer, and without dealing with the merits any further, we uphold the plea of the assessee and delete the impugned disallowance. Disallowance being delayed payments of PF/ESI dues - Held that:- This issue is concluded against the assessee by Hon ble jurisdictional High Court s judgment in the case of CIT Vs Gujarat State Road Transport Corporation Ltd [2014 (1) TMI 502 - GUJARAT HIGH COURT]. We, therefore, uphold the disallowance and decline to interfere in the matter. Exclusion of foreign exchange gain for the purpose of computing deduction u/s 80IB - Held that:- Admittedly there is no bar on this Tribunal to admit the claim and, as the matter has not been examined on merits at any stage, in remitting the matter to the file of the Assessing Officer for adjudication on merits. That is, by and large, the normal practice being adopted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coordinate bench in the case of Aurionpro Solutions Pvt Ltd Vs ACIT [(2013) 27 ITR (Tribunal) 276 (Mum)]. The plea justifying not charging the interest, in an arm s length situation, was thus not pressed before us. 6. Learned Departmental Representative dutifully relied upon the orders of the authorities below. 7. We find that the issue in appeal is squarely covered, in principle in favour of the assessee, by a decision of the coordinate bench, in the case of UFO Movies India Ltd Vs ACIT [(2016) 175 TTJ 633 (Del)] wherein, following the esteemed views of Hon ble Delhi High Court, it was, inter alia, observed as follows: 3. So far as ALP adjustment of ₹ 74,20,785 is concerned, the relevant material facts are like this. During the course of proceedings before the Transfer Pricing Officer, it was noted that the assessee had advanced a loan of US $ 1,08,50,000 to its subsidiary Edridge Limited, Cyprus, on an interest @ 7% p.a. The TPO was of the view that the AE is not of such a financial health that it could have got the loan on its own , that one can reasonably conclude that this company (i.e. the AE) is at best a conduit as the funds were used by the said to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee at ₹ 2,51,96,838, and, make an ALP adjustment of ₹ 74,20,785. The assessee is aggrieved and is in appeal before us. 4. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 5. We have noted that there is no dispute that the LIBOR rate, so far as the relevant previous year was concerned, is to be taken at 4.53%, as the TPO himself has, pursuant to the directions of the DRP to adopt ALP at LIBOR+4%, taken the ALP at 8.53%. The order dated 19th March 2013, a copy of which was placed before us at pages 426 and 427 of the paper-book, clearly evidences this factual position. There is also no dispute that the assessee has advanced the loan to the subsidiary at 7% per annum. Clearly, therefore, as long as the comparable uncontrolled price of the US $ denominated lending is less than 247 points (i.e.700-453) above the LIBOR rate, the transaction entered into by the assessee with its subsidiary cannot be said to be at less than arms length price. The Transfer Pricing Study filed by the assessee, however, does not throw much light on this aspect of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on sweeping generalizations and assumptions, to reject the comparables taken by the assessee. When a Transfer Pricing Officer rejects comparables taken by the assessee, he has to set out specific, cogent and legally sustainable reasons for doing so. On this point, therefore, the stand of the Assessing Officer cannot be accepted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65. That leaves us with third point of difference between the assessee and the TPO and that is with regard to adjustment of 177.60 points, as balancing figure, towards lack of security and lender not being in the business of borrowing and lending money. This adjustment is justified by the TPO on the following ground: 7.10 Adjustment between a banker and non-banker As the taxpayer is not in the business of lending and borrowing money, his risk is higher in advancing loan to a single customer than a bank, which spreads its risk among its various customers. Thus, the difference between banker and nonbanker is to be kept in mind while arriving at the arm's length CUP rate based on bank rates. 7.11 Adjustment for security Usually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumptions, to reject the comparables taken by the assessee. When a Transfer Pricing Officer rejects comparables taken by the assessee, he has to set out specific, cogent and legally sustainable reasons for doing so. On this point, therefore, the stand of the Assessing Officer cannot be accepted. 9. . . . . . . . . . . . . . . . . . . . . . 10. The Tribunal further noticed that the assessee advanced monies to the subsidiaries which were under its management and control, which in fact substantially reduced the risk and in these circumstances there was no rationale of adjusting any amount of higher basis. 11. This Court is of the opinion that the reasoning of the ITAT on each of the heads which went into the adjustment of ₹ 10,11,786/- is reasonable and justified and does not call for any interference. (Emphasis, by Underlining, Supplied by us) 9. That was also a case in which the lender parent company was taken as the tested party, the loan was advanced to a subsidiary company without much to the credit of its financial credentials and the loan was treated as a high risk loan resulting in adopting the maximum LIBOR rate on which dollar loans were advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry at 247 basis points above the LIBOR rate is not at an arms length price. That apart, as noted earlier in this order, once Hon'ble Delhi High Court, observes that the assessee advanced monies to the subsidiaries which were under its management and control, which in fact substantially reduced the risk and in these circumstances there was no rationale of adjusting any amount of higher basis , it cannot be open to the transfer pricing authorities to contend that this loan should be treated as a high risk loan on which high interest rate should be charged even within the range of interest rates charged by the Indian banks generally. In view of these discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and direct the Assessing Officer to delete this arms length price adjustment of ₹ 74,20,785 in respect of interest charged on advances to the subsidiaries. 12. Ground nos. 1 to 5, which pertain to the ALP adjustment in respect of interest charged on interest to sib subsidiaries, are thus allowed in the terms indicated above. 8. Having upheld the plea of the assessee in principle, we find that the relevant details in sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the very foundation of the impugned disallowance under section 14A is devoid of legally sustainable substance. For this short reason alone dealing with the basic stand of the Assessing Officer, and without dealing with the merits any further, we uphold the plea of the assessee and delete the impugned disallowance of ₹ 31,379. The assessee gets the relief accordingly. 12. Ground no. 3 is thus allowed. 13. Ground no. 4 is general and does not call for any adjudication. 14. In the result, the appeal for the assessment year 2008-09 is partly allowed in the terms indicated above. 15. The appeal for the assessment year 2009-10 is time barred by 7 days but the assessee has moved a petition seeking condonation of delay. Having perused the petition, and having heard rival contentions on the same, we are inclined to condone the delay. The delay is, therefore, condoned. 16. Ground no. 1 is general and does not call for any specific adjudication. 17. In ground no. 2, grievance of the appellant is against learned CIT(A) s upholding the arm s length price adjustment in respect of interest free loan of ₹ 18,36,53,770, granted by the assessee to its associat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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