TMI Blog2015 (11) TMI 741X X X X Extracts X X X X X X X X Extracts X X X X ..... ’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 that Arm’s Length Guarantee Commission should be benchmarked by taking the rate of 0.5%. hus, rate of 0.5% is wholly justified on the present case also. Disallowance u/s 14A - Held that:- As disallowance u/s 14A is restricted to the calculation part wherein the interest paid on loan taken for investment in foreign subsidiary has to be excluded. Based on that, the aggregate working of disallowance needs to be worked out. Accordingly, we direct the Assessing Officer to verify the calculation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Proceedings, the TPO noted that the assessee has given loan to its AE amounting to Rs. USD 3.75 million (in terms of INR was ₹ 14.78 crores). Out of the said loan an amount of USD 1.75 million was transferred to the investment account on 30.04.2008 and balance USD 2 million continued to remain as advance, as on 31st March, 2009. Further, during the year under consideration, the assessee has advanced loan amounting to Rs. USD 4.55 million as per the details given hereunder :- Dt. of payment Outstanding 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar issue had come-up for consideration before the Tribunal in assessee s own case for the assessment year 2008-09, wherein the Tribunal has directed the Assessing Officer/TPO to adopt LIBOR + 2% as Arm s length interest in 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 rates for benchmarking the transaction of providing of loan to foreign AE should be accepted. 6. On the other hand, Ld. DR strongly relied upon the order of the DRP. 7. We have heard rival submissions and also perused the impugned order and the material placed on record. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated points on which he worked out approximately rate of 6%. Accordingly, the TPO held that the assessee company should have charged on cost of guarantee commission fees of 6% for Arm s Length situation and thereby proposed addition of ₹ 1,96,00,012/-. The DRP determined the ALP of cost of guarantee of 2% based on Safe Harbour Rules. Based on such directions the adjustment on account of cost of guarantee was restricted to ₹ 64,75,975/-. 10. Before us, the Ld. Counsel submitted that in the earlier years, the Tribunal in assessee s own case for the AY 2008-09 had held that corporate guarantee fee should be benchmarked @ 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 s Length Guarantee Commission should be benchmarked by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lculation has been given by the Counsel before us which 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 attributable to any particular income or receipt the amount will be computed in accordance with the following formula : A Total Interest 1,72,01,388 1,44,36,388 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the Assessing Officer ought to have allowed 1/4th of the exhibition expenses being ₹ 99,93,110/- in the current year consistent with the treatment given by him for AY 2009-10. Otherwise, these expenses are fully allowable as revenue expenditure. 18. 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. Accordingly, ground no. 4 is treated as allowed. 19. Ground no. 5 is premature at this stage and hence the same is dismissed. 20. In the result, appeal of the assessee is partly allowed. 21. Now, we will take-up Revenue s appeal in ITA No. 1072/Mum/2015 vide which following grounds have been raised :- 1. Whether on the facts and circumstances of the case and in law, the Hon ble DRP was justified to re-compute the adjustment on account of interest at a mark-up of 3% over and above the domestic cost of assessee without giving any cogent reasons instead of 14.736% worked out by the TPO. 2. Whether on the facts and circumstances of the case and in law, the Hon ble DRP was justified in arriv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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