TMI Blog2023 (3) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the same loan is continuing during the relevant assessment year, we do not see any reason to depart from a view consistently taken by the Tribunal in the case of the Appellant for the immediately preceding assessment years in respect of the same loan transaction. We delete the addition on account of upward transfer pricing adjustment relating to interest charged to AEs. Disallowance u/s 14A of the Act read with Rule 8D - necessity of recording satisfaction - HELD THAT:- We note that the Appellant had methodically identified actual expenses which can be reasonably treated as relatable to the exempt income and disallowed such expenses under Section 14A. However, the Assessing Officer had, without recording dissatisfaction, rejected the computation/statements furnished by the Appellant. The Tribunal has, in identical facts and circumstances, decided this issue in favour of the Appellant vide order [ 2021 (10) TMI 822 - ITAT MUMBAI ] pertaining Assessment Year 2011-12 holding that the satisfaction recorded by the Assessing Officer in rejecting Appellant s computation was not in accordance with the mandate envisaged under section 14A(2) of the Act - we delete the disallowance m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP failed to appreciate that giving of financial guarantees by the Appellant on behalf of its subsidiaries was a shareholder activity for which no charge is required. 7. The AO/TPO/ DRP erred in rejecting the internal CUP method and arm's length price of 0.40% p.a. adopted by the Appellant for benchmarking guarantee commission. 8. Without prejudice to Ground Nos. 1 to 7, the AO/TPO/ DRP erred in computing the arm's length price of the financial guarantees given by the Appellant on behalf of its AEs in an arbitrary manner. 9. The AOTPO/ DRP erred in holding that the interest charged by the Appellant at the rate of LIBOR + 2.9% per annum in respect of loan of USD 71.5 million given to its AE, Greatship Global Holdings Ltd., Mauritius, was not at arm's length. 10. The TPO DRP erred in making a transfer pricing adjustment of Rs.33,25,360 in respect of loan of USD 71.5 million given by the Appellant to Greatship Global Holdings Ltd., Mauritius by holding that the arm's length price of the loan was LIBOR +3.332% p.a. 11. The AO/TPO/DRP erred in not following the order of the DRP for the Assessment Year 2011-2012 wherein this very loan given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant had computed ALP at 0.4% per annum following internal CUP being average rate of guarantee commission paid by the Appellant to the banks, i.e. Kotak Mahindra Bank, Yes Bank ABN Amro Bank, for giving guarantee to third parties (such as ONGC, Reliance Industries, Crain Petroleum) on behalf of the Appellant. Thus, making suo-moto transfer pricing adjustment of INR 1,98,62,972/- on account of Guarantee Commission. However, the TPO, taking note of the fact that in the transfer pricing orders for earlier assessment years external CUP was used for determining the ALP, adopted a rate of 2.07% per annum as ALP for guarantee commission, and proposed upwards transfer pricing adjustment of INR 33,50,97,840/-. Further, the TPO also proposed upward transfer pricing adjustment in respect of interest on loan granted to AEs amounting to INR 33,25,360/-. The board of directors of the Appellant had sanctioned loan of USD 75 Million to its subsidiary, Greatship Global Holdings Ltd. Mauritius (GGHL) in the financial year 2010-2011. Part of the loan was disbursed in the financial year 2010-2011 and thereafter, in financial year 2011-2012. In total USD 71.5 Million was disbursed out of whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the Appellant at INR 74,65,29,359/- after making (a) transfer pricing addition of INR 17,42,29,123/- under Section 92CA(3) of the Act and (b) a disallowance of INR 28,79,506/- under Section 14A read with Rule 8D of the Income Tax Rules, 1962. 8. Being aggrieved, the Appellant has filed the present appeal raising 16 grounds of appeals. Ground No.1 2 The Ld. Authorised Representative for the Appellant appearing before us submitted made a statement under instruction that he would not be pressing Ground No. 1 and Ground No.2. Ground No.1 pertains to violation of principle of natural justice and Ground No. 2 pertains to the claim of the Appellant that providing guarantee does not constitute an international transaction. Accordingly, Ground No. 1 2 are disposed off as being not pressed. Ground No. 3 to 8 9. Ground No. 3 to 8 are directed against determination of ALP of the financial guarantee given by the Appellant to its AEs @ 1.25% per annum by the DRP. The Learned Authorised Representative of the Appellant appearing before us, referring to the submission filed before DRP, submitted that the TPO/DRP has failed to appreciate that (i) the AEs on whose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014-15 (ITA No. 6083/Mum/2018) read as under: 9. We have heard.....................................................In fact, involving identical facts the Tribunal in the assessee s own case for A.Y 2008-09, ITA No. 7673/Mum/2012 and A.Y 2009-10, ITA No. 1703/Mum/2014, vide a consolidated order dated 21.06.2019 had approved the determination of ALP of corporate guarantee provided by the assessee to a foreign bank for facilitating raising of loans by its foreign AE on the basis of the Internal CUP i.e guarantee commission that was paid by the assessee to a bank for standing guarantee on its behalf for a third party. Further, the Tribunal after drawing support from the order of the Hon‟ble High Court of Bombay in the case of CIT Vs. Everest Kanto Cylinders Ltd. (2015) 378 ITR 57 (Bom), had approved the determination of ALP of the corporate guarantee given by the assessee to the bank in order to facilitate raising of loan by its AE i.e on the basis of the aforesaid Internal CUP applied by the assessee. In its aforesaid order the Tribunal had observed as under: 17. We have carefully considered the rival submissions. In the present case, the assessee has made a suo-motto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Indian market, are quite distinct and incomparable with the instance of providing of Corporate Guarantee to a bank abroad in connection with raising of loan from such bank by the AE of assessee outside India. Therefore, in our considered opinion, the exercise carried out by the TPO to arrive at the impugned arm s length rate suffers from an inherent misconception as the benchmarking has been done between two incomparable situations. Therefore, we are unable to uphold the stand of the income-tax authorities. 18. Insofar as the adequacy of 0.55% rate charged by the assessee is concerned, we find enough reasonableness in the same. In this context, the learned representative for the assessee referred to various decisions of the Tribunal, viz. Hindalco Industries Ltd. (supra), Thomas Cook (India) Ltd. (supra) and Godrej Consumer Products Ltd. (supra), wherein the arm‟ length rate of 0.5% has been approved in the matter of benchmarking Guarantee commission fee chargeable from AE. Thus, considering the entirety of the facts and circumstances of the case, in our view, Corporate Guarantee fee charged by the assessee @0.55% is well-founded and does not require any Transfer Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to the banks for facilitating raising of loans by its AEs. Be that as it may, the adequacy of the ALP of corporate guarantee fee at 0.43% can also safely be gathered by drawing support from the following judicial pronouncements as had been relied upon by the assessee before the lower authorities as well as before us : Particulars Guarantee Commission rate 1 Everest Kento Cylinder Ltd. Vs. ACIT (2012) 34 CCH 0528 (Mum) [Note : Order of Tribunal upheld by the Hon‟ble High Court of Bombay : CIT Vs. Everest Kento Cylinder Ltd. Vs. CIT (2015) 378 ITR 57 (Bom). 0.5 2 Reliance Industries Ltd. Vs. Addl. CIT (ITA No. 4475/Mum/2007) 0.38% 0.38% 0.38% 3 Asian Paints Ltd. Vs. Addl. CIT (2014) 149 ITD 511 (Mumbai) 0.20% 20% 4 Aditya Birla Minacs Worldwide Ltd. Vs. JCIT (2016) 47 CCH 760 (Mum) 5% 5 Godrej Household Products Ltd. Vs. Addl. CIT 41 taxmann.com 386 (Mum) .5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest charged on loan to AEs. 15. Ld. Authorised Representative of the Appellant appearing before us placed reliance on the written submission filed before DRP. Part loan of USD 40 Million was disbursed by the Appellant to GGHL during the financial year 2010-11 relevant to Assessment Year 2011-12. During the assessment proceedings for the Assessment Year 2011-12, the TPO had determined ALP taking interest rate of 6.17 percent per annum which was reduced to LIBOR plus 2.9% by the DRP. However, in the subsequent Assessment Years 2012-13, 2013-14 and 2014-15, the DRP did not follow the order of DRP for the Assessment Year 2011-12 on the basis of incorrect premise that loan was granted to a Singapore AE which is factually incorrect. Loan has been granted to GGHL a wholly owned Mauritius subsidiary of the Appellant. The Learned Authorised Representative for the Appellant submitted that the issue is covered in the favour of the Appellant by the decision of the Tribunal in Appellant s own case of the Assessment Year 2012-13 (ITA No. 1287/Mum/2017), 2013-14 (ITA No. 7151/Mum/2017) and 2014-15 (ITA No. 6083/Mum/2018). 16. Per Contra, Ld. Departmental Representative supported the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied by the assessee for benchmarking the interest charged on the loan advanced to its aforesaid AE, viz. GGHL, Mauritius, primarily for the reason that all the foreign currency loans which had been used as comparable by the assessee were fully secured upto 130% of the value of loan alongwith mortgage of the ship. Further, it was observed by the TPO that the assessee while benchmarking the interest transaction had failed to take cognizance of the mortgage, legal, documentation, insurance and other charges that were paid by the borrower. Also, it was observed by the TPO that not only penal interest was provided for in case of default of interest by the assessee, but the borrower assessee was also obligated to satisfy certain other requirements like maintaining of cash debt equity ratio etc. Backed by his aforesaid observations, the TPO was of the view that if the transaction cost, hedging cost, penal cost and cost of security were taken into consideration then rate of such borrowing would not be less than 700 basis points. On the basis of his aforesaid observations the TPO conducted search on www.bloomberg.com to find out the average interest rate of foreign currency loans taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ius by applying of an Internal CUP i.e arithmetic mean of the interest rate charged by the banks on the foreign currency loans availed by the assessee during the year in question. Apart from that, we also find substance in the claim raised by the assessee before the lower authorities that the foreign currency loans obtained by its holding company viz. Great Eastern Shipping Company Ltd. at an interest rate of LIBOR + 1.79% p.a and LIBOR + 1.50% p.a during the year in question would also form a suitable Internal CUP. Further, we are of the considered view that in case of availability of an Internal CUP there was no need on the part of the TPO to have benchmarked the transaction by applying an external CUP. Our aforesaid conviction is supported from Para 3.26 of OECD guidelines, which reads as under: Internal comparables may have a more direct and closer relationship to the transaction under review than external comparable. As observed by us hereinabove, the Board of Directors of the assessee company had sanctioned a loan of USD 75 million in the immediately preceding financial year 2010-11 on which interest rate of LIBOR + 2.9% p.a was fixed. Loan of USD 40 million was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we delete the addition of INR 33,25,360/- on account of upward transfer pricing adjustment relating to interest charged to AEs. 19. In view of the above, Ground No. 9 to 12 of the Appeals are allowed and Ground No. 13 is disposed off as being infructuous. Ground No. 14 15 20. Ground No. 14 to 15 pertain to disallowance of INR 28,79,506/- under Section 14A of the Act read with Rule 8D of the Rules. 21. The brief facts relevant to the adjudication of the issue before us are that during the relevant previous year the Appellant earned exempt dividend income of INR 1,14,75,994/- from surplus funds parked in Mutual Funds. In the return of income, the Appellant suo-moto disallowance of INR 11,21,602/- under Section 14A of the Act. Detail working of suo moto disallowance was given in Annexure 6 to tax audit report. However, the Assessing Officer computed disallowance under Section 14A by applying Rule 8D(2)(iii) of the Income Tax Rules, 1962 at INR 40,01,108/- and made a further disallowance of INR 28,79,506/- which was confirmed by the DRP. Now the Appellant is before us in appeal on this issue. 22. The Ld. Authorised Representative for the Appellant appearing befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,75,994/-) __________________________________ Total Income (INR 4,62,44,293/-) On the basis of aforesaid, the Ld. Authorised Representative for the Appellant submitted that the Assessing Officer had failed to record objective satisfaction before invoking provision of Rule 8D of the Income Tax Rules, 1962. 23. Per contra, Ld. Departmental Representative submitted that since the Appellant had not made disallowance as per Rule 8D of the Income Tax Rules, 1962, the Assessing Officer was justified in making disallowance by applying the aforesaid rule. As regards, satisfaction the Ld. Authorised Representative for the Appellant submitted that satisfaction is discernible from the order passed by the Assessing Officer. 24. We have considered the rival submissions and perused the material on record including letter dated, 11.10.2018, filed before during the course of assessment proceedings, the statement of allocation of expenses, statement of segmental profits, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the computation made by the AO. Thus, the satisfaction recorded by the AO in rejecting assessee s computation is not in accordance with the mandate envisaged under section 14A(2) of the Act. 25. Respectfully following the above decision of the co-ordinate Bench of the Tribunal we delete the disallowance of INR 28,79,506/- made by the Assessing Officer under Section 14A of the Act read with Rule 8D(2)(iii) of the Income Tax Rules, 1962. 26. In view of the above Ground No. 14 15 raised by the Appellant are allowed. Ground No. 16 27. Ground No. 16 pertains to failure of the Assessing Officer to grant credit of tax deducted at source amounting to INR 45,41,995/-. 28. The brief facts relevant to the issue are that the Appellant being aggrieved by the intimation, dated 31.01.2017, issued under Section 143(1) of the Act filed appeal before CIT(A) 10, Mumbai which was disposed off vide order, dated 28.06.2018. The Appellant not being satisfied filed appeal (ITA No. 5562/Mum/2018) before the Tribunal which was disposed off vide order, dated 08.01.2020 giving certain directions to the Assessing Officer. The Ld. Authorised Representative for the Appellant submits that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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