TMI Blog2015 (5) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006-07 and 2007-08, no disallowance is called for u/s 14A on account of interest expenditure. - Decided in favour of assessee. TP adjustment on guarantee commission - Held that:- Following the earlier order of this Tribunal and also considering the internal CUP being the guarantee commission paid by the assessee to the ICICI Bank for obtaining guarantee, we hold that the arm’s length guarantee commission in respect of all three transactions of guarantee to its AE at Dubai, China and USA shall be taken at 0.5%. Accordingly, the Assessing Officer is directed to compute the adjustment on account of guarantee commission by taking the arm’s length guarantee commission at 0.5%. - Decided partly in favour of assessee. TP adjustment in respect of loan advanced to EKC Dubai and EKC China - Held that:- Following the earlier order of this Tribunal in assessee’s own case, we hold that the arm’s length rate in respect of loan provided to the AE should be LIBOR + 2%. Accordingly, the Assessing Officer is directed to recomputed the arm’s length rate in respect of the loan transaction to each AE of the assessee by clubbing all the loan transactions of each AE and then compare the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance before the DRP. However, the DRP has sustained the disallowance u/s 14A made by the Assessing Officer. 4. Before us, the Ld. Authorized Representative of the assessee has submitted that up to the A.Y. 2007-08, the Tribunal has held that the assessee was having sufficient non interest bearing fund for making the investment. For the A.Y. 2008-09, the investment was made by the assessee in foreign subsidiaries, therefore, to the extent of investment made by the assessee in the A.Y. 2008-09, no disallowance is called for on account of balance interest expenditure in view of the order of this Tribunal in assessee s own case. Even for the A.Y. 2008-09, the Tribunal observed that disallowance under Rule 8D has been worked out by the Assessing Officer on the total investment which included investment made in the mutual funds with growth scheme does not yield any dividend income. Therefore, the Ld. Authorized Representative has submitted that no fresh investment was made for the A.Y. 2009- 10 and accordingly no disallowance can be made on account of interest expenditure u/s 14A of the Income Tax Act. As far as the disallowance of administrative expenses is concerned, he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Solar Explosive Ltd. 0.45 0.00 0.00 0.00 Shivalik Global Ltd. 0.30 0.00 0.00 0.00 Mutual Fund UTI Fixed Maturity Plan/Growth Oriented Schemes 0.00 10.00 10.00 0.00 Other Mutual Funds/ Dividend Oriented Schemes 10.37 1.27 0.10 0.23 Total (B) 13.12 13.27 12.10 2.23 Grand Total (A+B) 13.22 54.30 102.62 92.74 7. From the above details, it is clear that during the year under consideration, the assessee has not made any fresh investment except a sum of ₹ 13 Lakh in the mutual fund scheme. Out of the total investment of ₹ 92.7 crores, the investment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that no such ground has been raised by the assessee in the present appeal. Even no such ground was raised before the DRP. 10. Having considered the rival submissions as well as relevant material on record, we note that when the income of the assessee is assessed under the normal provisions of the Act for the A.Y. under consideration then this issue as raised by the Ld. Authorized Representative during the course of argument is only academic in nature and does not require any adjudication. 10. Ground No. 2 is regarding addition made on account of TP adjustment on guarantee commission. The assessee company is engaged in the business of manufacturing high pressure seamless gas cylinders and CNG cylinders. For the A.Y. under consideration, the assessee has provided guarantee to its Associate Enterprises namely EKC Dubai and EKC China for taking term loan from banks. The assessee has charged guarantee commission at the rate of 0.5% Per Annum from EKC Dubai, however, no guarantee commission was charged from EKC China because of the alleged regulations prohibiting such guarantee commission. Apart from this, the assessee has also provided corporate guarantee to CP Industries fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.58% Guarantee Commission to be charged (Difference) 1% (11.4310.38) 4% (14.35-10.38) 4.5% (9.58-5.03) No of days 365 365 347 Adjustment Proposed by TPO 56,54,125 76,80,000 9,24,06,576 11. The assessee challenged the proposed adjustment by raising the objection before the DRP. The DRP determined the ALP of guarantee fee at ₹ 1% for the guarantee given to EKC Dubai and 3% for guarantee given to EKC China and CPI USA. Accordingly, the DRP directed the Assessing Officer to restrict the adjustment. The Assessing Officer in the final order restricted the adjustment at ₹ 7,30,80,525/-. Thus both assessee as well as revenue are aggrieved by the directions of DRP and final order of Assessing Officer and filed the respective appeals on this issue before us. The revenue in its appeal has raised following grounds:- 1.On the facts and in the circumstances of the case and in law, the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Act. 14. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. At the outset, we note that for A.Y. 2007-08 as well as for A.Y. 2008-09, an identical issue was considered and decided by this Tribunal in assessee s own case. For the A.Y. 2008-09, the Tribunal vide its order dated 25.09.2014 in ITA No. 7073/Mum/2012 has held in para 9 as under:- 9. Now, coming to the merit of the addition so made, we found that the issue has already been decided by the Tribunal in immediately preceding year in assessee s own case, wherein charging of 0.5% guarantee commission from AE was held to be quite near to 0.6%, where assessee has paid independently to the ICICI bank and charging of guarantee commission @0.5% from its AE was held to be at arm s length. The precise observation of the bench for the assessment year 2007-08 are as under :- The universal application of rate of 3 percent for guarantee commission cannot be upheld in every case as it is largely dependent upon the terms and conditions, on which loan has been given, risk undertaken, relationship between the bank and the client, economic and business interest are some of the major f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und raised by the revenue is dismissed. 17. Ground No. 3 is regarding addition on account of TP adjustment in respect of loan advanced to EKC Dubai and EKC China. 18. The assessee provided loan to its AE at Dubai and China and charged the interest on the same as per details given below:- Particulars Amount (in USD) Date of giving loan Interest rate EKC Dubai 10 Million 29 October 2007 7% EKC Dubai 10 Million 9 April 2008 LIBOR + 1% EKC Dubai 1 Million 12 April 2008 LIBOR + 1% EKC Dubai 2.5 Million 12 April 2008 LIBOR + 1% EKC CHINA 2 Million 29 December 2007 7% EKC CHINA 0.5 Million 19 February 2007 7% EKC CHINA 0.5 Million 23 March 2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international rates should be used for the purpose of the comparability analysis. For this purpose, the London Inter Bank Offer Rate (LIBOR) is an internationally recognized rate for benchmarking loans denominated in foreign currency. For this purpose, reliance may be placed on the following decision of the coordinate bench :- i) Great Eastern Shipping Co.Ltd (ITA No 397/M/2012) dated 10 January 2014; ii) Mahindra Mahindra Limited (ITA No 7999/M/2011) dated 8 June 2012; iii) Hinduja Global Solutions Limited (ITA No 254/M/2013) dated 5 June 2013 iv) Aurionpro Solutions Limited (ITA No 7872/M/2011) dated 12 April 2013; v) Aurobindo Pharma Ltd (ITA No 1866/Hyd/2012) dated 29 November 2013; vi) Cotton Naturals (I) Pvt. Limited (ITA No 5855/Del/2012) dated 8 February 2013; vii) Siva Industries and Holdings Ltd. vs ACIT, IT Appeal No. 2148 (Mds.) of 2010; viii) Bharti Airtel Ltd (ITA No 5816/0el/201Z) dated 11 March 2014 ix) Infotech Enterprises Limited (ITA No 115/Hyd/2011) dated 16 January 2014; x) Kohinoor Foods Ltd (ITA Nos 3688-3691/0el/2012 and ITA Nos 3868-3869/0el/2012) dated 21 July 2014; and xi) Four Soft Ltd vs. OCIT, IT Appeal No. 1495 of 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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