TMI Blog2015 (12) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 14A - Held that:- We direct the AO to exclude the amount of disallowance made u/s.14A, while computing the book profit u/s.115JB. Addition made in respect of corporate guarantee - Held that:- As decided in assessee's own case in an independent transaction, the assessee has paid 0.6% guarantee commission to IGIGI Bank India for its credit arrangement. This could be a very good parameter and a comparable for taking it as internal GUP and comparing the same with the transaction with the AE. The charging of 0.5% guarantee commission from the AE is quite near to 0.6%, where the assessee has paid independently to the IGIGI Bank and charging of guarantee commission at the rate of 0.5% from its AE can be said to be at arms length. The difference of 0.1% can be ignored as the rate of interest on which IGIGI Bank, Bahrain Branch has given loan to AE (i.e. subsidiary company) is at 5.5%, whereas the assessee is paying interest rate of more than 10% on its loan taken with IGIGI Bank in India. Thus, such a minor difference can be on account of differential rate of interest. Thus, on these facts, we do not find any reason to uphold any kind of upward adjustment in ALP in relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank during the year; Addition of ₹ 63,44,901/- on account of adjustment in respect of interest on loan given to AEs : Original ground 3. erred in making adjustment ofRs.63,44,901/- on account of interest on loan given to AE; Supplementary Ground 3.1 Without prejudice to above, erred in not providing the benefit of the variation of 5 percent from the arithmetic mean as provided in the proviso to Section 92C(2) of the Act, while making the adjustment to the value of international transactions of the Appellant; The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves to leave or add, alter, delete or modify all or any of the above grounds of appeal. 2. Rival contentions have been heard and found from record that the assessee had earned dividend income of ₹ 8,57,149/- which was claimed as exempt from tax under section 10(33). The total investment in shares and securities as on 31/3/2008 was ₹ 102.62 Cr which represented 13.81% of the total assets. The assessee had sold and purchased shares and securities during the year. The assessing officer computed disallowance under Rule 8D of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment in Subsidiaries Upto AY 2006-07 AY 2007-08 AY 2008-09 EKC International (Tianjin) Ltd. (China) 19.76 69.25 (Net addition ₹ 49.49 cr EKC International FZE (Dubai) 21.17 21.17 Investment in Associates Everest Kanto Investment Finance Ltd 0.09 0.09 0.09 Everest Industrial Gases Private Ltd. 0.00 0.01 0.00 Total (A) 0.09 41.03 90.52 Other investments Investments in immovable properties 0.00 0.00 0.00 GPT Steel Industries Pvt. Ltd 2.00 2.00 2.00 Solar Explosives Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5.1 The contention of the learned AR was that the adjustment cannot be made while computing book profit under Section 115JB of the Act for the items which are not mentioned specifically in the Explanation to Section 115JB and for this, reliance was placed in the decision of the Hon'ble Supreme Court on the case of Appollo Tyres Ltd. v. CIT [2002] ITR 273/122 Taxman 562. 5.2 On the other hand, learned DR relied on the order of the lower authorities. 5.3 We have considered rival contentions. The AO has computed book profit by adding the amount of expense disallowed u/s.14A. As per our considered view, no addition u/s.115JB is warranted for amount of disallowance u/s.14A of the IT Act. Our view is supported by following decisions :- (i) Cadila Healthcare Ltd. v. Addl. CIT [2012] 21 taxmann.com 483 (Ahd. - Trib); (ii) Reliance Industrial Infrastructure Ltd. [IT Appeal Nos. 69 70/(Mum) of 2009, dated 5-4-2013]; (iii) Essar Teleholdings Ltd. [IT Appeal No. 3850 (Mum.) of 2010, dated 29-7-2011]; (iv) J.K. Paper Ltd. [IT Appeal Nos. 4027 4080 (Ahd.) of 2008 979 (Ahd) of 2006]; (v) National Commodity Derivatives Exchange Ltd. [IT Appeal No. 2923 (Mum) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td., Allahabad Bank and the rate charged by Rabo India Finance Ltd. Further, he has observed that the Exim Bank of USA has provided a guarantee to Boeing Co of USA against Hire Purchase Agreement for purchase of aircrafts by Jet Airways India and has charged a commission of 3% from Jet Airways India Ltd . 6.2 In view of the above, the TPO arrived at a rate of 3% and proposed an addition of ₹ 2,47,07,596/-. The same was affirmed by the DRP, which has been contested by the assessee before us. The contention of the A.R. was that the transaction of giving corporate guarantee to bank on behalf of AE is not an international transaction and for this purpose reliance was placed on the recent decision of Hon'ble Delhi Tribunal in case of Bharti Airtel Ltd. v. Addl. CIT [2014] 63 SOT 113/43 taxmann.com 150. Reliance was also placed by the learned AR on the decision of Chennai Tribunal in case of Redington (India) Ltd. v. Jt. CIT [2014] 49 taxmann.com 146 (Chennai - Trib.), wherein the Tribunal deleted the addition made by the TPO of guarantee commission. 6.3 As an alternate, contention of learned AR was that the transaction of giving corporate guarantee to bank on behalf of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis and, there has to be some material on record to indicate, not to establish it to hilt, that an intra AE international transaction has some impact on profits, income, losses or assets. The precise observation of the Bench was as under :- '33. In any event, the onus is on the revenue authorities to demonstrate that the transaction is of such a nature as to have bearing on profits, income, losses or assets of the enterprise, and there was not even an effort to discharge this onus. Such an impact on profits, income, losses or assets has to be on real basis, even if in present or in future, and not on contingent or hypothetical basis, and there has to be some material on record to indicate, even if not to establish it to hilt, that an intra AE international transaction has some impact on profits, income, losses or assets. Clearly, these conditions are not satisfied on the facts of this case. 34. There is one more aspect of the matter. The Explanation to Section 92 B has been brought on the statute by the Finance Act 2012. If one is to proceed on the basis that the provisions of Explanation to Section 92 B enlarge the scope of Section 92 B itself, even as it is modestly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision and not to pick out words or sentences from the judgement, divorced from the context of the questions under consideration by this court, to support their reasoning. It would, therefore, be wholly inappropriate to use those judicial precedents, dealing with ALP of guarantee commission, to decide a question which was not even before those judicial forums. Coming to the foreign decisions on the issue of ALP adjustments in guarantee commission, we have noted that in the case of GE Capital Canada Inc v. The Queen (2009 TCC 563), the Tax Court of Canada has indeed dealt with ALP determination of the guarantee fees but then it was done in the light of their domestic law provisions which are quite at variance with the Indian transfer pricing legislation. Unlike elaborate wordings of Section 92 B of the Indian Income Tax Act, 1961 defining 'international transaction', Section 247 of the Canadian Income Tax Act only gives an inclusive definition which does not even really attempt to define the expression 'transaction'. It is nobody's case that the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 factors which has to be taken into consideration. in this case, the assessee has itself charged 0.5% guarantee commission from its AE, therefore, it is not a case of not charging of any kind of commission from its AE. The only point which has to be seen in this case is whether the same is at ALP or not. We have already come to a conclusion in the foregoing paras that the rate of 3% by taki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bs were redeemable at a premium in 2012, so the assessee has availed term loan at Citibank at 7% p.a. the TPO has asked the assessee to justify the arm's length nature of interest charged on advances given to the AEs. However, the TPO made an adjustment on account of difference between the ALP determined by the TPO i.e. 14.39% as against 7% charged by the assessee. On reference to the DRP, the DRP confirmed the action of the TPO and assessee is in further appeal before us. 10.2 It was contended by the learned AR that the loan was granted by EKCL to EKC Dubai EKC China from the proceeds of the FCCBs. Funds received under FCCBs were interest free funds available with EKC. In spite of such interest free funds available with EKCL, it has charged interest at rate of 7% from the AEs and accordingly there is no additional cost incurred by EKCL on such funds given to AEs. Further, the contention of the learned AR was that funds were provided by EKCL for its own benefits of financing its 100% subsidiary for growth of its business in different countries and that loan so granted to EKCL was in nature of quasi-equity. Our attention was invited to the loan granted to EKCL which was con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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