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2016 (5) TMI 166 - ITAT MUMBAI

2016 (5) TMI 166 - ITAT MUMBAI - [2016] 47 ITR (Trib) 496 - Transfer pricing adjustment on account of notional interest on the loans and advances given to the associated enterprises - Held that:- We find that this issue had come for consideration before the Tribunal in the assessment years 2007-08 and 2008-09. The Tribunal had taken note of the fact that the assessee had also received loans/advances on which the assessee did not pay interest. For verification the matter was set aside to the Asse .....

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1, wherein after referring the Tribunal order in the assessee's own case right from the assessment years 2005-06 to 2007- 08, held that commission chargeable for guarantee commission by the assessee to its associated enterprises should be taken at 0.5 per cent. as the arm's length price. Thus, respectfully following the judicial precedence which is based on the same facts applicable in this year also, we direct the Assessing Officer to take 0.5 per cent. as guarantee commission to be chargeable .....

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der section 40(a)(ia) can be made. Such a provision has been brought in the statute to curb the mischief and, therefore, it has to be reckoned as curative in nature and should be given retrospective effect. Accordingly, the Assessing Officer is directed to clarify this issue and grant the relief to the assessee. On the second contention also, we agree with the learned counsel that if the assessee has not claimed any such as an expenditure, then there is no question of disallowance under section .....

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. Besides this, the dividend income itself is ₹ 7,24,508, therefore, disallowance under section 14A cannot be more than the exempt income especially in view of the decision of the hon'ble Delhi High Court in the case of Cheminvest Ltd. v. CIT [2015 (9) TMI 238 - DELHI HIGH COURT] wherein, the hon'ble High Court has held that, if there is no dividend income, then there cannot be any corresponding disallowance. On the same principle, if the dividend income is ₹ 7.24 lakhs, then the dis .....

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er) 1. The aforesaid cross-appeals have been filed by the assessee as well as by the Revenue against the impugned order dated January 27, 2014, passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961, in pursuance of the direction given by the Dispute Resolution Panel (DRP), vide order dated December 13, 2013, under section 144C(5) for the assessment year 2009-10. We will first take up the assessee's appeal being I. T. A. No. 1424/Mum/2014, vide which following gro .....

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eedings initiated by the Assessing Officer under section 92CA(1) of the Act are without any jurisdiction and ought to be quashed. 2. On the basis of the facts and in the circumstances of the case and in law, the learned Assessing Officer in pursuance of the direction given by the learned Dispute Resolution Panel erred in assessing the income of the appellant at ₹ 59,66,67,420. 3. The learned Dispute Resolution Panel erred in not directing the Assessing Officer to delete the transfer pricin .....

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Panel erred in confirming the transfer pricing adjustment of ₹ 27,05,83,190 as proposed by the Transfer Pricing Officer on account of the determination of the arm's length price of international licence revenue receivable by the appellant in terms of the provisions of the agreement with associated enterprise (AE). 5. On the basis of the facts and in the circumstances of the case and in law, the learned Assessing Officer in pursuance of the direction given by the learned Dispute Resolu .....

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sed by the Transfer Pricing Officer towards notional interest on the loans and advances given to associated enterprises. 7. On the basis of the facts and in the circumstances of the case and in law, the learned Assessing Officer in pursuance of the direction given by the learned Dispute Resolution Panel erred in confirming the transfer pricing adjustment of ₹ 1,01,27,900 as proposed by the Transfer Pricing Officer towards notional guarantee commission charges for the guarantee extended to .....

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er in pursuance of the direction given by the learned Dispute Resolution Panel erred in making the addition of ₹ 2,23,51,600 under section 14A of the Act, read with rule 8D. 10. On the basis of the facts and in the circumstances of the case and in law, the learned Assessing Officer in pursuance of the direction given by the learned Dispute Resolution Panel erred in making the addition of ₹ 12,33,521 being estimated at 10 per cent. of the total expenditure incurred on food, equipment .....

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adjustment of ₹ 27,05,83,190 on account of the arm's length price determination of international licence revenue receivable from associated enterprise, the learned senior counsel, submitted that, after the order of the Dispute Resolution Panel dated December 31, 2013, the Dispute Resolution Panel has passed a corrigendum, vide order dated March 12, 2014, whereby the Dispute Resolution Panel has deleted the addition relying upon the Tribunal order for the assessment year 2008-09 in the .....

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te Tribunal order for the assessment year 2008-09. Therefore, this ground has become infructuous. Accordingly, ground No. 5 is also treated as dismissed as infructuous. 5. In ground No. 6, the assessee has challenged the transfer pricing adjustment of ₹ 4,30,240 on account of notional interest on the loans and advances given to the associated enterprises. 6. The brief facts are that the assessee has granted interest-free loan to its three associated enterprises, namely :- (i) Nimbus Media .....

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had granted an advance of ₹ 3,61,009 (opening balance) to its associated enterprise, M/s. Nimbus Media Pte. Ltd., on which no interest was charged. (ii) The assessee had granted a loan of ₹ 35,51,154 (opening balance) to its associated enterprise, M/s. Nimbus Communications British Virgin Islands, on which no interest was charged. (iii) The assessee has not charged interest on the amount receivable from its associated enterprise, M/s. Nimbus Sports International Pte. Ltd., Singapore. .....

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and has deleted the adjustment." However, the learned Transfer Pricing Officer after detail analysis held that in a third party situation, such a loan would not have been given without charging interest and the transaction is otherwise also covered under the purview of international transaction as defined in section 92B, therefore, it needs to be benchmarked and arm's length price has to be determined. After taking into account all the factors, he held that the effective rate of interes .....

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en note of the fact that the assessee had also received loans/advances on which the assessee did not pay interest. For verification the matter was set aside to the Assessing Officer. The relevant observation reads as under : "25. We have heard the rival contentions, perused the findings of the authorities below as well as the material available on record. In so far as the issue of charging of notional interest on loans and advances are concerned, it is seen that this issue had come up for c .....

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he adjustment on account of notional interest on loans and advances given to two associated enterprises, namely, Nimbus India Pte. Ltd., Singapore and Nimbus Communication British Virgin Island, the matter needs to be verified and examined by the Transfer Pricing Officer and should be decided afresh in accordance with law after giving due and effective opportunity of hearing to the assessee to explain its case." Following the same reasoning, we also set aside the matter to the file of the A .....

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2008-09, wherein the Tribunal has held that notional commission chargeable as on arm's length price should be taken at 0.5 per cent., instead of 1.5 per cent. directed by the Dispute Resolution Panel. 9. The Transfer Pricing Officer in his order noted that the assessee has extended the corporate guarantee without charging any commission on the term loans given by the bank to the associated enterprises in the following manner : "(i) US$ 3 million to ICICI Bank, UK, for a term loan given .....

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rprise in case it cannot fulfil its duties. The assessee exposes itself to certain risks for which it has not received any compensation. An independent third party would not expose itself to such risk without adequate compensation ; or on the other hand would have taken some sort of guarantee given by the third party for the guarantee given by it, and such counter-guarantee was not obtained in this case. (iv) US$ 10 million worth of loan notes were issued by its associated enterprise, NSI, to th .....

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ent. plus risk premium of 1.25 per cent. per cent. Accordingly, he computed the mark-up on guarantee commission at 3 per cent. While doing so, he has analysed in detail how the commission should be charged at 3 per cent., which has been incorporated at page 9 of the order and, accordingly, adjustment of ₹ 39,19,02,658 was made by him. The Dispute Resolution Panel has reduced the same to 1.5 per cent. per annum. 10. We find that this issue is permeating through in all the years. This fact h .....

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s year also, we direct the Assessing Officer to take 0.5 per cent. as guarantee commission to be chargeable from associated enterprise in computing the arm's length price. Accordingly, ground No. 7 is treated as partly allowed. 11. In ground No. 8, the assessee has challenged the disallowance of ₹ 6,92,49,161 made under section 40(a)(ia) on account of non-deduction of TDS on the alleged agency commission payable to advertising agency. Besides this, the assessee has also raised addition .....

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efore, the amendment should be applicable with retrospective effect. 2. Without prejudice to the above, the learned Commissioner of Income-tax (Appeals) also failed to appreciate that to the extent of ₹ 6,92,49,161, the appellant has not debited the expenditure to the profit and loss account and not claimed deduction of the same. Hence, the question of disallowance under section 40(a)(ia) does not arise." 12. Learned senior counsel, Dr. K. Shivram, filed a detailed note with respect t .....

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amendment should be held to be applicable with retrospective effect. The list of some of the decisions are as under : (i) Rajeev Kumar Agarwal v. Addl. CIT [2014] 34 ITR (Trib) 479 (Agra) ; [2014] 149 ITD 363 (Agra) ; (ii) Asst. CIT v. Bhavook Chandraprakash Tripathi (Pune) (Trib) 775- 802-803 ; (iii) Santosh Kumar Kedia v. ITO ITA No. 1905/Kol/2014 dated March 4, 2015 [2015] 43 ITR (Trib) 687 (Kol) ; and (iv) Anthony D. Mumdackal v. Asst. CIT (I. T. A. No. 30/Coch/2013 order dated November 29, .....

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trospectively, however, he stated that there is no jurisdictional High Court decision on this point. On the issue of the assessee not claiming any expenditure of ₹ 6,92,49,161, he submitted that, the matter can be verified by the Assessing Officer. 14. The relevant facts are that the assessee is engaged in the business of broadcasting and during the year under consideration, it has received the net revenue of ₹ 39,24,11,916 from the advertising agency towards advertising. The said re .....

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f ₹ 6,92,49,161 under section 40(a)(ia). However, without going into the merits whether the provision of TDS under section 194H is applicable on this alleged advertising commission paid to the advertising agencies, we find that the assessee has a substance in the contentions raised in the additional grounds that, if the payee has been assessed to tax and has taken into account for computing such sum at its income in the return of income, then there should not be any disallowance. The secon .....

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unsel, it has been held that such an amendment is curative and clarificatory in nature and, therefore, it has to be given retrospective effect. Now, there is a Delhi High Court judgment in the case of CIT v. Ansal Land Mark Township P. Ltd. (I. T. A. No. 160 of 2015 order dated August 26, 2015) [2015] 377 ITR 635 (Delhi), wherein the hon'ble High Court has held that the said proviso is directory and curative and has retrospective effect from April 1, 2015. Thus, we hold that if the payee has .....

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ed as curative in nature and should be given retrospective effect. Accordingly, the Assessing Officer is directed to clarify this issue and grant the relief to the assessee. On the second contention also, we agree with the learned counsel that if the assessee has not claimed any such as an expenditure, then there is no question of disallowance under section 40(a)(ia), the Assessing Officer shall also verify this contention and if it is found that no such expenditure has been debited then there i .....

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08-09 as held by the hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT reported in [2010] 328 ITR 81 (Bom). 17. Before us, the learned counsel submitted that, all the investments were strategic investments in the subsidiaries and, therefore, no disallowance can be made under section 14A. In support, he relied upon various Tribunal decisions of the Income-tax Appellate Tribunal, Mumbai Bench. That apart, he submitted that there is no borrowing by the assess .....

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and any expenditure incurred on such an income has to be disallowed under section 14A. He referred to the decision of the hon'ble Delhi High Court in the case of Maxopp Investment Ltd. v. CIT reported in [2012] 347 ITR 272 (Del) and drew our attention at paragraphs 24 and 25. Thus, the disallowance as made by the Assessing Officer should be confirmed. 19. After considering the rival submissions and on a perusal of the impugned orders, we find that there is no dispute that all the investment .....

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ourt has held that, if there is no dividend income, then there cannot be any corresponding disallowance. On the same principle, if the dividend income is ₹ 7.24 lakhs, then the disallowance cannot be more than that. Accordingly, we hold that such a huge disallowance of ₹ 2,21,51,600 is uncalled for and therefore, we direct the Assessing Officer to restrict the disallowance to ₹ 7,24,508. Accordingly, ground No. 9 is treated as partly allowed. 20. In the result, the appeal of th .....

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ute Resolution Panel was correct in deleting the adjustment made at the rate of 14.5 per cent. in the case of debit balance in the account of an associated enterprise of the assessee. 3. On the facts and in the circumstances of the case and in law, whether the learned Dispute Resolution Panel was correct in holding that the rate of 1.5 per cent. is appropriate for charging commission to provide corporate guarantee on behalf of the associated enterprises (AE) as against the rate of 3 per cent. ta .....

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gly, ground No. 1 stands allowed for statistical purposes. 23. So far as ground No. 3 is concerned, while dealing ground No. 7 of the assessee's appeal we have already held that that guarantee commission should be taken at 0.5 per cent. as arm's length price (ALP) therefore, ground No. 3 as raised by the Revenue stands dismissed. 24. Now, coming to the issue of adjustment made at 14.5 per cent. as raised in ground No. 2, we find that this issue has been dealt with by the Tribunal in the .....

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r the assessment year 2007†08 in I. T. A. No. 6816/Mum/2010, order dated August 7, 2013, the Tribunal has dealt and discussed this issue after observing and holding as under : '7. As regards ground No. 3(d), the learned representatives of both the sides have agreed that the issue involved therein relating to the addition made on account of notional interest payable by Nimbus Sport International P. Ltd. on outstanding trade balances with the assessee is squarely covered in favour .....

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e's own case for earlier years, i.e., assessment years 2003-04 and 2004-05 has been decided by the Tribunal in favour of the asses see. The learned Departmental representative, however, has submit ted that a similar issue was decided by the Tribunal in favour of the assessee in the earlier years holding that the continuing debit balance was not an international transaction. He has contended that the law on this point, however, has undergone a change by insertion of the Explanation to section .....

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ions Ltd. v. Asst. CIT [2012] 16 ITR (Trib) 477 (Mum)) has given relief to the assessee on this issue even on the merits. In this regard, he has referred to paragraphs 5 and 6 of the said order which is reproduced hereunder (page 480) : 'A continuing debit balance, in our humble understanding, is not an international transaction per se but is a result of the international transaction. In plain words, a continuing debit balance only reflects that the payment, even though due, has not been mad .....

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e has come into existence, and the terms and conditions, including the terms of payment, on which the said commercial trans action has been entered into. The payment terms are an integral part of any commercial transaction, and the transaction value takes into account the terms of payment, such as permissible credit period, as well. The residuary clause in the definition of international transaction', i.e., any other transaction having a bearing on the profits, incomes, losses or assets of s .....

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on under section 92B in respect of which the arm's length price adjustments can be made. The factum of payment has to be considered vis-a-vis terms of payment set out in the transaction arrangement and not in isolation with the commercial terms on which the transaction in respect of which payment is, according to the Revenue authorities, delayed. In any event, even when an arm's length price is made in respect excessive credit period allowed under the comparable uncontrolled price method .....

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r section 92B, the right course of applying the comparable uncontrolled price method, in the case of non-charging of interest on overdue balances, would have been by comparing this not charging of interest with other cases in which the assessee has charged interest on overdues with independent enterprises (internal comparable uncontrolled price) or with cases in which other enterprises have charged interest, in respect of overdues in respect of similar business transactions, with independent ent .....

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2010, of the co-ordinate Bench in the assessee's own case in Nimbus Communications Ltd. v. Asst. CIT [2010] 132 TTJ (Mumbai) 351 the immediately preceding year, we hold that the impugned addition of ₹ 12,51,175 is unsustainable in law and that the Commissioner of Income-tax (Appeals) ought to have deleted the same. We, accordingly, direct the Assessing Officer to delete the impugned adjustment. The assessee gets the relief accordingly.' 20. It is clearly evident from the relevant .....

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e interest at 2.19 per cent. LIBOR on balances which exceeded 30 days, but the LIBOR rate was relevant only in the case of lending or borrowing of funds and not in the case of commercial overdues. It was held that even if the continuing debit balances of associated enterprises could be treated as 'international transactions' under section 92B, the right course of applying the comparable uncontrolled price method, in the case of non-charging of interest on overdue balances, would have bee .....

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