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2018 (11) TMI 1578 - AT - Income TaxTPA - loans advanced to AE - rate of interest to be charged by the assessee from its AE - Held that:- In the present case, we find from the perusal of TP study report filed before us at pages 179 to 182, we find that assessee as well as TPO had not undertaken the exercise of analyzing the transaction. No material was brought on record indicating the terms of loan i.e. tenure of loan, security offered, terms of repayment of loan, currency in which loan is to be repaid etc. and RBI policy governing advancing of loans by Indian holding company to its foreign subsidiary companies credit rating etc. determination of credit rating of the lender and borrower, identification of comparable, third party loan agreements. Therefore, we remand the matter back to the TPO with a direction that assessee-company shall submit the TP study on the above loans and the TPO shall consider the analysis and bench mark the transaction by adopting legal position as enunciated in the case law cited above. Thus, this ground of appeal is partly allowed for statistical purposes. ALP addition on account of corporate guarantee - Held that:- The approach of the TPO applying bench marking for ALP for corporate guarantee cannot be upheld. There cannot be universal application of any rate of commission. It depends upon terms and conditions on which loan has been given, risk undertaken and relationship between bank and client, economic and business interest are some of the major factors which are required to be taken into consideration to arrive at appropriate rate of commission. In the present case, neither the assessee nor the TPO analyzed the transactions in terms of the above stated facts. Therefore, we deem it appropriate to remand the matter to the file of the TPO/AO for fresh adjudication after analyzing the transaction in the above stated terms. TPO shall bench mark the transactions of services of providing bank guarantee to its AE by adopting comparable unrelated transactions. As held in Tata Auto Comp. System Ltd [2015 (4) TMI 681 - BOMBAY HIGH COURT] the considerations applied for issuance of corporate guarantee are distinct from that of bank guarantee. Therefore, bank guarantee commission cannot be applied. Accordingly, this ground of appeal is partly allowed for statistical purposes. Disallowance u/s 14A r.w.r 8D - Held that:- There is no dispute about applicability of rule 14A as the assessee had earned exempt income. The Assessee also not denying applicability of rule 8D of IT Rules. However, only contention advanced is while computing average value of investments for the purpose of computing disallowance under sub-clause (3) of rule 8D, it is contended that investments which yielded exempt income should be taken into consideration and the value of investments in equity of overseas/subsidiaries, debentures, share application money should not be taken into consideration. From the perusal of orders of the lower authorities, it is clear that the assessee had not raised this contention before the lower authorities. We find that the assessee had neither filed any application for admission of this additional ground of appeal nor had the assessee had filed evidence in support of the above contention. Therefore, in the absence of application for admission of additional grounds of appeal, the contention cannot be admitted as it is a mixed question of fact and law. Exclusion of royalty income from eligible profits for deduction u/s 10A/10AA - Held that:- it is clear that goods exported have should have direct nexus with industrial undertaking which is a duly registered 100% EOU under STPI scheme. In the present case, there was no material on record establishing that IPR are generated by the industrial undertaking which is duly registered under 10A/10AA. Even before lower authorities, the assessee had not discharged its burden of proving nexus between industrial undertaking and royalty income. In the decisions relied upon by the Learned AR of the assessee, the issue before the Hon’ble High Court was whether interest income earned on EFI etc., forms part of the business income and whether same can be claimed as eligible profits as business income u/s 10A. In those cases, there does not exist any dispute as regards existence of nexus between income and industrial undertaking. Therefore, the decisions relied upon by the Learned AR of the assessee do not come to the rescue of the assessee. Hon’ble Tribunal, Delhi bench in the case of Zuari Leasing & Finance Corporation Ltd. vs. ITO [2008 (4) TMI 359 - ITAT DELHI-I] held that the Tribunal should not remand back to the file of the AO in order to give a second innings to the litigant. Thus, there is no merit in the ground of appeal raised by the assessee. Deduction of expenses incurred in foreign currency from export turn over while computing deduction u/s 10A/10AA - Held that:- Hon'ble DRP directed that telecom expenditure, insurance charges incurred in foreign currency incurred in connection with delivery of software, be reduced from the total turnover as well as export turnover following the decision of the jurisdictional High Court in the case of CIT vs. Tata Elxsi [2011 (8) TMI 782 - KARNATAKA HIGH COURT] and expenditure incurred towards travelling and salary of the employees of the assessee deployed abroad for development, testing, installation and management of software outside India, directed the AO to exclude same from the export turnover following the decision of the coordinate bench of Tribunal in the assessee’s own case for assessment years 2004-05, 2006-07 and 2008-09. Reduction of communication and insurance charges from export turnover so that the AO has adopted excessive amount as the amounts were not incurred on export or delivery of software outside India. This requires verification of facts. Accordingly, we remand this issue back to the file of the AO to verify the contention of the assessee. Disallowance of loss on account of foreign exchange fluctuation on repayment of loan - Held that:- Disallowance of expenditure results in inflation of business profits which are eligible for deduction u/s 10A. This proposition of law is clearly enunciated by the Hon’ble Bombay High Court in the case of Gem Jewellery [2010 (6) TMI 65 - BOMBAY HIGH COURT]. Computation of deduction u/s 10A - Held that:- As regards portion of the expenses incurred in foreign exchange towards insurance, travelling and communication is concerned, in the case of CIT vs. Tata Elxsi [2011 (8) TMI 782 - KARNATAKA HIGH COURT] held that the same is required to be reduced from export turnover as well as total turnover. Respectfully following the ratio of the decision of the Hon'ble jurisdictional High Court we direct that expenses incurred in foreign exchange towards insurance, travelling and communication are to be reduced both from export turnover as well as total turnover.
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