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2015 (6) TMI 319 - ITAT MUMBAI

2015 (6) TMI 319 - ITAT MUMBAI - TMI - Determining armís length adjustment in respect of loan given to its wholly owned subsidiaries - Held that:- The assessee has given advance to 100% wholly owned foreign subsidiaries on which no interest has been charged. Since the advance was given to its AE without charging interest, the transaction comes under the purview of international transaction requiring adjustment on account of armís length price u/s 92. It does not matter even if advance is given o .....

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the case of VVF Ltd. vs. DCIT (2010 (1) TMI 781 - ITAT, Mumbai|) and DCIT vs. Tech Mahindra Ltd. (2011 (6) TMI 140 - ITAT, MUMBAI ) also supports this issue. Respectfully following the above decisions we direct the A.O. to make armís length adjustment by applying the LIBOR rate of interest. From the record we found that part of loan was subsequently converted into equity. To the extent of loan converted into equity, no transfer pricing adjustment is required with effect to the date of such conv .....

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acquisition of capital assets - particularly an asset which has been under construction for more than a decade. The total non-interest bearing funds available with the assessee as of 31st March 2006 are ₹ 141.56 crores and after excluding the current year's profit, the same are ₹ 123.19 crores. The expenditure on capital assets till the year end is only ₹ 5.77 crores. Hence it would be rational to state that the same has been funded from owned funds. Accordingly we do not find .....

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has actually been done at a higher amount. This issue is also covered by the decision of the Tribunal in assesseeís own case for assessment years 2002-03 to 2005-06 as the facts and circumstances of the case during the year under consideration are same, respectfully following the order of Tribunal we do not find any merit in the action of the lower authorities for the disallowance made arising out of the sales to subsidiary company. - Decided in favour of assessee. - I .T.A. No. 8189/Mum/2010, .....

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. 2. Common grounds have been taken by the assessee in both these years, therefore, these were heard together and disposed of by this consolidated order. 3. The following grounds have been by the assessee in A.Y. 2006-07:- The Additional Commissioner of Income Tax - Range 5(3), Mumbai erred in making as assessment u/s 143(3) r.w.s. 144C(13) and erred in:- 1.1 in making an adjustment u/s 92CA towards interest of ₹ 45,01,303 that ought to have been charged to overseas subsidiaries. 1.2 in no .....

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ing that no funds had been specifically borrowed for the purpose of making this investment and that hence nothing was disallowable on this account. 2.3 in not appreciating that the appellant had adequate non interest bearing funds available with it and that hence no disallowance of interest was called for. 3.1 in disallowing interest paid to the extent that sums of money were advanced to subsidiary on an interest free basis. 3.2 in not appreciating that the assessee has shown commercial expedien .....

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wherein transfer pricing adjustment was sought on account of interest free loans given to the following wholly owned foreign subsidiaries:- 1. Shrenuj Mauritius Pvt. Ltd. ₹ 18,90,000/- 2. Astral USA Inc. ₹ 2,36,34,025/- 3. Shrenuj DMCC ₹ 4,94,97,675/- The A.O. found that the assessee has also given interest bearing loan of ₹ 5,31,95,406/- @ 6% to Daily Jewellery Ltd., a foreign subsidiary, in which the assessee company held 51% of the shareholding. Since no interest was c .....

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charged interest in respect of all loans given to Associated Enterprises that are not 100% owned by it. In respect of subsidiaries, wherein the assessee owns 100% of the share capital (Wholly Owned Subsidiaries - "WOS '), no interest is charged for the same. As per the ld. A.R. the assessee has provided external comparables of reputed companies such as Infosys Technologies Limited, Wockhardt Limited wherein interest free loans have been provided to their 100% subsidiaries. Further, with .....

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r argued by the ld. A.R. that this is a case where no interest has been charged on the loans given, transfer pricing provisions applicable only when something has been charged to determine whether the income is under reported. Since there is no charge at all in this case, the transaction is on capital account and cannot be subject matter of Transfer Pricing and for this purpose relied on Bombay HC - Vodafone 386 ITR 1. As per the ld. A.R. the need to charge interest would arise only in a situati .....

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8377; 103.16 crores warranting no addition/disallowance on account of interest. For this purpose, reliance was placed on the decision of Hon ble Bombay High Court in the case of Reliance Utilities Ltd. 313 ITR 340. Since there is no cost to the assessee of the funds lent and hence the need to charge an ALP for these loans does not arise. It was also argued by the ld. A.R. that the loans given to wholly owned subsidiary cannot be anything but quasi equity for the reason that they are wholly owned .....

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placed on Delhi ITAT judgment in Bharati Airtel in ITA No. 5816/Del/2012 and on Ahm ITAT judgment in Micro Inks Ltd. (157 TTJ 289.) 8. It was further submitted that if in addition to the giving of a loan there are commercial transactions between the holding company and the WOS then the loan is not a loan simpliciter and the need to charge interest is not there. In case of Shrenuj DMCC, there are sales of diamonds to them during the year of a magnitude of 4681 carats totaling to ₹ 9.60 cro .....

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nd not any domestic rate of interest (also because the interest free funds are anyway higher than loan given). Reliance placed on Varro Engineering P Ltd. in ITA No. 2482/PN/2012 - Pune, ITAT. It was also emphasized by the ld. A.R. that no bps to be added to LIBOR - Bps is an adjustment for risk. Just as LIBOR is an interbank rate, here is a loan between parent and a WOS - and it s almost like the same entity because complete risk of WOS is borne by the holding Co - hence there can be no further .....

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case of interest free loans given to wholly owned subsidiary as per the rate of interest to be determined on Euribor rate of interest i.e. rates prevailing in Europe. 11. On the other hand, it was argued by the ld. D.R. that giving loans to the Associated Enterprises comes under the definition of international transactions, therefore, non-charging of interest requires adjustment for arriving at ALP in respect of such advances. The ld. D.R. relied on the decision of Tata Autocomp Systems Ltd. vs .....

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ld. A.O. has correctly applied the rate of interest of other AE while computing the ALP in respect of loan given to the subsidiaries. 12. We have considered the rival submissions and found that the assessee has given advance to 100% wholly owned foreign subsidiaries on which no interest has been charged. Since the advance was given to its AE without charging interest, the transaction comes under the purview of international transaction requiring adjustment on account of arm s length price u/s 92 .....

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revailing in Europe. Similarly the decision of Tribunal in the case of VVF Ltd. vs. DCIT (ITA No. 673/Mum/06 and in the case of DCIT vs. Tech Mahindra Ltd. (46 SOT 141) also supports this issue. Respectfully following the decision of Hon ble jurisdictional High Court in the case of CIT vs. Tata Autocomp Systems Ltd., (IT Appeal No. 1320 of 2012 dated 3-2-2015) vis-à-vis the decision of Tribunal as cited above, we direct the A.O. to make arm s length adjustment by applying the LIBOR rate o .....

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amond Bourse - BDB. We find that the assessee had been allotted an office space at Bharat Diamond Bourse which was under construction and various installments were being paid for the same. The same was in the nature of advance towards acquisition of an office space in a Bourse which will house various diamond manufacturing and trading companies in Mumbai. For this purpose, the assessee had made advances to M/s Bharat Diamond Bourse amounting ₹ 5,77,27,OOO/- out of its owned funds i.e. asse .....

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he said asset for accounting purposes and which is being claimed as a deductible for tax purposes. We find that the said Bourse is not being constructed specifically for the assessee and the assessee is only required to pay installments towards cost as and when called for. The process of setting up the Bourse has been going on for a long period of time. The assessee has not borrowed any money specifically for the payment of these installments and hence since there is no capital borrowed for the .....

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as of 31st March 2006 are ₹ 141.56 crores and after excluding the current year's profit, the same are ₹ 123.19 crores. The expenditure on capital assets till the year end is only ₹ 5.77 crores. Hence it would be rational to state that the same has been funded from owned funds. Accordingly we do not find any justification for the disallowance of interest expense as made by lower authorities. Above issue is also covered in favour of the assessee by the decision of the Tribuna .....

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irmity. We, therefore, sustain the order of the CIT(A) consequentially rejecting the ground taken by the department. (This observation shall be used for deciding ground No. 7 raised by the assessee, wherein, it shall result into allowance of the ground). 15. As the facts and circumstances of the issue during the year under consideration are same, we respectfully following the order of the Tribunal in assessee s own case direct the A.O. to delete the disallowance made by him in both the years und .....

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ee funds at its disposal represented by accumulated profits over the years and no amount was borrowed specifically for the purpose of giving the said loans. From the record we found that Aditi Diaimpex is 100% owned subsidiary of the assessee and is engaged in the same business as the assessee viz. manufacturing of jewellery for exports. Assessee also has trade transactions with it - it purchases jewellery from them to fill orders on hand if such jewellery is not available as a part of its stock .....

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is to be assumed that since the assessee is a rational businessman, these loans have been given from the interest free funds available, [2003] 260 ITR 637. The total noninterest bearing funds available with the assessee as of 31st March 2006 are ₹ 141.56 crores and after excluding the current year's profit, the same are ₹ 123.19 crores. The aggregate loans given to the subsidiary is merely ₹ 6.42 crores. In view of decision of Hon ble jurisdictional High Court in the case .....

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there is no dispute to the fact that the assessee was having sufficient interest free funds, we do not find and merit in the disallowance made by the A.O. in respect of advances given to its subsidiaries. This ground is also accordingly allowed. 20. In both the years under consideration the assessee is aggrieved for the disallowance arising out of purchases from subsidiary company. 21. Facts in brief are that the assessee in order to meet some of its pending orders, had purchased some ready jew .....

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sidiary company. It is the assessee who had orders to fill and needed the goods and the subsidiary merely provided these goods to the assessee instead of exporting them directly. However, nothing was brought on record by the A.O. to show that the price paid by the assessee was excessive as compared to the prevailing market price of similar goods available in the market, for making any disallowance u/s 40A(2) of the Act. The onus is on the Revenue to prove that assessee has paid to its sister con .....

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