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2017 (8) TMI 413 - AT - Income TaxDisallowance under section 14A - Held that:- The assessee had suo motu made a disallowance of ₹ 16.58 lakhs,while calculating the expenditure incurred towards earning exempt income,that it had made disallowance under the head interest expenditure(Rs. 2.28 lakhs) salary cost in relation to employees engaged(Rs. 12.60 lakhs) and miscellaneous expenses for employees(Rs. 1.70 lakhs),that the AO had not given any reason as to how and why the disallowance made by the assessee was not satisfactory.Because of this reason alone disallowance made can be deleted. AO had increased the miscellaneous expenses to the tune of ₹ 62.72 lakhs without given any reason or justification. In our opinion, any disallowance, including the disallowance under section 14A,has to be reason based and it cannot be left to the whims and fancies of the AO. In the case under consideration the FAA has also not passed any reasoned the order. He has mechanically confirmed the order of the AO referring to the judgment in Godrej Boyce Manufacturing Company Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT). He has also not given any reason as to why the calculation submitted by the assessee was not acceptable. Therefore,reversing his order,we decide the first effective ground of appeal in favour of the assessee. TP adjustment on account of interest received from the AE - Held that:- We find that the assessee had advanced loan to its AE in US Dollar,that it had charged interest @ 6%-7.5% per annum,that the LIBOR rate as on last date of 2008 was 2.49%, that the AE of the assessee had taken loan from a third party namely ANB and Amro Bank Ltd.,that the bank had charged LIBOR +200 bps,that the assessee had benchmarked the transaction accordingly,that in the subsequent AY.(AY 2012-13),the AO himself had made no adjustment on account of interest rate transaction even though the facts and circumstances were identical to the facts to the year under appeal. We also find that in the cases,relied upon by the assessee,the Tribunal has taken a consistent view that LIBOR+ 200bps or 300bps interest rate has to be considered arm’s length rate of interest.In the case under consideration after adding 300 bps the rate would come to 5.49 %,whereas the assessee has charged 6%/7.5% interest from its AE thus, there was no justification for the FAA to uphold the order of the TPO/AO who had charged interest @14.39%. Therefore,reversing the order of the FAA,we decide third Ground of appeal in favour of the assessee . TP Adjustment of guarantee commission - Held that:- We find that the assessee had given guarantee in respect of bank loans in case of two of its AE.s, that it had also given guarantee in respect of performance guarantee for two other AE.s,that it had charged the commisssion @1.5% on the basis of quotations obtained from ICICI bank,that the TPO/AO took the rate at 3% and made adjustment at ₹ 2.70 croress. We find that the TPO, while determining the ALP for the AY.2012-13 the TPO had approved the rate of 1.5% for the financial guarantee, that for performance guarantee he did not make any adjustment. There is nothing on record to prove that facts for year under consideration and the facts for AY.2012-13 were different.Thus, the TPO himself has accepted that the benchmarking done by the assessee was based on reliable data and was at arm’s length.Therefore,we are of the opinion that there was no justification for making TP adjustment with regard to guarantee commission. Thus following the judgment of Everest Kanto Cylinders Ltd.(2015 (5) TMI 395 - BOMBAY HIGH COURT), we decide third effective Ground of appeal (GOA-4) in favour of the assessee .
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