TMI Blog2015 (3) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 2,91,82,060/- which is disclosed in the audit report in Form No.3CEB. The Assessing Officer is also directed to verify the claim of the assessee in this regard and compute the arm's length price of the international transactions. Reasonable opportunity of being heard shall be afforded to the assessee by the Assessing Officer / Transfer Pricing Officer. - Decided in favour of assessee for statistical purposes. Disallowance of additional depreciation under section 32(1)(ii)(a) - Held that:- Racks cannot be considered as part of block of Plant & Machinery and no additional depreciation is allowable on the same. Further, depreciation @ 10% is to be allowed on such Racks being Furniture & Fixtures. Depreciation on Trolley which as per the Assessing Officer is part of the Furniture & Fixtures as the same is used for transferring material and goods from one place to another. The value of the Trolley is ₹ 16.01 lakhs and ₹ 20.78 lakhs. Keeping in mind the nature of asset and functional test, we find no merit in the order of Assessing Officer in this regard and direct the Assessing Officer to consider the same within block of Plant & Machinery and allow the depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, while computing the book profits u/s 115JB of the Act. Accordingly, we direct the Assessing Officer to re-compute the book profits under section 115JB of the Act. - Decided in favour of assessee. - ITA No.2482/PN/2012 - - - Dated:- 30-12-2014 - SHRI G.S. PANNU AND Ms. SUSHMA CHOWLA, JJ. For The Appellant : Shri Kishore Phadke For The Respondent : Shri A.K. Modi ORDER PER SUSHMA CHOWLA, JM: This appeal filed by the assessee is against the order of Asst.CIT, Circle - 1, Aurangabad dated 18.10.2012 relating to assessment year 2008-09 passed under section 143(3) r.w.s. 144C of the Income-tax Act. 2. The assessee has raised the following grounds of appeal:- 1. The learned AO and learned DRP erred on facts in considering Interest Receivable from AE Company at ₹ 28,627,089/- instead of ₹ 29,182,060/- (as per 3CEB). 2. The learned AO and learned DRP erred in law and on facts in determining Arm's Length Price of Interest Receivable transaction from AE Company of the appellant at ₹ 73,356,721/- (Interest rate 12.25%) instead of ₹ 29,182,060/- (Interest rate 4.75%) thereby making an net addition of ₹ 44,174,661/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee s own capital and reserves of the company. The said funds were introduced in the Netherland Company as its own share for the European business acquisition. However, the said loan was partially converted into a soft loan from the assessee company to the Netherland Company. In view of the said transactions, the assessee entered into transactions with its AE with regard to disbursement of loan to AE and the repayment of loan by the AE. Further, international transactions on account of interest receivable from AE and conversion of share application money into money by the AE company were the other transactions carried on by the assessee with its AE. The assessee benchmarked the transaction by resorting to CUP method. The assessee furnished its return of income declaring total income at ₹ 15,14,72,558/-. The Assessing Officer noted that during the year under consideration, the assessee had entered into international transaction for over 15 crores with its AE. The Assessing Officer after going through the report in Form No.3CEB was of the view that the case needs to be referred to the Transfer Pricing Officer (in short TPO) for determining arm s length price of the services a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under para 8 at page 3 of the order under section 92CA(3) of the Act and proposed an adjustment of ₹ 4,41,74,661/-. 6. The assessee had benchmarked its international transaction taking interest rate charged @ international rate of the disbursing bank i.e. Citi Bank. This benchmarking was adopted at foreign currency Citi Bank rates. The TPO observed that the transaction in question was not of similar nature. The loan given to AE in the currency of that country is not a foreign currency demand with AE, because the loan given to the AE is in foreign currency of that country and thus loan is not in foreign currency for the AE. Further the AE cannot be credited to have the credibility akin to that of National Bank of that country. Accordingly benchmarking adopted by assessee is not found to be acceptable. The assessee was thus requested to show cause as to why the lending rate for the purposes of comparability following CUP method be not taken at Banking Prime Lending Rate (BPLR), for the year ended March 31st, 2008. The assessee failed to furnish any reply or furnish any TP Study report. Since the assessee had converted the share capital into loan to AE by passing resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on relating to provision of interest is not found to be acceptable. In the given facts and in third party situation, the assessee would never lend money to an unrelated entity end in any such case at the rate not less than BPLR. In normal circumstances if such advance has to be given to any unrelated entity, the rate of interest chargeable would be significantly higher than the BPLR. However, as such higher rate of interest more than BPLR is neither ascertainable nor determinable; it is considered suitable to benchmark this international transaction with benchmark rate of interest taken as BPLR. Accordingly, based or the rate of BPLR of the State Bank of India which is a premier bank, the rate at 12.25% for the bank, for the year ended 31st March, 2008 is taken as a benchmark rate. Accordingly, the differential quantum of interest on the loan to advance to the subsidiaries by the assessee, worked out at ₹ 4,41,74,661 is added to the value of international transaction towards provision of interest receivable from the AE, to arrive at the Arm's Length Price of this international transaction. It may also be noted that at LIBOR + rates of 6.79%, benchmarking of the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al rate. So, there was no merit in applying domestic rates to compute the Arm's Length Price adjustment. The learned Authorized Representative for the assessee further pointed out that the lending was made at LIBOR+ rates. Further, the reliance was placed on the following decisions by the learned Authorized Representative for the assessee. a. Siva Industries Holdings Ltd. v. ACIT, Chennai [2011] 11 taxmann.com 404 (Chennai) b. Tech Mahindra Limited [2011] 12 taxmann.com 132 (Mum) c. Hinduja Global Solutions Ltd. [2013] 35 taxmann.com 348 (Mumbai - Trib.) d. Wipro Ltd Vs. DCIT ITA No:624 1178/Bang/2007 Dated:31.10.2008 for the AY 2003-04 10. The learned Departmental Representative for the Revenue pointed out that the finding of DRP at page 4 was that the assessee had invested its own funds and borrowed funds. Further, it was pointed out by the learned Departmental Representative for the Revenue that the Transfer Pricing was to be done when compared with the international transactions. It was argued by the learned Departmental Representative for the Revenue that no person would charge something less than the cost. Our attention was drawn to the page 17 of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year ending 31.03.2008 was 6.79%. The TPO tabulated the transactions of granting of loan and the interest charged by the assessee and computed the proposed adjustment as under:- (Amt. in Rs.) Description Varroc European Holding BV Netherlands [A] Loan advanced / Balance of loan at the year ending 31.03.2008 Rs.59.43 Crs. (figures as per the financials) [B] Base charge adopted by the assessee LIBOR [C] Base charge adopted by the assessee to benchmark the transaction However, rate charged by the assessee = 4.75% [D] Bank Prime lending rate (BPLR) of SBI as on 31.03.2008 12.25% [E] RATE CHARGED BY THE ASSESSEE 4.75% [F] Interest charged by the assessee Rs.2,86,27,089 [G] The rate prevailing as per 6 months LIBOR for the year ended 31.03.2008 was 6.79% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. On such advance made to its associated enterprises, the assessee had charged interest @ 4.75%. While benchmarking the international transactions what has to be seen is the comparison between related transactions i.e. where the assessee has advanced money to its associated enterprises and charged interest then the said transaction is to be compared with a transaction as to what rate the assessee would have charged, if it had extended the loan to the third party in foreign country. Once there is a transaction between the assessee and its associated enterprises in foreign currency, then the transaction would have to be looked upon by applying the commercial principles with regard to the international transactions. In that case, the international rates fixed being LIBOR+ rates would have an application and the domestic prime lending rates would not be applicable. The assessee has further explained that it had raised the loan from Citi Bank on international rates for the purpose of investment in the share application money of its associated enterprises, which in turn was partly converted from capital into loan. Where the assessee had a comparable of borrowing loan on international ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had charged interest at 6 per cent which was higher than the LIBOR rate, no addition on this account was liable to be made in the hands of the assessee. In the circumstances, the addition made by the Assessing Officer on this count was deleted. 17. The Mumbai Bench of the Tribunal in DCIT Vs. Tech Mahindra Ltd. (2011) 12 taxmann.com 132 (Mum.) held that where there is a choice between the interest rate of currency other than the currency in which transaction had taken place and the interest rate in respect of the currency in which transaction has taken place, the latter should be adopted. Where the transaction is between the assessee and its associated enterprises in foreign currency and the transaction is international transaction, then the transaction would have to be looked upon by applying commercial principles in regard to international transactions. 18. Similar principle has been laid down by the Mumbai Bench of the Tribunal in Hinduja Global Solutions Ltd. Vs. ACIT (2013) 35 taxmann.com 348 (Mumbai - Trib.). 19. In the entirety of the above facts and circumstances, we hold that where the assessee had entered into a transaction with its associated enterprises in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional depreciation was allowable on the same. The DRP upheld the order of Assessing Officer, against which the assessee is in appeal. 22. The learned Authorized Representative for the assessee pointed out that items enlisted at page 3 of the assessment order were used for the manufacturing of activities carried on by the assessee and functional test had to be applied in order to determine the nature of the assets. The learned Authorized Representative for the assessee placed reliance on the ratio laid down by Pune Bench of the Tribunal in Serum Institute of India Ltd. Vs. ACIT (2012) 18 taxmann.com 305 (Pune). 23. The learned Departmental Representative for the Revenue pointed out that the perusal of list of items would reflect that none of these were the integral part of the manufacturing activity and consequently, were not to be considered as part of Plant Machinery. 24. We have heard the rival contentions and perused the record. The Assessing Officer at page 3 of assessment order has tabulated the list of items which are as under:- Sr. No. Items 1 Racks 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46 5 Cooler 683161 142313 110123 146831 73415 36707 146831 6 TV Music system 33870 32181 5080 6774 3387 1693 6774 7 Freeze / Refrige rator 16640 12267 3415 4554 2277 1138 4554 8 Handicam 111416 66991 21736 28982 14491 7245 28982 9 Projector 311130 0 46670 62226 31113 15556 62226 10 Scanner 3348 0 502 670 335 167 670 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities. Further, TV Music System is an electronic item on which higher rate of depreciation is allowable. However, no additional depreciation is allowable on such TV Music System. The Industrial Fan being utilized as part of the manufacturing activity, was entitled to the claim of higher depreciation and also additional depreciation on Plant Machinery. 29. Next items considered by the Assessing Officer were the Water Cooler, Dispenser, Refrigerator, Handicam, Projector and Scanner. All these items are electronic items and are to be considered under the said head. However, the assessee is not entitled to claim of additional depreciation as the same were not part and parcel of manufacturing activity carried on by the assessee. 30. Another group of items were UPS, Inverter, Attendance Card Reader, EPBX System and Energy Saver, which are electronic items but are not part and parcel of Plant Machinery utilized for manufacturing activity. The assessee was not entitled to the claim of additional depreciation on the same. Thus, ground of appeal No.3 raised by the assessee is partly allowed. 31. The issue in ground of appeal No.4 raised by the assessee is in treating Discoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Vs. JCIT reported in (2010) 42 SOT 457 (Mum.) (SB), wherein it was held as under:- Having regard to the law laid down by the Supreme Court and by the High Courts in various decided cases, it was found that to invoke the provisions of section 41(1), the first requirement is as to whether in the assessment of the assessee, an allowance or deduction has been made in respect of loss, expenditure or the trading liability incurred by the assessee. In the case of the assessee the revenue s plea was that the assessee had obtained the benefit of deduction of sales tax liability under section 43B as per the CBDT's Circular No.496, dated 25-9-1987. However, it was found that in the said circular it had been clearly stated vide para 5 that '...the statutory liability shall be treated to have been discharged for the purposes of section 43B [Emphasis supplied]. Thus, the benefit of deduction was allowed for the purpose of section 43B only and not under any other provisions of the Act. There was no dispute that the Assessing Officer had also applied the aforesaid Board Circular while giving the benefit of deduction under section 43B. It is settled law that the circulars are bindi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the issue before the Mumbai Special Bench of the Tribunal in Sulzer India Ltd. Vs. JCIT (supra) and following the same parity of reasoning, we hold that the deffered sales tax liability i.e. the difference between the payments of the net present value against future liability credited by the assessee under the capital reserve account in its books of account, was a capital receipt and the same could not be termed as remission / cessation of liability, consequently, no addition could be made under the provisions of section 41(1) of the Act. Reversing the order of authorities below, we allow the claim of the assessee. The ground of appeal No.4 raised by the assessee is thus, allowed. 38. The issue raised by the assessee in ground of appeal No.5 is against the re-calculation of book profit under section 115JB of the Act by making various additions. 39. The learned Authorized Representative for the assessee pointed out that it was only pressing the disallowance to section 14A of the Act being added back to the book profits under the provisions of section 115JB of the Act as an adjustment and was not pressing the other three additions i.e. on account of Provision for bad doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of computation of book profits under section 115JB of the Act. The Assessing Officer while computing the said book profits had added back the disallowance worked out under section 14A of the Act of the net profits of the business and computed the tax liability of the assessee company thereafter. We find that the issue in the present case is covered by the order of the Chandigarh Bench of the Tribunal in DCIT Vs. Ind- Swift Ltd. (supra) where vide order dated 30.11.2009 vide para 8 it was held as under: 8. The ground 1(iv) raised by the Revenue is against the computation of book profits u/s 115 JB of the Act. The Assessing Officer while computing the book profit u/s 115 JB of the Act had added back the disallowance worked u/s 14A of the I.T. Act to the net profit shown in the profit and loss account and computed the profits for the year. The CIT (A) reworked the book profits by excluding the said notional disallowance u/s 115 JB of the Act, in turn following the ratio laid down by the Apex Court in Apollo Tyres Ltd. 255 ITR 273 (SC). We are in conformity with the order of CIT(A). The adjustments, if any, to be made to the profit shown in the profit and loss account, are pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
