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2016 (1) TMI 853 - ITAT MUMBAI

2016 (1) TMI 853 - ITAT MUMBAI - TMI - TP adjustment on account of interest free loans given to the AEs - Held that:- On perusal of the said orders / directions of the Revenue Authorities, we find, in principle DRP did not agree with the TPO's proposal of relying on the internal comparables and adopting 15% as applicable rate of interest in benchmarking the transactions with CNK Singapore. However, having held so, DRP also relied on SBI-PLR, which is not the applicable interest rate in the count .....

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-, we direct the Assessing Officer to restrict the addition of adjustment to the said amount and delete the balance of addition - Decided in favour of assessee in part.

Benchmarking of corporate guarantee related taxes - Held that:- We direct the AO to restrict the adjustments to 0.5% as upheld by the Hon‟ble High Court in the case of Everest [2015 (5) TMI 395 - BOMBAY HIGH COURT]

Adjustment on account of share premium - Held that:- Adjustment made on account of ‘shar .....

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rposes.

Disallowance in respect of the Annual Information Report (AIR) qua reconciliation - Held that:- The onus is on the Assessing Officer to inform the assessee giving all the details as to on, on what issue, the reconciliation is required, how that entry relates to the assessee etc. How any assessee can reconcile an entry or transaction which does ot pertains to him. Therefore, the onus is on the AO to inform the same. Considering the same and the finding of the Assessing Officer .....

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MEMBER For The Appellant : Shri R.R. Vora For The Respondent : Shri G.M. Doss, DR and Shri Mahesh Shah ORDER PER D. KARUNAKARA RAO, AM: There are two appeals under consideration relating to AYs 2009-2010 and 2010-2011. Since, the issues raised in both the appeals are identical, therefore, for the sake of convenience, they are clubbed, heard combinedly and disposed of in this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order. 2. Grounds raised in both .....

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t facts of the case, relevant to the AY 2009-10, are that the assessee is engaged in the business of Tours and Travels and had international transactions with AEs ie CNK (Cox and Kings) Singapore, CNK Australia, CNK UK etc. Assessing Officer passed assessment order u/s 143(3) r.w.s 144C(13) of the Act dated 31.12.2013 after considering the TPO‟s order dated 21.11.2012 made u/s 92A(3) of the Act. TPO suggested adjustments to the tune of ₹ 2,80,20,501/- on accounts of interest adjustme .....

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t of ₹ 1,13,10,586/-. Issue wise adjudication is taken in the following paragraphs. 4. The first issue relates to the adjustment on account of interest free loans given to the AEs. Briefly stated relevant facts in this regard are that the assessee granted loans in foreign currency to AEs. Assessee charged 15% rate of interest in respect of the loans given to CNK Australia and CNK Dubai. In respect of the loan Cox and Kings, Singapore P Ltd (CNK Singapore), the assessee has not charged any .....

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situated, is appropriate and not the PLR of India. TPO rejected the contention of the assessee and also concessions to the extent of 2,49,268/- and proceeded to make adjustment in this regard applying the interest rate of 15% relying on the internal comparables. The adjustment suggested by the TPO in this regard works out to ₹ 12,84,845/-. During the proceedings before the DRP, assessee reiterated the said submissions. DRP considered the same and agreed with the contention of the assessee .....

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s decision in adopting the SBI PLR rates instead of opting for the PLR of Singapore, the country where AE received the loan in foreign currency. Further, he submitted that the CNK Singapore is newly set up and the assessee has computed the said loan and decided to not to charge interest on the said loan given to CNS Singapore (for commercial produce). Further, he also submitted that the said loan given is in the nature of quasi equity as the said company (AE) is wholly owned subsidiary. He also .....

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ical about the rejection of assessee‟s offer of Singapore PLR + 200 basis points ie 2.91% without giving any reason. He also submitted that the loan payment amounting to Singapore Dollars 4.3 lakhs, which was given to AE at Singapore, is the local currency of the country and the repayment of the same would also be done by the AE to the assessee in foreign currency. In such agreed circumstances, thrusting of SBI-PLR is not appropriate in benchmarking the exercise. Further, he also relied on .....

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nt and to demonstrate that the benchmarking cannot be done based on the LIBOR. In such case, the suo moto adjustments proposed during the TP proceedings by the assessee, which works out to 2,24,260/- should be considered. 6. On the other hand, Ld DR for the Revenue dutifully relied on the order of the AO and the directions of the DRP. 7. We have heard both the parties and perused the orders / directions of the Revenue Authorities as well as the cited precedents and the also the relevant material .....

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Counsel for the assessee as seen in para 3.21 at page 522 of the paper book placed before us. The said settled proposition is that the interest in respect of the current year in which the transaction has taken placed should be considered while calculating the interest on loan granted in foreign currency (para 3.19 on page 522 of the paper book). Therefore, in principle, we reject the direction of the DRP in thrusting on assessee the SBI-PLR and direct the lower authorities to consider the LIBOR .....

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ng the shares in Tempo Holidays Australia Pvt Ltd. CNK Australia was to raise funds for investing the Tempo from the Axis Bank, Hong Kong for which the assessee stood as guarantor. Assessee did not charge any commission from CNK Australia. Assessee justified its decision on various grounds ie subsidiary company, commercial expediency, non-international transaction cum quasi-equity etc. Assessee relied on various decisions in this regard. 9. TPO / DRP rejected the above arguments and proceeded to .....

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Everest Kanto Cylinders Ltd (ITA No.1165 of 2013) (Bom. HC). Ld AR also submitted that assessee shall not press on the other arguments, if the transactions of guarantee commission is benchmarked @ 0.5% considering the discussion in the case of Everest Kanto Cylinders Ltd (supra). 11. On the other hand, Ld DR relied heavily on the orders of the AO / TPO / DRP. 12. On hearing the arguments of the Ld AR without prejudice to the other, we find that guarantee commission transactions are being benchma .....

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ould be interest rates charged by third party banks to CNK Australia and not the rates provided by the CRISIL. 4.36. Without prejudice to all the above, guarantee commission rates applied / confirmed by the Hon‟ble Bombay High Court and the Hon‟ble Mumbai Tribunal are as follows: Name of the case Guarantee commission rate Everest Kanto Cylinders Ltd (ITA No.1165 of 2013) 0.5% Manugraph India Ltd (ITA No.4761/M/2013 0.5% Asian Paints Ltd (149 ITD 511) (Mum Trib) 0.2% Aditya Birla Mina .....

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gh Court in the case of Everest Kanto Cylinders Ltd (supra). Accordingly, the relevant ground nos.6 to 9 are partly allowed. 14. Third issue relates to the adjustment on account of share premium. In this regard, at the outset, Ld Counsel for the assessee brought our attention to the order of the Tribunal in the case of M/s. Anglo-Eastern Ship Management (India) Pvt Ltd vs. DCIT in ITA No.1824/M/2014 (AY 2009-2010), dated 25.2.2015 wherein, one of us (AM) is a party to the said order, the Tribuna .....

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e of Vodafone India Services (P) Ltd (supra). After hearing Ld Representatives of both the parties and on perusal of the said decision of the Tribunal in the case of MSC Crewing Services P Ltd (supra), we find paras 2 and 3 of the Tribunal‟s are relevant in this regard. Considering the significance of the said paras 2 and 3 of the Tribunal‟s order (supra) and for the sake of completeness of this order, the said paras are extracted as under: 2.Effective ground of appeal is about trans .....

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Pricing Officer(TPO) who held that a 3 ITA Nos.1666&1739/M/2014 MSC Crewing Services P. Ltd. premium of ₹ 1187.0005 per share(aggregating ₹ 1,58,76,76,118)ought to have been charged and proposed an addition of ₹ 1,56,42,92,456/- being the difference between what should have been charged according to him as a premium. Premium actually charged by the assessee, amounting to ₹ 2.33 Crores was treated as a receipt on capital account. The TPO also took the view that the pre .....

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the return obtained by the assessee from a fixed deposit placed with the bank against bank guarantee obtained by it. As result, as against the total adjustment of ₹ 1,73,95,81,824(1,56,42,92,456+17,52,89,368)initially proposed by the TPO, the AO finally sustained addition of ₹ 1,22,62,39,100/-(Rs.114,93,15,931+7,69, 23,169/-),as per the directions of the DRP. 3.At the time of hearing before us, the Authorised Representative of the assessee stated that the issue of share premium has b .....

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at it was a wholly owned subsidiary of a non-resident company, Vodafone TeleServices(India)Holdings Limited(VTIHL). It required funds for its telecommunication services project in India from it holding company i.e. from VTIHL during the AY.2009-10.On 21.08. 2008,the assessee issued 2,89,224 equity shares of the face value of ₹ 10/- each on a premium of ₹ 8,509/- per share to VTIHL.This resulted in the assessee receiving a total consideration of ₹ 246.38 crores from the holding .....

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emium to the extent of ₹ 45,256/- per share resulted into total shortfall of ₹ 1308.91 crores. Both the AO and the TPO on application of the Transfer Pricing provisions of the Act held that this amount of ₹ 1308.91 crores was income. As a consequence of the above, said amount of ₹ 1308.91 crores was required to be treated as deemed loan given by the assessee to VTIHL and periodical interest thereon was to be charged to tax as interest income of ₹ 88.35 crores in the .....

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ion in cases where no income was arising from an International Transaction, that the issue of equity shares by the assessee to VTIHL did not give rise to any income from International Transaction, that arising of income on account of International Transaction was a condition precedent for application of Chapter X of the Act. Deciding the writ petition, the Hon‟ble Court held as follow: 24.A plain reading of Section 92(1) of the Act very clearly brings out that income arising from a Interna .....

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od meaning as defined in Section 2(24) of the Act. This even when the definition in Section 2(24) of the Act is an inclusive definition. It cannot be disputed that income will not in its normal meaning include capital receipts unless it is so specified, as in Section 2(24) (vi) of the Act. In such a case, Capital Gains chargeable to tax under Section 45 of the Act are, defined to be income. The amounts received on issue of share capital including the premium is undoubtedly on capital account. Sh .....

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eceived, accrued or arising on capital account transaction can be subjected to tax as Income. This is settled by the decision of this Court in Cadell Weaving Mill Co. vs. CIT 249 ITR 265 was upheld by the Apex Court in CIT vs. D.P. Sandu Bros. Chember (P) Ltd. 273 ITR 1. This Court has in Cadell Weaving Mills Co. (supra) inter alia, observed as under:- " It is well settled that all receipts are not taxable under the Income tax Act. Section 2(24) defines "income". It is no doubt an .....

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under Section 2(24). If the argument of the Department is accepted then all capital gains whether chargeable under section 45 of not, would come within the definition of the word "income" under section 2(24). Further, under section 2(24)(vi) the Legislature has not stated that "any capital gains" will be covered under the word income. On the contrary, the Legislature has advisedly stated that only capital gains which are chargeable under Section 45 of the Act could be treate .....

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n the present case, the words "chargeable under section 45" are very important. They are not being read by the Department. These words cannot be omitted. In fact, the prior history shows that capital gains were not chargeable before 1946. They were not chargeable between 1948 and 1956. Therefore, whenever an amount which is otherwise a capital receipt is to be charged to tax, section 2(24) specifically so provides." In view of the above, we find considerable substance in the asses .....

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ourt has held that the capital receipts received by the assessee on issue of equity shares to its holding company cannot be considered income. Respectfully, following the above judgment, we hold that adjustment made by the AO on account of share premium and interest charged on account of under charged premium amount cannot be endorsed. We also hold that TP provisions are not applicable to such transaction. Effective ground of appeal in favour of the assessee. 5 ITA Nos.1666&1739/M/2014 MSC C .....

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ised by the assessee in its favour. Thus, the grounds raised by the assessee are allowed. 15. From the above it is very clear that adjustment made on account of share premium and interest charged on account of under charged premium amount does not attract the TP provisions. Considering the same as well as respectfully following the above decision of the Tribunal, we allow this issue in favour of the assessee. Accordingly, relevant grounds raised by the assessee in this regard are allowed. 16. Fo .....

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provisions of Rule 8D of the IT Rules, 1962 and made disallowance. On appeal, DRP confirmed the AO‟s decision. Aggrieved, assessee raised the issue before the Tribunal. Before us, Ld Counsel for the assessee reiterated the submissions made before the lower authorities and relied on various precedents viz., judgment of the Hon‟ble Punjab & Haryana High Court in the case of CIT vs. Lakhani Marketing (P&H) (272 CTR 265); decision of the Delhi High Court in the case of Cheminves .....

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laid down by the said precedents. We, respectfully following the above cited decisions and the ratio laid down therein, direct the AO to examine and apply the same to the facts of the present and adjudicate the issue afresh after affording a reasonable opportunity of being heard to the assessee. Thus, the relevant grounds raised by the assessee are allowed. 17. The last issue relates to the disallowance in respect of the Annual Information Report (AIR) qua reconciliation. Relevant facts in this .....

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tent of ₹ 1,23,59,044/- and confirmed the disallowance to the extent of ₹ 49,85,147/-. Accordingly, AO passed the final assessment order confirming the disallowance of ₹ 49,85,147/-. Aggrieved, with the said decision of the AO, assessee is in appeal before the Tribunal. Before us, Ld Counsel for the assessee reiterated the submissions made before the lower authorities and submitted that though the assessee offered to tax more tour sales than what they appeal in the AIR statemen .....

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