TMI Blog2016 (7) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... ndates that the income from such transactions is to be computed on the basis of arm’s length price. The assessee is not really correct in contending that when the assessee has not reported any income from a particular international transaction, the ALP adjustment cannot compute the same. The computation of income on the basis of arm’s length price does not require that the assessee must report some income first, and only then it can be adjusted for the ALP. Section 92(1) is not an adjustment mechanism; it is a computation mechanism. The arm’s length price principle requires that an arm’s length price is assigned to the transactions between the associated enterprise, and if the income in computed, if any, on the basis of the arm’s length price so assigned. The ALP adjustments cannot be treated as income per se. However, the assessee does not derive any support from this decision since consideration for a loan, i.e interest, is inherently in the nature of income. There is no, and there cannot be any, dispute or controversy about this character of income. The point of dispute is whether zero interest, or no interest, is good enough for computing the income or whether an arm’s l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits and not assessing the interest income in the hands of the assessee on arm s length price will cause real loss to the Govt. exchequer? 2. However, when this finally came up for hearing on 19th April 2016, it was noticed that some of these questions are not even raised in the grounds of appeal filed by the assessee and are in the nature of arguments on certain peripheral issues, in support of the core grievance, focussing on certain narrow facets of the issues requiring our adjudication. As all these aspects will have to be dealt with in the course of our adjudication anyway, it is not necessary to have specific questions on each of the arguments. It was in this background, and with a view to succinctly set out the controversy requiring our adjudication, that the need to modify the questions to be answered by the Special Bench was felt. Accordingly, with the consent of the parties, Hon ble President was pleased to modify the questions for the consideration of special bench, and the question that this Special Bench thus finally adjudicated upon was as set out below: Whether, on the facts and in the circumstances of the case, an arm s length price (ALP) adjustment, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 92, 92A, 92B. The assessing officer is enjoined to work out the arm s length price as per sub-sections (1) and (2) of section 92 following the method outlined in section 92C. If he considers necessary or expedient so to do, he may with the previous approval of the Commissioner, refer the computation of arm s length price in relation to the international transaction to the Transfer Pricing Officer under section 92CA. The Transfer Pricing Officer has to determine the arm s length price after notice to the assessee. On the basis of such determination the assessing officer has to compute the total income of the assessee. It is only if the assessing officer comes to the conclusion that the interest of the revenue would be better served by not applying sub-sections (1) and (2) than by adhering to them, sub-section (3) would be attracted and the assessing officer will have to proceed with the assessment without giving effect to sub-sections (1) and (2). Without complying with the statutory requirements it will be too presumptuous to assume the said transaction is beneficial for the Revenue and then invoke sub-section(3) of section 92. 12. To consider the applicability of sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngth price involves determination of fair market rate of interest . The sine qua non for applicability of sub-section (3) of Section 92 is the finding that the computation of income under sub-section (1) or determination of the allowance for any expense or interest under that sub-section read with the explanation or the determination of any cost or expense allocated or apportioned, or, as the case may be, contributed under sub-section(2), has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction was entered into. Having regard to the aforementioned provision proviso (ii) to sub-section (2) of Section 245R of the Act - it is a prohibited exercise for the Authority. Indeed the Authority is enjoined to reject the application if the question involves determination of fair market value of the property . It follows that the Authority cannot pronounce any ruling on the applicability of sub-section (3) of section 92 of the Act . 14. In the light of the above discussion, the applicant has no option but to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lize the assessment under section 144 r.w.s. 147.The Assessing Officer noted that Datex India is a loss making concern and that it has, as on 1st April 2003, accumulated unabsorbed business loss of ₹ 12,25,42270 and accumulated unabsorbed depreciation of ₹ 12,77,67,761. It was also noted that the assessee and Datex India, which was wholly owned subsidiary of the assessee and its marketing arm in India, entered into an agreement dated 26th August 2002 under which the assessee extended an interest free loan denominated in US Dollars, which was equivalent to ₹ 36 crores, to Datex India for its general business purposes. The Assessing Officer was of the view that it is not in dispute that the interest free loan granted by the assessee to its subsidiary was not at an arm s length price, and, accordingly, an arm s length price adjustment was normally required to be made in respect of interest earning of the assessee from the grant of this loan. The only defence of the assessee, according to the Assessing Officer, was that erosion of tax base and consequent loss of tax revenue in India but then this argument was on the presumption that the Datex was making profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in the Accountant's report in Form 3CEB in the form of PLR of SBI for F.Y. 2002-03, it is the CUP method which appears to be the most suited for the purpose of determining the arm's length price of the interest income receivable by the assessee from Datex in the present case. As mentioned in the Transfer Pricing report filed by Datex, the PLR of SBI @ 10.87% was a prime indicator of the interest rate prevailing in the market in F.Y.2002-03. 8.1. It would, therefore, be only appropriate to apply rate of 10.87% to determine the interest income of the assessee. However, as indicated above, such interest is chargeable not only on the loan of ₹ 36 crores granted by the assessee to Datex during the year, but also on the opening balance of loan granted earlier i.e. 14,72,87,857/- as on 01.4.2002 on which Datex suddenly stopped making any provision for interest w.e.f. the last Asstt.Year. Interest was, therefore, chargeable on ₹ 36,00,00,000/- w.e.f. 01.09.02 to 31.3.2003 (in absence of the information about the specific date on which Datex received such loan, it is presumed that it was received on the last day of the month in which the agreement was entered in to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of those provisions would have been charged as per the principles of arm's length price. Thereafter, it was on the A.O. of M/s. Datex to examine the applicability of arm's length price on such interest. However, the appellant has failed to do so. In fact, the A.O. of appellant company has taken the view in favour of the revenue by bringing to tax the interest not charged by the appellant against the provisions of the Act. 15. Under the new provisions, the primary onus is on the taxpayer to determine an arm's length price in accordance with the rules, and to substantiate the same with the prescribed documentation. Where such onus is discharged by the assessee and the data used for determining the arm's length price is reliable and correct, there can be no intervention by the A.O. However, in the present case, the appellant has failed to discharge the primary onus relating to international transaction. 16. In the Circular No.14 of 2001, the Board has clarified that the second proviso to Section 92C(4) of the Act refers to a case where the amount involved in the international transaction has already been remitted abroad after deducting the tax at source and sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on loan granted to M/s. Datex by applying the principles of arm's length price. The action of the A.O. in this regard is upheld. 7. The assessee is not satisfied and is in further appeal before us. The case of the intervener 8. Briefly, the relevant material facts in the case of the intervener are like this. The intervener is a Dutch company, i.e. incorporated and fiscally domiciled in the Netherlands, which has rendered certain technical services to its associated enterprise in India- namely Hazira LNG Port Limited and Hazira Port Private Limited. It is stated that the fees received by the appellant (i.e. intervener before us) from HLPL and HPPL were subject to tax @10% on gross basis in the hands of the appellant (i.e. intervener before us) as fees for technical services, as per the provisions of the India Netherlands tax treaty, with respect to which there is no dispute . In the course of proceedings before the Transfer Pricing Officer, and for the detailed reasons set out in the order passed by the TPO, he was of the view that the intervener should have charged the higher amount of fees for technical services. Accordingly, the TPO proceeded to recommende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increasing the loss, the provisions of Section 92 will not come into play. In plain words, according to the assessee, in a situation in which result or consequence of an arm s length price adjustment is erosion of domestic tax base, the provisions of transfer pricing cannot be invoked. Elaborating upon the factual elements embedded in this proposition, it is submitted that while the receipts in the hand of the assessee are taxable @10% on gross basis, in view of the specific treaty provisions to that effect, the expenditure so incurred will be fully deductible in the hands of the resident subsidiary, and as such will reduce taxability which is otherwise at 36.75%. The net effect will be that in the event of interest free loans from the foreign parent company being subjected to arm s length price adjustment, the Indian tax base will stand eroded by 26.75% of such an ALP adjustment. It is submitted that the fact that the holding company, i.e. the assessee, has provided the interest free loan to its Indian subsidiary, i.e. Datex-India, is not in dispute, and that the genuineness of the loan, its usage and return to the assessee is also not in dispute. It is also pointed out that if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is evident from the language of the proviso which refers to arm s length price paid to the associated enterprise . The case of the assessee is that since no payment has been made by the Indian AE, i.e. Datex India, the bar on deduction does not come into play. For this reason also, according to the learned counsel, the ALP adjustments cannot made, and transfer pricing provisions cannot be invoked, on the facts of this case. 10. On the strength of these submissions, learned counsel for the assessee urged us to hold that the transfer pricing provisions cannot be invoked on the facts of this case as indeed similarly placed cases. Learned counsel gives a rather dramatic touch to his opening submissions by stating that while there may not be much tax revenues involved in this case, which is no more than, to use his words, a drop in the ocean, our decision on this macro issue of relationship between base erosion and transfer pricing will have a huge impact on the transfer pricing administration in general and it will guide the course of destiny for proper use this anti abuse provision. We are urged to rise to the occasion and lay down sound principles for application of the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the losses incurred earlier. It cannot, therefore, be said that the assessee was all along incurring losses only and had no tax liability. He emphasizes that an effort to increase losses has always been viewed with the same degree of disdain and apathy, under the law, as an effort to decrease the profits. Learned counsel then referred to Hon ble Supreme Court s decision in the case of CIT Vs Gold Coin Health Food Pvt Ltd [(2008) 304 ITR 308 (SC)] in support of the proposition that when penalty can be levied for overstating the loss, and when Hon ble Supreme Court has clarified that the expression income always included losses, i.e. negative profits, the same principle should apply in the context of losses suffered by the Indian AEs of the assessee inasmuch as notional computation of tax should be taken into account for computing the base erosion. A reference is then made to a ruling issued by the Australian Tax Office ( ATO , in short), i.e. ruling no. 2007/1, which holds that no ALP adjustment needs to be made in the case of non-resident lender giving an interest free loan to the Australian domestic company, and this principle will apply even if the Australian domestic compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits arising out of international transactions between the associated enterprises are required to be computed having regard to the arm s length price. As regards the provisions of Section 92(3), he submits that it provides that the provisions of Section 92 shall not apply in a case where the computation of income under sub-section (1) or the determination of the allowance for any expense or interest under, or the determination of any cost or expense allocated or apportioned, or, as the case may be, contributed under sub-section (2), has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction was entered into but then this limitation comes into play only when the income of the assessee, in whose hands income from international transactions is to be computed, stands reduced or the loss in his hands stands increased. Learned DR also submits that in the light of a five member bench decision of this Tribunal in the case of Aztech Software Technology Limited Vs ACIT [(2007) 107 ITD SB 141 (Bang)], the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the DRP were not appealable and that is the only reason that even when the revenue authorities did not agree with the interpretation given by the DRP, the matter could not have been carried further, but then in any event, the interpretation of law by the DRP does not bind this Tribunal. He points out that as the intervener himself accepts the views of the DRP do not bind the interpretation of law by this forum. It is, therefore, incorrect to say that the theory of taking a holistic view of taxability in the hands of all the AEs, as against the assessee alone, has been accepted by the revenue authorities. As for the CBDT circulars relied upon by the assessee, it is submitted that there is no dispute that these circulars are binding on the field authorities but then since there is no deduction available to the AEs in respect of ALP adjustments made in the hands of the assessee non-resident companies, there is no reduction in overall incidence of taxation as a result of the ALP adjustments being made in the hands of the non-resident companies earning income from their Indian AEs- which is sine qua non for the non application of transfer pricing provisions in such cases. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derlying these legal provisions, the clear mandate of law cannot be read down. What is being referred to as erosion of tax base of the Indian revenue is, according to the learned DR, based on some broad purpose and notions of the transfer pricing and with complete disregard to the facts of the present cases. Learned DR also invited our attention to the fact that the assessee has been completely indifferent to the notices served by the Assessing Officer and that no information was furnished by the assessee at the assessment stage. The assessee did not, despite specific requisition to that effect, even file the income tax return and has been completely non cooperative. The conduct of the assessee does not inspire any confidence. Learned counsel submitted that while, according to the learned counsel, stand of the assessee has been that there are no disputes about bonafides of interest free loan, the fact of the matter is that the assessee has not even given the basic details of dealings with the Indian AE and it was left to the Assessing Officer to compile information from the secondary sources and frame the assessment on that basis. 13. On the strength of these submissions, lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of which a tax shield at much higher rate, i.e. 36% in this case, is allowed for the corresponding deduction to Indian AE, and thus the assessee is legally permitted to erode the Indian tax base. He then submits that when the explicit intent of law in terms of section 92(3) is exactly to the opposite to such a scenario, a declaration of law or a judgment to the contrary should not be laid down or acceded to, and that either a rule of law or a judicial interpretation resulting in base erosion should not averted. Learned counsel then submits that the transfer pricing provisions deal with the transactions involving two or more parties, and what should be put to test is tax implications of a transaction as a whole rather than tax implications of the transaction in the hands of one of the assessee. Therefore, according to the learned counsel, section 92(3) cannot be given such a restrictive meaning so as to examine the impact of taxability only in the hands of the assesse rather than of all the AEs put together. As for the impact of Aztec decision (supra) by a five member bench of this Tribunal, learned counsel submitted that the Tribunal did not have any occasion to examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which, the computation of arm s length price will have the effect of lowering the profits or increasing the losses. Essentially, therefore, it refers to the computation of income in the hands of the assessee in respect of which computation of income is being done under section 92(1). 18. In substance, fundamental contention of the assessee, however, is that we should take a holistic view of the matter and adopt the concept of lowering overall profits and increasing overall losses, not only for the assessee alone, but of all the related AEs as a whole- as taxable in India. Going a step further, what is implicit in the argument of the assessee is that we should not even look at the figures of income or losses but on tax impact of such profits or losses. In effect thus, reducing the income chargeable to tax or increasing the loss should be de facto read as reducing the tax liability on income or increasing the tax shield for the losses. In effect, thus, not only the actual tax impact but also the possible tax advantage, de hors the time value of money, should be taken into account. This interpretation, according to the assessee, will advance the intent of the legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but if an altogether new income is brought to tax in the hands of the assessee, as a result of ALP adjustment, corresponding deduction is required to be given to the Indian AE, we find no basis whatsoever for this contention. The scheme of transfer pricing legislation does not support the plea of the assessee. Learned counsel has not been able to point out any specific legal provision enabling such a corresponding deduction or demonstrate, or even remotely suggest, the line of demarcation as visualized by the learned counsel. As regards the reference to second proviso to Section 92C(4) made by the learned CIT(A), on incorrectness of which so much reliance has been placed by the learned counsel, the CIT(A) was indeed in error as it refers to re-computation of income in the hands of an AE, as a result of lower deduction being allowed, but then nothing really turns on that. The reasoning given by the CIT(A) was incorrect, the conclusion arrived at him by was not. He was right, even if serendipitously. The deduction for the ALP adjustment will not be available to the Indian AE because there is no provision enabling deduction for ALP adjustments. The second proviso to Section 92C(4) re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d available to the Indian AE in the form of accumulated losses. In our considered view, however, tax administration cannot be expected to have clairvoyance of whether or not Indian AE will actually make sufficient profits in the next eight assessment years which will subsume the losses incurred by the assessee by the AE. The benefit of tax shield, even if any, is, therefore, wholly hypothetical. The approach adopted by the tax administration, therefore, can at the most be conservative, but not certainly not myopic. In any case, that is what the law provides. We have to interpret the law as it exists and not as it ought to be. The lawmakers may have preferred a bird in the hand over two in the bush but that is a policy issue. In any event, nothing in the world can match the exactitude of hindsight but the trouble is that it inherently comes a bit too late. If the assessee was to be so certain of the tax benefit to the Indian revenue by this transaction structure by way of interest free loan to Indian AE, the transaction would not have been structured in this manner; after all the underlying motive in the activities of the assessee is to maximise gains for its shareholder rather than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x loss position. Because of the effects of provisions such as the carry-forward loss and loss transfer provisions of the Act, it is difficult to evaluate the overall revenue effect in those situations. Accordingly, the approach in paragraphs 16 and 17 of this Ruling should be followed with no determination and adjustment under subsection 136AD(2). 23. It is important to bear in mind the fact unlike in the provisions of Section 92 of the Indian Income Tax Act, 1961, wherein use of arm s length principle is mandatory in computation of income arising to an assessee from the international transactions, Section 136 AD of the Australian Income Tax Assessment Act 1936, a computation of income on the basis of arm s length price is discretionary for the Commissioner inasmuch as it comes into play in respect of an international transactions between the AEs when, inter alia , (b) the Commissioner, having regard to any connection between any 2 or more of the parties to the agreement or to any other relevant circumstances, is satisfied that the parties to the agreement, or any 2 or more of those parties, were not dealing at arm s length with each other in relation to the supply (c) consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the absence of sound reasons to the contrary, it could be expected that the discretion in paragraph (d) of the relevant subsection would be exercised where the Australian revenue has been disadvantaged (paragraph 394) . 118. Where the discretion under paragraph (d) of subsections 136AD(1), (2) or (3) is exercised, a formal determination should be made to that effect (paragraph 395) . 24. The Indian transfer pricing regulations do not give any such discretions to the tax administration for the application of arm s length price in computation of profits arising from international transactions. As there is no discretion with the tax administration, there is no occasion for any guiding principles in the use of discretion. So far as the Indian transfer pricing provisions are concerned, the use of arm s length price, in computation of income arising from international transactions between the AEs, is mandatory. The only rider is that these provisions are not to be applied only in the event of the exclusion clause in Section 92(3) being satisfied, but then, as we have seen earlier in our analysis, this exclusion clause does not come into play on the facts of these cases at all. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of profits rather than adjustment of prices, and the rule prescribed for estimating profits was not scientific. It also did not apply to individual transactions such as payment of royalty, etc., which are not part of a regular business carried on between a resident and a non-resident. There were also no detailed rules prescribing the documentation required to be maintained. 55.3 With a view to provide a detailed statutory framework which can lead to computation of reasonable, fair and equitable profits and tax in India, in the case of such multinational enterprises, the Act has substituted section 92 with a new section, and has introduced new sections 92A to 92F in the Income-tax Act, relating to computation of income from an international transaction having regard to the arm s length price, meaning of associated enterprise, meaning of international transaction, computation of arm s length price, maintenance of information and documents by persons entering into international transactions, furnishing of a report from an accountant by persons entering into international transactions and definitions of certain expressions occurring in the said sections. 55.4 The newly substit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which makes CBDT circulars binding on the field authorities, lays down that the CBDT may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board (Emphasis, by underlining, supplied by us). What follows is that it is only the order, instruction or direction of the CBDT which binds the field authorities. There are certain situations, as envisaged in Section 119(2), in which the CBDT circulars can relax the rigour of law but it is not even the case of the assessee, and rightly so, that the provisions of Section 92 can be relaxed under section 119(2). The Board s understanding about the intent of legislature, in our considered view, does not in any way fetter the field authorities. 28. Having said that, the role of intent of legislature at best comes into play only when there is any ambiguity in the words of the statute which are being sought to be interpreted. That is not the case here. If intention of the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Asher (to which Lord Justice himself refers) cannot be supported. .......It appears to me to be naked usurpation of legislative function in the thin guise of interpretation and it is less justifiable when it is guesswork with what material the legislature would, if it had to discover the gap, have filled it in. If a gap is disclosed, the remedy lies in an amending Act...... Lord Denning s aggressive definition of the power of the Courts, so far as question of casus omissus is concerned, was severally criticized by Lord Simonds and other law lords in the above case. Lord Morton observed that these heroics are out of place and pointed of Lord Tucker Your Lordships would be acting in a legislative rather than judicial capacity of the view put forward by Denning L.J. were to prevail (at p. 850). As observed in Cross : Statutory Interpretation (2nd Edition, at p. 45), the current tendency among English Judges would appear to incline away from the Denning approach. These views are also echoed by Hon ble Supreme Court of India from time to time. In the case of State of Kerala vs. Mathai Verghese AIR 1987 SC 33, Hon ble Supreme Court has taken a view that the Court cannot re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n event i.e. profits being made so as to subsume these losses. Learned counsel has submitted, though in very general and uncommitted terms, that Indian AE of the assessee has subsequently merged in a profit making and all the losses brought forward must have been used in set off against the profits of the merged entity. These facts, even if true, could not have been known at the assessment stage, and, therefore, nothing really turns on these facts. What is known, only with the benefit of hindsight today, could not have been known at the time of assessment. That apart, this vague submission cannot have any bearing any bearing on our adjudication. It is only elementary that when a party leans upon, or refers to, a fact not borne out of records, he has to state that on an affidavit- as is the mandate of rule 10 of the Appellate Tribunal Rules 1963. We have taken note of the fact that the assessee before us has been completely non-cooperative and defiant in approach. The assessee did not file the tax return, the assessee did not submit the requisitioned information, and the assessee did not respond to any notice issued by the Assessing Officer. The conduct of the assessee leaves a lot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that the transfer pricing legislation is not based on, what could be construed as, sound first principles as appreciated by Hon ble Supreme Court but then as long as this law is on the statute, we are bound by the same. Learned counsel s reference to Article 141 of the Constitution of India, while making his point and emphasizing that the law laid down by Hon ble Supreme Court in Morgan Stanley s case (supra) binds this forum-as indeed all the courts in India, is perhaps wholly out of place inasmuch as the question before Hon ble Supreme Court was altogether different. 31. As we deal with this aspect of the matter, we may usefully refer to the following observations made by Hon ble Supreme Court itself in the case of CIT Vs Sun Engineering Works Pvt Ltd [(1992) 198 ITR 297 (SC)]: It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also made to the US transfer pricing regulations and it is pointed out that an activity is not considered to provide a benefit if sole effect of the activity is to protect the capital investment of the renderer. Moving on from the shareholder activity argument, learned counsel submits that it is not open to the Assessing Officer to question the commercial expediency of a transaction. When in his wisdom the assessee has advanced an interest free loan, according to the learned counsel, the revenue authorities cannot disregard the commercial expediency of the interest free loan and instead impute interest thereon. In support of this proposition, he relies upon a decision of this Tribunal, in the case of Ericsson India Pvt Ltd Vs DCIT [(2012)17 ITR Trib 79 (Del)] which holds that it is taxpayer s prerogative to avail the services from an AE and TPO cannot question the same. A reference is then made to decision of this Tribunal in the case of Abhishek Auto Industries Vs DCIT [(2011) 15 ITR Trib 168 (Del)] , in support of the proposition that legally binding arrangements between the parties cannot be disregarded by the revenue authorities, without assigning cogent reasons. In substa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Services Limited Vs ACIT [(2015) 368 ITR 1 (Bom)] to support the contention that it is only when an income flows from the transaction that an ALP adjustment can be made, and an ALP adjustment can only modify, though not create, an income. It is submitted that transfer pricing provisions are only machinery provisions to adjust the quantification of income. He thus contends that while ALP adjustments permit increase in an income, in a case where no income is reported, ALP adjustments cannot be made at all. On the strength of these arguments, learned counsel urges us to hold that no ALP adjustments were warranted, even if permissible in law, on the facts and in the circumstances of this case. 35. Learned Departmental Representative vehemently opposes the submissions of the assessee. He submits that these arguments are wholly ill conceived and factual elements embedded in these arguments are not borne out from the material on record. We are once again reminded that the assessee has not made any factual submissions at the assessment and first appellate stage, and it is only now that all sort of factual issues are being raised- and that too without any evidence in support of thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of ALP, is to be brought to tax. We are urged to reject the hyper technical, and rather creative but wholly divorced from the existing legal provisions, contentions of the assessee. 36. In brief rejoinder, learned counsel for the assessee once again reiterates his contentions and urges us to interpret the law in a manner to as to be in tune with the underlying intent of legislature and the realities of business. He once again emphasizes his claim that advancing the interest free loan to the Indian AE was warranted by the business exigencies, and that the true reward for this loan was much more than a simple interest earning- it was protecting the business of the assessee as a whole. The Indian AE, learned counsel submits, was taking care of business interests of the assessee as its marketing arm in India, and it was in business interest of the assessee, whether the Datex was an AE or not, to keep it alive and bail it out of financial distress. It is submitted that, while taking a call on submission of the assesse, we should bear in mind these business realities as well. In the light of these discussions, according to the learned counsel, it was indeed not a fit case for m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee s claim that the loan being extended free of interest was in the nature of shareholder service, this plea is being taken up for the first time before us and the assessee has not even furnished basic evidences for the factual elements embedded in this proposition. Such facts cannot be inferred or assumed; there has to be some material on record to demonstrate, or even indicate, the existence of these facts. The references to OECD report and BEPS report is in the context of benefit test, but then the benefit test is not really relevant in the context of Indian transfer pricing legislation. Learned counsel has not explained as to how these inputs are relevant in interpreting the scope of the statutory provision before us, nor do we see any relevance of this material in the present context and given the fact situation above. It is also important to bear in mind the uncontroverted findings of the Assessing Officer that the interest was all along charged by the assessee on its loans to Datex but, for some unexplained reasons, the assessee has stopped charging interest in the assessment year 2003-04. The commercial bonafides of the present transactions are not establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the effect that, In this case, the revenue seems to be confusing the measure to a charge and calling the measure a notional income. We find that there is absence of any charge in the Act to subject issue of shares at a premium to tax . Undoubtedly, learned counsel is right in interpreting this decision to the extent that what is not in the nature of income cannot be turned into income so as to make ALP adjustment therein, and then bring the ALP adjustment to tax, since the computation is of income and it is only the price at which transaction is entered into that is to be taken as an arm s length price in computation of that income. The ALP adjustments cannot be treated as income per se . However, the assessee does not derive any support from this decision since consideration for a loan, i.e interest, is inherently in the nature of income. There is no, and there cannot be any, dispute or controversy about this character of income. The point of dispute is whether zero interest, or no interest, is good enough for computing the income or whether an arm s length interest must substitute this zero interest. The answer is obvious. As long as the transaction is an international tra ..... 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