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Cargill India Pvt. Ltd. Versus Assistant Commissioner of Income-tax, Circle 3 (1) , New Delhi

2015 (7) TMI 215 - ITAT DELHI

Transfer pricing adjustment - Held that:- Respectfully following the order in assessee’s own case for the assessment year 2006-07 this issue relating to adjustment in Arm’s Length Price is set aside to the AO for fresh adjudication as in the preceding year wherein held assessee was entitled to select most appropriate method for a group of similar transactions. In doing so, he is free to choose difference methods for different business activities which in the present case are manufacturing physic .....

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ive at the correct conclusion. In view of all facts and circumstances of the case as explained above we deem it appropriate to remit back the whole issue relating to transfer pricing to the office of Assessing Officer who will re-adjudicate the issue keeping in view all facts and circumstances. - Decided in favour of assessee for statistical purposes.

Disallowance u/s 40(a)(i) of the Act for discounting charges - Held that:- Since the facts involved for the year under consideration fo .....

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ame amount cannot be disallowed by invoking section 40(a)(i) of the Act. - Decided in favour of assessee.

Addition on account of deemed dividend u/s 2(22)(e) - Held that:- As decided in assessee's for the assessment year 2006-07 Assessing Officer himself arrived at the conclusion that assessee was not a direct registered shareholder in the lender company, therefore, relying upon various judgments as relied upon by Ld AR the loan received by assessee cannot be treated as deemed dividen .....

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come was assessable and further provided that such income from which tax was deducted was disclosed in the return of income filed by assessee for that relevant assessment year. The assessee in the present case did not file such certificates within prescribed period of two years but filed these before the assessment was completed on 26.8.2010. However, various provisions of Act suggest that tax payable will always be after giving credit of tax deducted at source from the income of assessee. There .....

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peal by the assessee against the order dated 28.10.2010 passed by the AO in pursuant to the directions of the DRP dated 09.08.2011 for the assessment year 2007-08, u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act). 2. Following grounds have been raised in this appeal: 1. Grounds relating to Transfer Pricing matters 1.1 The impugned assessment order passed under section 143(3) read with Section 144C of the Income Tax Act, 1961 ( the Act ) relating to Assessme .....

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the extent additions are made to returned income as the same are made in gross violation of the principles of natural justice without considering all the relevant materials on record and by relying on irrelevant materials. 1.3 On the facts and in the circumstances of the case and in law, the Hon ble DRP erred in partly confirming the draft order passed by the Learned Assistant Commissioner of Income Tax, Circle 3(1), New Delhi (hereinafter referred to as AO ) thereby partly confirming the order .....

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appropriate PLI in the facts of the case. 1.3.2 The Hon ble DRP & Learned TPO erred in not considering the fact that all underlying international transactions of merchanting activities were undertaken by the appellant at market prices and ignoring the Comparable Uncontrolled Prices submitted by the appellant to support the same. 1.3.3 The Hon ble DRP & Learned TPO erred in using trading companies as comparable to the appellant despite the fact that the appellant s economic value add is s .....

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grave;-vis the comparable companies, used for the purpose of benchmarking the impugned international transactions. 1.3.6 The Hon ble DRP & Learned TPO erred in directing use of single year data as against the multiple year data used by the appellant, to compute the arm s length price of the international transaction of the appellant using TNMM method. 1.3.7 The Hon ble DRP erred in not directing Learned TPO to allow a variation of 5 percent in determining the arm s length price. 1.3.8 The Ho .....

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67,319/- under section 40(a)(i) of the Act. 2.1.1 That the Hon ble DRP and Learned AO erred in facts and in law in holding that the assessee was liable to withhold tax under section 195 of the Act with respect to discounting charges incurred by it while getting Demand Promissory Notes ( PN ) discounted with CTSFA. 2.1.2 That on the facts and circumstances of the case and in law, the Hon ble DRP and Learned AO failed to appreciate that the discounting of PN results in business income for CTSFA, a .....

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but has merely sold the PN at a discount. 2.1.4 That on the facts and circumstances of the case and in law, the Hon ble DRP and Learned AO erred in holding that the discounting charges were interest under section 2(28A) of the Act and therefore liable for tax withholding under section 195 of the Act. The Hon ble DRP and Learned AO also erred in completely ignoring the circulars issued by the Central Board of Direct Taxes clarifying to the opposite effect. 2.1.5 Without prejudice to above, the Ho .....

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Private Limited ( CGTIPL ) on the same facts have held that the said discounting charges are not interest and therefore, tax is not deductible under section 195 and hence cannot be disallowed under section 40(a)(i) of the Act. 2.1.7 That on the facts and circumstances of the case and in law, the Hon ble DRP and Learned AO erred in completely ignoring the ruling of the Hon ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. and disallowing the discounting charges on the ground t .....

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n the hands of the assessee to the extent of accumulated profits in the books of CGTIPL. 2.2.1 That on the facts and circumstances of the case an in law, the Hon ble DRP and Learned AO erred in not appreciating that the aforesaid loan received from CGTIPL does not satisfy the conditions of 2(22)(e) of the Act and hence cannot be taxed as deemed dividend in the hands of assessee. 2.2.2 The Hon ble DRP has erred in law in declining to intervene in the matter as same was pending with CIT(A) and ITA .....

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come. The above grounds are independent and without prejudice to each other. The Appellant craves leave to add, alter, supplement, amend, vary, withdraw or otherwise modify the ground mentioned herein above at or before the time of hearing. 3. The present case was fixed for hearing on 16.03.2015, during the course of hearing the ld. Counsel for the assessee Mr. Iyar, CA stated that all the issues raised in this appeal are covered vide order dated 28.11.2013 in ITA No. 4095/Del/2010 for the asses .....

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. A. K. Singh who was not present in the Court, sought adjournment and misrepresented the fact. Accordingly, instead of giving an adjournment, pass over was given in the batch of 7 to 8 appeals wherein the ld. Standing Counsel had also stated that he does not have the authority to argue those appeals. Thus, where the issue of lack of authority was raised, the appeals were passed over and the ld. Standing Counsel, was required to address the remaining appeals on the cause list where he had author .....

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ad been argued as a covered appeal, where the benefit of the arguments of the ld. AR was not available to the ld. CIT DR. In these circumstances the ld. CIT DR sought time to study the same which was given and the appeal was adjourned to 25.03.2015. It is unfortunate that on 19.03.2015 itself, the ld. CIT DR instead of condemning the misbehavior of the ld. Standing Counsel, objected to the recording of the Court proceedings in regard to the misbehavior and misdemeanor of the ld. Standing Counsel .....

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his submissions. Right till the end of the submissions, there was no one on behalf of the Revenue either to seek date or make representation. In these circumstances, the adjournment was rejected and the appeal was heard. In the present case, passing of the order was delayed presuming that the Revenue might seek an opportunity to address the issues by moving an appropriate petition. Since no such request till date was made on the face of apathy of the Revenue representing the case, we propose to .....

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g Transactional Net Martin Method (TNMM). 5. The facts of the case in brief are that the assessee is a wholly owned Indian subsidiary of M/s Cargil Mauritius Ltd. and was engaged in the business of import, export and domestic trading in edible oils, fertilizers, grains, oil seeds and other food products/processed food. It was also engaged in the business of processing crude oil. The assessee filed its return of income on 31.10.2007 declaring loss of ₹ 136,18,93,333/-. Later on, the case wa .....

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Tax Act, 1961 (hereinafter referred to as the Act) dated 28.10.2010 wherein he had done an upward adjustment of ₹ 2,811,825,553/- while determining the Arm s Length Price of the international transactions. Thereafter the AO passed draft of the proposed assessment order on 20.12.2010. The assessee filed following objections before the Dispute Resolution Panel (DRP): Ground 1: The Learned TPO has erred in rejecting broker quotes in respect of import of oil as valid CUP. Ground 2: The Learned .....

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is same as that of normal trader. Ground 6: The Learned TPO has erred in concluding that PLI used for ROVAC analysis is not appropriate in the case of merchanting activities. Ground 7: The comparable companies identified by the TPO to benchmark the assessee s operating margin from the merchanting segment are inappropriate. Ground 8: The Learned TPO has erred in applying the turnover filter of INR 500 Crores to reject companies identified by the assessee as part of the corroborative TNMM analysis .....

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TPO have erred in law in not applying the Proviso to section 92C of the Act and has failed to allow the Appellant the benefit of upward variation of 5 percent in determining the Arm s Length Price. 6. The assessee filed the following evidences for the international transaction pertaining to the import of oil before the DRP: a) Comparable quotes from Chicago Board of Trade ( CBOT ); b) Internal comparable uncontrolled prices; c) Comparable uncontrolled transaction prices for import of oil source .....

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where data from CBOT itself was considered as comparable uncontrolled price information. Accordingly, the DRP was of the view that CBOT was an appropriate use of data for applying CUP method. The DRP also observed that the assessee made an adjustment for SOAM premium to the CBOT data to arrive at prices at which trades were carried out between buyers and sellers in the open market and the basis of this adjustment was based on data provided by an international body- The Agricultural Commodities .....

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ring that the sale and purchase were at prevailing international market prices and that the functions in the current merchanting activities were very less as compared to a regular trade. It was further stated that the buyer and seller had already indentified each other and the property in goods involved in the merchanting activities was transferred on an instantaneous basis, hence no risk on account of commodity price and inventory transfers on back to back basis. It was also stated that Return .....

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t the Food Corporation of India (FCI) was a Government company and reports a nil profit for the year under consideration and its sales were significantly higher than the assessee is merchanting activities, therefore, it was not comparable. It was also stated that the turnover filter was arbitrary and leads to subjectivity in the analysis. The assessee argued before the DRP that its operating margin had been incorrectly computed and that the interest income should have been considered operating. .....

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as raised the objections which have been discussed above. Our observations with regard to these objections are as under: 1. The TPO in his order has clearly shown that all the transactions of purchase and sale are carried out by the assessee in its own name which was evident from the fact that the assessee had reported all the sales and purchase in the audited annual accounts. It has never been the claim of the assessee that its audited annual accounts are liable to be rejected. Therefore we don .....

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y ratio by the TPO and has relied upon the OECD Guidelines. The assessee has also placed reliance on Schefenacker Mohterson Ltd. We have considered the objection of the assessee in this regard. Relevant part of the rules is reproduced: 10B(1)(e) transactional net margin method, by which,- (i) The net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed o .....

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expense, any interest payment etc.) and tax. The definition of operating revenue does not exclude the revenue generated from the sales. Similarly the definition of Operating Cost does not exclude the cost of purchases. However it was seen from the computation of tested party margin that the value of sales and value of purchases have not been considered as part of the operating revenue and operating cost respectively. The PLI represents the margin earned by the tested party with reference to the .....

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fected or assets employed or to be employed . In view of the facts and circumstances of the case we reject the objection of the assessee and direct that Ground No. 6 does not require any interference. 3. Objections at Ground Nos. 7 and 8 are discussed together. The TPO has chosen the comparables for the merchanting segment by way of a logical search carried out by him. The filters have been chosen by the TPO based on the turnover of the assessee. It is a fact that a company having huge turnover .....

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e reached a logical conclusion. The objection of the assessee that Food Corporation of India should not be selected as a comparable also does not hold good. It has been pointed out by the assessee that FCI is a Government Corporation and it is getting subsidy from the Government and therefore it should not be considered as a comparable. The TPO has verified the financials of the company on the Prowess and it was noticed by him that this company is having profits and the same are reflected in the .....

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ve seen that the TPO has relied upon various judicial pronouncements in this regard and have reached a logical conclusion. We therefore direct that these grounds do not require any interference. 5. In view of the above findings the TPO is directed to recompute the arm s length price of the international transactions of the assessee in the merchanting segment. For benchmarking the international transactions the TPO shall use following two comparables: No. Company Name Selected by TPO/Assessee Seg .....

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CD Guidelines, which also suggests the use of multiple year data. The assessee argues that use of multiple year data normalizes the operating margins of comparable companies and reflects a better trend of industry in which the assessee operates. 9) Ground No. 12: Benefit of range under proviso to section 92C The assessee has argued that while making adjustments to merchanting and manufacturing segments, the assessee should get the benefit of standard deduction allowed by the proviso to section 9 .....

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uring segment. The same has been checked and found to be correct. Accordingly the revised adjustment is given below: Segment As per TPO order As per revised order Merchanting Segment Rs.992520677 Rs.992520677/- Merchanting Segment Rs.1819304876/- Nil Total Adjustment Rs.2811825533/- Rs.992520677/- Thus, the AO is therefore directed to reduce the income of the assessee by an amount of ₹ 1819304876/- Therefore, in view of the recommendation of the TPO as above, an amount of ₹ 992520677 .....

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ct, 1961 have been initiated separately. 10. Now the assessee is in appeal. The ld. Counsel for the assessee at the very outset stated that this issue is squarely covered vide order dated 28.11.2013 in ITA No. 4095/Del/2010 for the assessment year 2006-07 in assessee s own case. He also submitted that all the issues raised in the this year were also raised in the preceding year. For the aforesaid contention, he furnished comparative chart of grounds in assessment years 2006-07 and 2007-08, copy .....

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. 4095/Del/2010 wherein the relevant findings have been given in paras 26 to 31 which read as under: 26. We have heard the rival submissions of both the parties and have gone through the material available on record. First we take up the issue of Transfer Pricing. Ground No.1.1 is general in nature and needs no adjudication. Ground No.1.2 to ground No.1.12 revolves around the grievance of assessee with respect to action of Assessing Officer by which he combined the three business activities of a .....

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first go to the relevant rules contained in rules 10A, 10B & 10C:- Rule 10A: Rule 10A provides meaning of expression used in computation of ALP and clause (d) defines transaction to include number of closely linked transaction. Rule 10B(1)(e): For the purpose of sub section (2) of section92C, the arm s length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method in the following manner namely:- a) Comparable u .....

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llowing as contained in sub clause (ii) of Rule 10B which reads as under:- For the purpose of sub rule (i) the comparability of an international transaction within uncontrolled transaction shall be judged with reference to the following namely:- a) The specific characteristic of the property transferred or services provided in either transaction; b) The functions performed taking into account the assets employed or to be employed and the risks assumed by the respective parties to the transaction .....

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ll economic development and level of competition and whether the markets are wholesale or retail. Rule 10C(i) deals with most appropriate method which can be used by an assessee and which reads as under:- 10C. (1) For the purposes of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction or specified domestic transaction, and which provides the most reliable measure of an arm .....

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employed or to be employed and risks assumed by such enterprises; (c) the availability, coverage and reliability of data necessary for application of the method; (d) the degree of comparability existing between 72[the international transaction or the specified domestic transaction] and the uncontrolled transaction and between the enterprises entering into such transactions; (e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between 73[the i .....

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nal transaction and comparables uncontrolled transaction and then arm s length price is to be determined with respect to functions comparables, assets employed and risks assumed by the parties. 28. Here in the present case, the assessee was engaged into three distinct activities of manufacturing, physical trade and merchanting. Involvement of assets into three different business activities cannot be the same. In the case of manufacturing activity there can be huge investments in the form of fixe .....

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ities carried different functions and risk profile. Therefore, if the Assessing Officer combined all the three business activities for the purpose of determining companywide TNMM it should have been compared with TNMM of comparables having same functions and risk profile. In the alternative, the margin of three different activities should have been separately calculated and compared with the margin of comparables enterprises having similar functions and risk profile. Therefore, we come to the co .....

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companies four companies are manufacturing companies which are not fully comparable with the business profile and risk profile of the assessee company. 30. Regarding additional evidence filed by the assessee in relation to documents from COVAT regarding import of oil, we find that assessee was prevented by sufficient cause for not filing these during assessment /DRP proceedings as the same were directed to be filed by DRP in assessee s own case for assessment year 2007-08 & 2008-09 and DRP .....

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edless to say that assessee will be given sufficient opportunity of being heard. In view of the above, ground No.1 is allowed for statistical purposes. 11. Since the facts for the year under consideration are identical to the facts involved in the aforesaid referred to assessment year 2006-07. So, respectfully following the order dated 28.11.2013 in assessee s own case for the assessment year 2006-07 in ITA No. 4095/Del/2010 this issue relating to adjustment in Arm s Length Price is set aside to .....

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was getting bills discounted from its Singapore associated enterprise for receiving money on the strength of sale of bills. The assessee paid interest to CTSFA and CISA for this discounting. During the course of assessment proceedings, the AO asked the assessee to explain as to why the discounting charges should not be disallowed as was done in the preceding assessment years 2004-05 to 2006-07. The assessee submitted that since the discounting charges were business income of these offshore enti .....

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e Limited, Singapore ( CTSFA ) and Cargill International SA ( CISA ) (hereinafter referred collectively as CTSFA). 2. As per the prevailing trading practice, the assessee extends credit period to its overseas buyers of the commodities and accordingly when the assessee raises invoices on them, instead of receiving a prompt payment, the foreign buyers provide a PN to the assessee. 3. To ensure the optimum utilization of available working capital funds, the assessee enters into a discounting agreem .....

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is regarded as discount value; 3. CTSFA does not get any right against the assessee in case of any dispute or default with or by overseas buyer in encashment of PN on maturity or otherwise; and 4. CTSFA gets the right to collect the money in its own name from the overseas buyer who has accepted the PN. In view of the above, it can be said that once the PN is purchased by CTSFA, the assessee, who is the seller of PN, discharge all its liability. Thus, the property in the PN, including all risks .....

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hat this transaction of discounting can be compared with a transaction that involves taking a loan equal to the net amount received from the CTSFA and repaying this loan along with interest to them through the foreign buyer and hence such discount is prima facie nothing but interest only. 1. Our legal submission 1. It is humbly submitted that section 195 of the act reads as under: 195(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any intere .....

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ent, only then he is required to deduct tax at source. Therefore, for the purpose of deduction of tax at source under section 195 it is essential that payment made to non-resident should be chargeable to tax in India in the hands of nonresident. 2. It is humbly submitted that interest has been exhaustively defined under section 2(28A) of the Act which reads as under: Interest means interest payable in any manner in respect of any money borrowed or debt incurred (including a deposit, claim or oth .....

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s interest if it is paid in respect of above: 1. Money borrowed Oxford dictionary defines the term borrow a acquire temporarily with the promise or intention of returning . Calcutta High Court in case of Commissioner of Excess Profits Tax Vs Bhartia Electric Steel Co. Ltd. (25 ITR 192) In my view, the words borrowed money were used in rule 5A of the First Schedule and Rule 24 of the Second Schedule to indicate and denote money actually borrowed as a loan in the ordinary sense and not also to ind .....

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is owed, esp. money and a state of obligation to pay something owed . Supreme Court in case of Kesoram Industries and Cotton Mills Ltd. VS CWT (59 ITR 767W) The word owe meant to be under an obligation to pay. It did not really add to the meaning of the word debt . That debt owed within the meaning of section 2(m) of the Wealth Tax Act, 1957 could be defined as the liability to pay in present or in future and ascertainable sum of money that, therefore, the amount of the provision for payment of .....

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f certain conditions. In the present case, the assessee has sold the PN at a discount to CTSFA on without recourse basis. The assessee has neither borrowed any money nor incurred any debit towards as once the PN are discounted by them, the CTSFA does not have any right to recover the amount legally from the assessee in case of any default in payment by overseas buyer. They collect the amount of PN from the overseas buyer in its own name and not on behalf of the assessee. Thus, this discounting t .....

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n or made in India, but does not include; 1. interest referred to in sub-section (18) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934); 2. discount on treasury bills; (Emphasis supplied) Thus, the definition of interest in the Interest-tax Act, 1974 specifically includes discount on promissory notes and bills of exchange . However, on the other hand, the definition of interest as per section 2(28A) of the Income-tax Act, 1961 is an exhaustive definition and does not have specific .....

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such discounting charges cannot be characterized as interest. As per Article 11(3) the definition of interest is provided in an exhaustive manner. 3. The term Interest as used in this Article means income from debit claims of every, kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor s profits; and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, .....

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sions of Income-tax Act is wider. As humbly submitted above, the term Debt has been elaborated by Hon ble Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd. Vs CWT (supra). While considering the definition of the word debt it has been held that there was no conflict on the definition of the word debt and that all the decisions agreed that the meaning of the expression debt may take color from the provisions of the concerned Act, it may have different shades of meaning. It was .....

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by the assessee, is typically on without recourse basis. Therefore, no present or future liability exists or can be assumed to exist between the assessee and CTSFA. Thus, nothing can bring the alleged discounting transaction within the framework of debt or borrowings . 15. The assessee placed the reliance on the Circular Nos. 65 & 647 dated 02.09.1971 and 22.03.1993 respectively issued by the CBDT. The reliance was also placed on the following case laws: Ø Dena Bank Vs The Madhya Pra .....

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ions of the assessee and made the addition of ₹ 274,567,319/-. The AO mentioned that the DRP has also confirmed the order of the TPO by observing as under: It is seen that this matter has been in dispute between the department and the assessee in AYs 2004-05, 2005-06 and 2006-07. The matter is before the Supreme Court for AYs 2004- 05 & 2005-06 and ITAT for AY 2006-07. This being the position, no legal finality on the matter can be concluded by the DRP. Accordingly, for the present, th .....

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d by the department against the said order has been dismissed by the Hon ble Supreme Court. 19. We have considered the submissions of ld. Counsel for the assessee and carefully gone through the material available on the record. It is noticed that an identical issue having similar facts was subject matter of the assessee s appeal for the assessment year 2006-07 in ITA No. 4095/Del/2010 (supra) wherein vide order dated 28.11.2013. The issue has been decided in favour of the assessee and relevant f .....

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obal India Pvt. Ltd. wherein assessment year 2004-05 in I.T.A.No.684/Del/2009, the Tribunal had made the following observations:- The discounting charges are not in the nature of interest paid by the assessee. Rather after deducting discount, the assessee received net amount of bill of exchange accepted by the purchaser CFA not having any PE in India is not liable to tax in respect of such discount earned by it and hence the assessee is not under obligation to deduct tax at source u/s 195 of the .....

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fore any amount paid is construed as interest, it has to be established that the same is payable in respect of any money borrowed or debt incurred. In the present case, on the aforesaid facts appearing on record, in our opinion the Tribunal rightly held that the discount charges paid were not in respect of any debt incurred or money borrowed. Instead the assessee had merely discounted the sale consideration respectively on sale of goods. Xxxxxxxxxxx Xxxxxxxxxxx 11. We are in agreement with the a .....

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3. A question has been recently raised as to whether the difference between the issue price and face value of these instruments should be treated as interest in which case it would be liable to deduction of tax at source u/s 194A of the Income Tax Act, 1961 or it should be treated as discount which is not liable to deduction of tax at source. 4. It is clarified that the information of all concerned that the difference between the issue price and the face value of the Commercial Papers and the Ce .....

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er find that Hon'ble Supreme Court has dismissed SLP filed by the revenue against the order of Hon'ble Delhi High Court. 34. In view of the above, we find that the issue is squarely covered in favour of assessee. Therefore ground No. 2..1.2 to ground No.2.1.7 are allowed. 20. Since the facts involved for the year under consideration for this issue are similar to the facts involved in the preceding assessment year 2006-07. So, respectfully following the aforesaid referred to earlier order .....

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dia) Pvt. Ltd. (CGTIPL). This loan was repaid by the assessee during the same year. The AO observed that CGTIPL was a subsidiary with 99% of share holding by Cargill International Trading Pte. Ltd. (CITPL), a tax resident of Singapore who was engaged in the trading of commodity of products such as crude palm oil, wheat etc. The AO further observed that the CITPL was 100% subsidiary of Cargill Group and the assessee is wholly owned subsidiary of Cargill Mauritius Ltd. (CML) which is a tax residen .....

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the provisions of section 2(22)(e) of the Act were not applicable. It was further stated that for the provisions of section 2(22)(e) of the Act to be invoked the person to whom the loan has been advanced by the company must be: 1. a registered shareholder; and 2. must be the beneficial owner of shares holding not less than 10% of the voting power It was also stated that if either of the above two conditions was not fulfilled the provisions of section 2(22)(e) of the Act should not have been invo .....

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. The next question which arises is that who is a shareholder? for the purpose of section 2(22)(e). The answer to this question is available in the next few lines of section 2(22)(e) itself, wherein it is stated that shareholder is a person who is the beneficial owner of shares holding not less than 10% of the voting power . Thus, as per section 2(22)(e), shareholder, for the purposes of section 2(22)(e), means a person who is the beneficial owner of shares holding not less than 10% of voting po .....

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rt pronounced on the subject in the years prior to 1987. 5.7 it is pertinent to point out that the case laws relied upon by the assessee pertain to years very much prior to the year 1987 and thus, these decisions have been duly overruled in view of the amendment of the Act in the year 1987. The law at the time when these judgments were pronounced by the Hon ble Supreme Court was that any payment by way of an advance or a loan to a shareholder, being a person who has substantial interest in the c .....

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ection 2(22)(e) itself as being a person who is the beneficial owner of shares holding not less than 10% of the voting power. 5.8 In the instant case, Cargill Inc. is the ultimate holding company of both the Assessee Company and CGTIPL. Cargill Inc., USA is the beneficial owner of the shares holding not less than 10% of the share in the CGTIPL, through the assessee company. It can be explained by a simple example. If A is holding substantial interest in B and B is holding substantial interest in .....

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The AO incorporated the submissions of the assessee on account of quantum addition in para 5.11 of the assessment order, the same are reproduced verbatim as under: 5.11 Regarding the quantum of addition under section 2(22)(e), the assessee vide submission dated 15 December 2010 has submitted as under: 2.18 Without prejudice to our above submission, it is humbly submitted that if such loan is to be treated as deemed dividend under section 2(22)(e), then it can be taxed only to the extent of accu .....

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he liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place. On perusal of above, it is clear that loan can be treated as deemed dividend only to the extent of accumulated profits up to the date on which loan is g .....

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thus, accumulated profit left is ₹ 32,810,658/- of CGTIPL till end of the relevant financial year i.e. 2006-07. Therefore, without prejudice to our submission that no addition should be made under section 2(22)(e) of the Act, the addition should be restricted to the balance accumulated profits of CGTIPL. 26. The AO although mentioned that the DRP had not given any legal finality on this matter since this issue is pending before the Hon ble Supreme Court for the assessment years 2004-05 an .....

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ions it is noticed that an identical issue having similar facts was a subject matter of the assessee s appeal in ITA No. 4095/Del/2010 for the assessment year 2006-07 wherein vide order dated 28.11.2013, the issue has been decided in favour of the assessee and the relevant findings have been given in para 35 which read as under: 35. Ground No.2.2 to 2.4. deals with the issue of deemed dividend u/s 2(22)(e) of the Act. The assessee received a loan of ₹ 21.74 crores from M/s Cargill Global T .....

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olding and none of the shares of lender company were held by assessee company and therefore provisions of section 2(22)(e) were not applicable. For the sake of convenience, we analysis the provisions of section 2(22)(e). Section 2(22)(e) applies to a shareholder being a person who is the beneficial owner of share holdings not less than 10% of the voting power of that company. Thus in order to attract the provisions of section 2(22)(e) the person should be a :- a) shareholder; b) should be a bene .....

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both assessee company and lender company was the beneficial owner of shares and therefore he held that assessee was indirectly holder of shares in the lender company. We find that the Assessing Officer has arrived at this conclusion on the basis of surmises and conjectures only as he himself at page 10 of his assessment order recorded the following findings:- Thus though the assessee company is not holding shares in CGIPTL directly, indirectly the assessee company is holding substantial interes .....

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nvolved in the preceding year. So, respectfully following aforesaid referred to order dated 28.11.2013 in assessee s own case for the assessment year 2006-07 in ITA No. 4095/Del/2010, this issue is decided in favour of the assessee. 30. The last issue vide Ground No. 2.3 relates to the credit of additional TDS amounting to ₹ 22,225/- not granted to the assessee. As regards to the above issue the ld. Counsel for the assessee at the very outset stated that this issue is similar to the issue .....

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