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Manugraph India Ltd. Versus DCIT 3 (2) , Mumbai and vica-versa

2015 (11) TMI 741 - ITAT MUMBAI

Transfer Pricing Adjustment on account of interest on loans advanced to Associate Enterprise - Held that:- On the loan given to its AE, the assessee has charged interest rate worked out on the basis of six months at LIBOR + 2%, which worked out at 3.75%. This Arm’s Length interest was benchmarked by using Internal CUP on the basis of rate of interest paid on loans by the assessee availed from State Bank of India. However, the TPO has arrived at ALP 14.736% by taking the interest rate based on av .....

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ng Officer /TPO to adopt LIBOR +2% as Arm’s lengths interest. Thus, following the earlier year’s precedence, we also hold that interest rate charged by the assessee on the loan given should be benchmarked with LIBOR +2% as Arm’s Length and, therefore, no adjustment is called for.- Decided in favour of assessee.

Transfer Pricing Adjustment on account of Corporate Guarantee given by the assessee to the overseas bank in favour of its AE - Held that:- The Tribunal in AY 2008-09 has held t .....

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tion given by the assessee as incorporated to give consequential relief. - Decided partly in favour of assessee.

Legal claim with regard to DRUPA Exhibition expenses - Held that:- In view of the facts narrated by the Ld. Counsel, we direct the Assessing Officer to allow 1/4th of the exhibition expenses in this year also consistent with the treatment given by the Assessing Officer in AY 2009-10 - Decided in favour of assessee. - ITA No. : 491/Mum/2015, ITA No. : 1072/Mum/2015 - Dated:- .....

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first take-up assessee s appeal being ITA 491/Mum/2015 vide which following issues have been raised in the various grounds of appeal :- (i) Transfer Pricing Adjustment of ₹ 1,23,03,722/- on account of interest on loans advanced to Associate Enterprise; (ii) Transfer Pricing Adjustment of ₹ 64,74,975/- on account of Corporate Guarantee given by the assessee to the overseas bank in favour of its AE; (iii) Disallowance of ₹ 28,51,891/- u/s 14A; (iv) Legal claim with regard to DRU .....

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ing Machineries. The assessee during the year has entered into following international transactions with its AE :- S. No. Depreciation Name of AE Amount (In Rs.) i Sale of offset printing machines Manugraph Kenya Ltd 1,48,62,750 ii Advance given to AE Manugraph DGM, Inc. 10,15,10,000 iii Interest on advance given To AE Manugraph DGM, Inc. 48,31,400 iv Sale of spares to AE Manugraph DGM, Inc. 1,27,09,078 v Purchase from AE Manugraph DGM, Inc. 56,52,421 3. During the course of Transfer Pricing Pro .....

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tstanding loan Amount USD Period From Period To No. of Days Opening Balance 2,000,000.00 01.04.2009 31.03.2010 365 28.05.2009 1,000,000.00 29.05.2009 31.03.2010 307 23.06.2009 600,000.00 24.06.2009 31.03.2010 281 29.07.2009 600,000.00 30.07.2009 31.03.2010 245 25.09.2009 500,000.00 26.09.2009 31.03.2010 187 17.11.2009 1,000,000.00 18.11.2009 31.03.2010 134 28.12.2009 300,000.00 29.12.2009 31.03.2010 93 15.01.2010 300,000.00 16.01.2009 31.03.2010 75 12.03.2010 250,000.00 13.03.2009 31.03.2010 19 .....

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wever based on the finding given in the earlier assessment year, arrived at ALP of interest rate of 14.736% by considering the average yield rate based on DDB rated points based on the data collected u/s 133(6) from CRISIL and thereby, making the adjustment of ₹ 2,19,78,648/- on account of difference between rate of 14.736% as against the rate of 3.75% charged by the assessee. The DRP directed the TPO to consider the domestic cost of borrowing of the assessee plus markup of 3% as ALP for b .....

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n respect of loan provided to the assessee to its AE. The said decision is based on the decision of the co-ordinate Bench of the Tribunal in the case of Everest Kento Cylinder Ltd., in ITA 7073/Mum/2012 vide order dated 23.11.2012, which decision has now been confirmed by the Hon ble High Court vide order dated 8th May, 2015. Not only that, now the Delhi High Court in the case of Cotton Industrial (I) Pvt. Ltd. Income Tax Appeal No. 233 of 2014 order dated 27th March, 2015 has held that LIBOR ra .....

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ate of interest paid on loans by the assessee availed from State Bank of India. However, the TPO has arrived at ALP 14.736% by taking the interest rate based on average yield rate of DB rated points based on data collected from CRISIL. The DRP has reduced the said interest rate by holding that domestic cost of borrowing + mark-up of 3% should be applied which works out 9.90%. The applicability of interest rate based on LIBOR had come-up for consideration before the Tribunal in the case of the as .....

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terest rate charged by the assessee on the loan given should be benchmarked with LIBOR +2% as Arm s Length and, therefore, no adjustment is called for. Thus, ground no. 1 as raised by the assessee is treated as allowed. 8. In ground no. 2 read with various sub-grounds relates to addition of ₹ 69,74,975/- on account of corporate guarantee given by the assessee to its AE. 9. The assessee had given corporate guarantee/letter of comfort of ₹ 38.26 crores i.e. USD 7.25 million to PMC Bank .....

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as an international transaction, however in the Transfer Pricing Proceedings, TPO benchmarked the transaction of corporate guarantee by considering the difference between PLR rate and bank rate and such a difference was computed at 6%. Further the TPO adopted another method by adopting risk bearing rate by considering the difference between yield of A+ and BB rated points on which he worked out approximately rate of 6%. Accordingly, the TPO held that the assessee company should have charged on c .....

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0.5%. This decision again is based on the co-ordinate Bench of the Tribunal in the case of Everest Kento Cylinder Ltd. Thus, he submitted that following the earlier year s precedence, the corporate guarantee should be taken at @ of 0.5%. On the other hand, Ld. DR had strongly relied upon the order of the DRP. 11. After considering the relevant finding given in the impugned orders and also the order of the Tribunal for the earlier years. We find that the Tribunal in AY 2008-09 has held that Arm .....

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e of ₹ 1.36 crores from investment in shares and mutual funds and same has been claimed exempt from tax. At the time of filing of return of income, the assessee has worked out the disallowance u/s 14A at ₹ 30,00,370/- in accordance with the Rule 8D which comprised of interest of ₹ 11.07 lakhs under Rules 8D(2)(ii) and ₹ 18.93 lakhs under Rule 8D(2)(iii) after excluding interest paid on specific loans and investment in foreign subsidiary, dividend from which is not exempt. .....

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Assessing Officer in the final assessment order has computed the disallowance at ₹ 28,51,891/-. 14. Before us, the ld. Counsel submitted that the assessee had filed revised working of disallowance u/s 14A r.w. Rule 8D at ₹ 28,67,984/- after excluding the investment in foreign subsidiary and also consider interest paid on cash credit of ₹ 1,44,36,388/-. But Assessing Officer has inadvertently considered the interest on loan taken for investment in foreign subsidiary and interest .....

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ch is as under :- Calculation of expenditure as per section 14A rws rule 8D in relation to income which does not form part of total income As per Final AO order As per Assessee's revised claim filed with AO vide letter dated 14 March 2014 Sub Rule (2) of Rule 8D 1 Amount of Expenditure Directly relating to the Income which does not form part of total income Nil Nil 2 In case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attribut .....

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e. 16,80,684 16,80,685 Total Expenditure under rule 8D 28,51,891 26,63,594 15. Lastly, he pointed out that the assessee s action of excluding interest paid on loans taken for investment for foreign subsidiary while computing the disallowance has been accepted by the Department in AY 2008-09 & 2009-10. 16. In view of the submissions made above, now the issue of disallowance u/s 14A is restricted to the calculation part wherein the interest paid on loan taken for investment in foreign subsidia .....

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ses of ₹ 3,99,72,476/- in respect of DRUPA -2008, Germany by treating the same as enduring in nature and allowed ₹ 99,93,110/-. The disallowance has been confirmed by the learned CIT(A) for AY 2009-10. However, the learned AO while passing the assessment order for the year under consideration has not allowed the same based on the order for AY 2009-10. He submitted that the Assessing Officer ought to have allowed 1/4th of the exhibition expenses being ₹ 99,93,110/- in the curren .....

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