TMI Blog2015 (3) TMI 1103X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment in respect of interest on loan given to AE - Held that:- We direct the AO/TPO to adopt LIBOR +2% as arm's length interest in respect of loan provided by the assessee to its AE. TP adjustment in respect of cost of guarantee given by the assesse to the bankers for obtaining loan by the wholly owned subsidiary/AE of the assessee - Held that:- We direct the AO/TPO to adopt the 0.5% as guarantee commission charges in respect of the guarantee provided by the assessee for obtaining the loan by the AE. Adjustment on account of guarantee commission charges - Held that:- Since the guarantee commission is charged for assuming the risk for providing the guarantee to the bank in respect of loan availed by the AE, therefore, we find merits in the additional plea raised by the assessee that the adjustment on account of guarantee commission charges has to be only in respect of the amount of actual loan availed by the AE during the year. Accordingly, we direct the AO/TPO to compute the adjustment by taking into account actual loan amount availed by the AE during the year in this respect. Benefit of tolerance range of +/- 5% of the arithmetic mean margin - Held that:- Since the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The assessee has also raised following additional grounds along with application dated 22.07.2014:- ADDITIONAL GROUNDS OF APPEAL Disallowance under section 14A of the Act of ₹ 31,68,315/- 2. Without prejudice to above, while computing disallowance under section 14A of the Act by applying Rule 8D(2)(iii) of the Income tax Rules, 1962, in considering the investments made in mutual funds with growth scheme, income from which is chargeable to tax; Adjustment of ₹ 67,56,491/-in respect of interest on loan given to Manugraph DGM (hereinafter referred as 'AE'): 4. Without prejudice to above, 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; Adjustment of ₹ 3,27,68,010 in respect of cost of guarantees given to the bankers for wholly owned subsidiary Manugraph DGM: 7. Without prejudice to above, while computing adjustment on account of arm's length cost of guarantees, erred in applying the rate of guarantee commission to the entire amount of guarantee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany. He has further submitted that the total investments includes the investment made in the mutual funds with growth scheme which does not yield any dividend income. In support of his contention he has relied upon the decision of this Tribunal in the case of Everest Kanto Cyliners Ltd. (ITA No. 7073/Mum/2012) dated 25.09.2014. 5. On the other hand, the Ld. DR has relied upon the orders of authorities below and submitted that the assessee itself has made the disallowance u/s 14A, therefore, the applicability of Rule 14A cannot be disputed. Once section 14A is applied then the quantum of disallowance has to be worked out as per Rule 8D of the Income Tax Rules. 6. We have considered the rival submissions as well as relevant material on record . Since the assessee has earned the dividend income from the investment in shares and mutual funds and also given the working of disallowance u/s 14A on account of interest expenditure, therefore, so far as the disallowance u/s 14A is concerned, it is not the case of the assessee that no expenditure on account of interest expenditure has been incurred. Further the activity of the investment is stated to have been looked after by the Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance if at all can be made on account of administrative expenses, the same may be by considering the investment to the extent of ₹ 2.23 crores only and should be restricted to ₹ 1.13 lakhs. 7. As regards the disallowance of administrative expenses in respect of the investment yielding exempt income the computation made under Rule 8D cannot exceed the total allocable expenditure for earning the exempt income debited the P L Account. Accordingly, the Assessing Officer is directed to reconsider the disallowance u/s 14A by excluding the investment in the Growth mutual funds scheme and further to earmark and identify the item of expenditure debited by the assessee in the P L Account which can be allocated in relation to earning the exempt income. 8. Ground no. 2 is regarding TP adjustment in respect of interest on loan given to AE. 9. The assessee company is engaged in the business of manufacturing and servicing of printing of allied machineries. . During the year under consideration, the assessee has given loan to its US based subsidiary MDGM from 26th October 2007 to 7th July 2008 on three occasions total amounting to ₹ 14.78 crores. The assessee charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. At the outset, we note that this issue of arm's length interest in respect of the loan provided by the assessee to its AE has been considered by the Tribunal in the series of decisions relied upon by the assessee. The Tribunal in the case of Everest Kanto Cylinder Ltd. (supra), has considered this issue in para 11 and 12 as under:- 11 . We had considered rival contentions and gone through the orders of lower authorities. As per our considered opinion, appropriate international rates should be used for the purpose of the comparability analysis. For this purpose, the London Inter Bank Offer Rate (LIBOR) is an internationally recognized rate for benchmarking loans denominated in foreign currency. For this purpose, reliance may be placed on the following decision of the coordinate bench :- i) Great Eastern Shipping Co.Ltd (ITA No 397/M/2012) dated 10 January 2014; ii) Mahindra Mahindra Limited (ITA No 7999/M/2011) dated 8 June 2012; iii) Hinduja Global Solutions Limited (ITA No 254/M/2013) dated 5 June 2013 iv) Aurionpro Solutions Limited (ITA No 7872/M/2011) dated 12 April 2013; v) Aurobindo Pharma Ltd (ITA No 1866/Hyd/2012) dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ength cost of guarantee/guarantee charges. 17. Before us, the Ld. AR of the assesse has submitted that the transaction of giving corporate guarantee to the bank is not an international transaction . In support of his contention he has relied upon the decision of Delhi Benches of this Tribunal in the case of Bharti Airtel Ltd (ITA No 5816/Del/201Z) dated 11 March 2014. Alternatively, the Ld. AR has submitted that the arm's length guaranteed charges may be taken at 0.5% as held by this Tribunal in number of decisions. He has relied upon the following decisions:- (1) Everest Kanto Cylinder Ltd. (ITA No. 7073/Mum2012) dated 25 September 2014 (2) Everest Kanto Cylinder Limited (ITA NO. 542/Mum/2012 ) dated 23 November 2012( Mumbai Tribunal) (3) Glenmark Pharmaceuticals Limited (ITA No. 5031/M/2012 ) dated 13 November 2013) (Mumbai Tribunal) (4) M/s Godrej Household Products Ltd (ITA No. 7369/M/2010) (Mumbai Tribunal) (5) Nimbus Communication Ltd (ITA No. 3664/M/2010) (Mumbai Tribunal) (dated 12 June 2013) (6) Reliance Industries Limited ( dated 13 September 2013) (Mumbai Tribunal) (7) Prolific Corporation Limited (ITA No. 237/Hy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Branchhas 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 relation to charging of guarantee commission. As the facts and circumstances of the case during the year under consideration are pari materia, respectfully following the decision of the Tribunal in assessee's own case, we direct the AO to compute arm's length price of transaction as per the direction given by the Tribunal in the above order for A.Y. 2007-08. 20. Similar view has been taken by the Tribunal in all above referred decisions. Accordingly, following the earlier decisions of this Tribunal, we direct the AO/TPO to adopt the 0.5% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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