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2017 (2) TMI 1204 - ITAT MUMBAI

2017 (2) TMI 1204 - ITAT MUMBAI - TMI - TPA - selection of comparable - Held that:- Companies need to be excluded from the final set of comparables on the ground that there was a significant difference in business strategies like outsourcing of the entire service segment, etc. - At the time of hearing, it was stated by the Ld. Representative for the assessee that if Accentia Technologies Ltd., Cosmos Global Limited and Infosys BPO Ltd. are excluded and R Systems International Limited( BPO-Se .....

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ricing Officer is directed to re-determine the arm’s length price of the assessee in the above light. - Transfer pricing adjustment in respect of subscription and redemption of Preference Share capital - Held that:- Tribunal in assessee’s own case for assessment year 2009-10, wherein it has been held that the Transfer Pricing Officer cannot disregard the apparent transaction and substitute it with a transaction as per his own perception. - Transfer pricing adjustment made in respect of .....

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e matter back to the file of Assessing Officer, who shall appropriately consider the claim of carry forward and set-off of unabsorbed depreciation and business loss in accordance with law, ofcourse after allowing the assessee a reasonable opportunity of being heard and putting forth its position on the subject. Thus, on this aspect, assessee succeeds for statistical purposes. - Disallowing the current year’s loss and making addition on account of exchange gain on account of redemption of pre .....

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eleted. Apart from the aforesaid plea, assessee had also pointed out at the time of hearing that the borrowings raised during the year from various banks and other financial institutions were acquired for specific utilization like acquisition of fixed assets, capital expenditure, etc. and, therefore, the same would not be presumed to have been lent to subsidiaries /sister concerns. Be that as it may, having regard to the fact-situation and the ratio of the judgment of the Hon'ble Bombay High Cou .....

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an order passed by DCIT, 5(1), (in short the Assessing Officer) passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 ( in short the Act) dated 29/11/2014, which is in conformity with the direction of the Dispute Resolution Pannel-1, Mumbai (in short the DRP ) dated 24/10/2014. 2. The Grounds of appeal raised by the assessee as well as Revenue read as under:- On the facts and circumstances of the case and in law, 1. The learned Assessing Officer ('AO') has erred in com .....

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O / AO / DRP have erred in making an addition of INR 88,02,54,695 to the total income (as detailed below) of the appellant in respect of various international transactions entered into by the appellant with its associated enterprises ('AE'). S.No. Particulars Amount (INR) 1. Adjustment in respect of IT -enabled services 4,47,84,556 2. Adjustment in respect of subscription and redemption of preference share capital 63,64,02,739 3. Adjustment in respect of guarantee commission on intra-gro .....

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in respect of provision of IT-enabled services ("ITeS"): 4. The learned TPO / AO / DRP have erred in: a. Not accepting the use of multiple year data, as adopted by the appellant in its Transfer Pricing ('IP') documentation; and b. Determining the arm's length margins / prices using data pertaining only to financial Year ('FY') 2009-10 which was not available to the appellant at the time of complying with the Indian TP documentation requirements. 5. The learned TPO .....

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ing the international transaction pertaining to provision of IT-enabled services on an ad-hoc basis, thereby resorting to cherry picking of comparables for benchmarking the said transaction. 7. The learned TPO / AO / DRP have erred in considering foreign exchange gains / losses arising from business operations as non-operating nature while computing operating margins of the appellant as well as comparable companies. 8. The learned TPO / AO / DRP have erred in selecting certain companies (which a .....

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the variation of 5 percent from the arithmetic mean as provided in the proviso to Section 92C(2) of the Act, while making adjustment to the value of international transactions of the appellant, applicable as per law. Adjustment in respect of issue and redemption of preference shares: 12. The learned TPO / AO / DRP have erred in re-determining the arm's length compensation pertaining to subscription and redemption of preference share capital by re-characterizing the same as interest-free loan .....

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ccount. 15. Without prejudice to above, the learned TPO / AO / DRP have erred in making double addition on account of guarantee commission, since the appellant has cumulatively recovered guarantee commission from its AEs in AY 2012-13 at 1 percent including guarantee commission for AY 2010-11; 16. Without prejudice to above, if the addition of on account of guarantee commission is upheld in the year under consideration, the guarantee commission offered to tax in AY 2012-13 should be excluded fro .....

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llowance of interest expenses claimed 5,37,76,428 4. Addition of exchange gain on repayment of laon 4,33,10,670 Total 58,96,32,789 18. The learned AO / DRP have erred in not upholding the claim of the appellant for carry forward and set-off of unabsorbed depreciation allowance (INR 40,22,26,882) and business loss (INR 9,03,07,429) aggregating to INR 49,25,34,311: a. by not making a due examination in accordance with law as to whether there was a change in the beneficial shareholding of the asses .....

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Chapter X-B of the Act, whereby no power is vested in the learned AO to enhance or modify the findings of the learned TPO. b. The learned AO / DRP has failed to follow the law of the land that the deeming fiction under the Act is limited for the purpose it is so made and the same does not permeate through the entire assessment. c. The learned AO / DRP has travelled beyond the provisions of the Act in seeking to re-characterize lawfully consummated transaction(s), where no such power, express or .....

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ding that the appellant has not established the commercial expediency for advancing interest free loans to sister concerns I subsidiaries: a. the AO/DRP failed to consider the factual matrix and the circumstances of the case, evidencing the fact that appellant has extended loans from its own funds; b. follow the law laid down by the Hon'ble Supreme Court and the Jurisdictional High Court on allowability of interest on loans made to a sister concern, without interest, where commercial expedie .....

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the deeming fiction under the Act is limited for the purpose it is so made and the same does not permeate through the entire assessment. c. The learned AO has travelled beyond the provisions of the Act in seeking to recharacterize lawfully consummated transaction(s), where no such power, express or implied, is conferred on him by the Act. d. The learned AO failed to follow the law laid down by the Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. vs CIT (116 ITR 1) and CIT vs Woo .....

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c) of the Act without recording any adequate reasons for such initiation. Each of the ground is referred to separately, which may kindly be considered independent of each other. Grounds of Revenue s Appeal:- 1 " Whether on the facts and circumstances of the case and in law, the Hon ble DRP erred in fact & Law while reducing the rate of Corporate guarantee fee when the same was arrived at by the TPO by adopting a scientific approach to apply differential in the corresponding credit ratin .....

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1.2014. Accordingly the last date for filing of appeal was 27/01/2015. Consequent to restructuring the case records was transferred to the AO of this charge i.e. DCIT 6(1)(1), Mumbai on 23.01.2015 and following three days were public holidays. The comments of TPO were obtained on 25.02.2015 by the AO. Thus the delay is regretted and therefore it is humbly requested that the delay may kindly be condoned. 3. Before we proceed to address the respective Grounds of appeal, we may briefly refer to the .....

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evised to ₹ 53,53,12,560/-. In the ensuring scrutiny assessment finalized under section 143(3) r.w.s. 144C(13) of the Act dated 29/11/2014, the total income has been assessed at ₹ 197,44,90,852/-. The assessment so finalized by the Assessing Officer was, inter-alia, in conformity with the arm's length price of the international transactions entered by the assessee with associated enterprises, which was determined by the Transfer Pricing Officer in an order passed under section 19 .....

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l perused. 4. First, we may take up the appeal of the assessee. In so far as the Ground of appeal No.1 is concerned, the same is general in nature and does not require any specific adjudication. The Grounds of appeal No.2 & 3 relate to an addition of ₹ 88,02,54,695/- made on account of transfer pricing adjustment in respect of three categories of international transactions entered by the assessee with its associated enterprise namely, IT Enabled Services(ITEs), subscription and redempt .....

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al transaction of ITE services, the relevant facts can be summarized as follows. Assessee is engaged in providing IT Enabled Business Process Outsourcing Services(BPO) to its associated enterprises and third parties. Apart from the aforesaid, during the year assessee also rendered Receivable management services to its associated enterprises. In its Transfer Pricing Studies, assessee had benchmarked the said transactions separately by using the Transactional Net Margin Method as the most appropri .....

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nto a single ITE services segment and determined the assessee s margin at 20.11% on cost. Though the Transfer Pricing Officer did not disagree with the selection of TNM method as the most appropriate method but he has introduced some new filters, modified the threshold limit of various filters and/ or other comparability criteria applied by the assessee and arrived at the following final set of six comparables:- S.No. Name of comparable Operating Margin (OP/OC)% 1. Accentia Technologies Ltd. 43. .....

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o their arm's length price. The DRP has also affirmed the ultimate decision of the Transfer Pricing Officer, and accordingly, the Assessing Officer has made an addition of ₹ 4,47,84,566/- in the final assessment order passed under section 143(3) r.w.s. 144C(13) of the Act. 4.2 Although on this aspect assessee has raised multiple Grounds but the short point that has been argued before us is for inclusion and exclusion of certain concerns in the final set of comparables, which we shall d .....

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is incomparable to assessee s activity of ITE services. Secondly, it is pointed out that during the year under consideration, a company named, Asscent Infoserve Private Limited has merged with the said concern and, therefore, the financial results of the said concern are impacted on account of such exceptional events. It is also sought to be pointed out that the said concern had acquired certain companies for SaaS Technology, which forms a part of its assets base which serves the purpose of prov .....

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lea of the assessee by relying on the discussion made by the Transfer Pricing Officer in para 10.4 of his order, whereby it is sought to be pointed out that the said concern has been rightly excluded. Firstly, it is sought to be pointed out that the said concern was considered as a comparable by the assessee itself and, therefore, there is no justification for the assessee to again seek its exclusion. Secondly, with regard to the merger of Accent Infoserve Private Ltd., with the said concern, th .....

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merger of two functionally similar concerns took place, then the event of merger by itself cannot be taken as a factor for exclusion of the said concern from the list of comparables. In this context, observation of the Delhi Bench of the Tribunal in the case of Agilent Technologies International Private Limited, ITA No. 1837/Del/2014 have also been referred to show that in such situation, a concern can be excluded only if, because of merger or demerger, the said concern becomes functionally diff .....

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that certain extraordinary events have taken place during the financial under consideration namely, merger of Accent Infoserve Private Ltd. with the assessee company. Factually speaking, the said event is not disputed by the Revenue, but the case made out by the Revenue is that the said event of merger does not defeat the comparability of the said concern as no effect on financial results has been demonstrated. In principle, we have no quarrel with the proposition being advanced by the Revenue .....

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the said concern on the ground of the impact on the financial results. In fact, in the case of Zavita India Pvt. Ltd.(supra), the Tribunal was considering a situation, where the Assessing Officer had excluded the said concern after being directed by the DRP to examine whether any extraordinary event had effected the financial results. The Tribunal noticed that the Assessing Officer had excluded the concern from the list of comparables after carrying out the verification directed by the DRP. In t .....

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ment year. Therefore, the said concern is excludable on the ground of existence of an extraordinary event in this year, which has had an effect on its financial result, thereby impacting its comparability with assessee s tested segment of IT enabled services. Thus, on this short point, we uphold the plea of the assessee for exclusion of Accentia Technologies Ltd. from the final set of comparables. 5. The next plea of the assessee is for exclusion of M/s.Cosmos Global Ltd. from the final set of c .....

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as outsourced a major portion of its activities, which is not so in the case of the assessee. Apart therefrom, it is pointed out that in assessment year 2009-10, the said concern has been excluded by the Tribunal also and in this context, a reference has been made to para 10(ii & iii) of the order of the Tribunal dated 27/7/2015(supra). 5.1 On the other hand, the plea of the Ld. Departmental Representative is primarily in support of the reasoning advanced by the Transfer Pricing Officer, whi .....

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ot doubted the difference in the business strategies, so however, the plea raised is that the said concern has been included by the assessee itself as a comparable concern in its initial Transfer Pricing Study. 5.3 In this context, the Ld. Representative for the assessee pointed out that initially the said concern was included as a comparable based on the data available in public domain; and, subsequently the said concern was sought to be excluded at the time of proceedings before the Transfer P .....

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the same. In the present case, in so far as the exclusion of Cosmos Global Limited is concerned, it is quite clear that it has been found to be incomparable by the Tribunal in assessment year 2009-10 on account of the fact that it is operating with a different business model. The assessee has sought to explain the initial inclusion of the said concern on account of non-availability of the relevant data, which came in public domain subsequently. In any case, we find that the exclusion of Cosmos G .....

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it fit and proper to uphold the plea of the assessee for exclusion of Cosmos Global Limited from the final set of comparables. 6. The next plea of the assessee is for exclusion of Infosys BPO Limited from the final set of comparables primarily on the ground that the array and scale of operations of the said concern is quite incomparable to assessee s activity of providing routine BPO services to the associated enterprise in the nature of data collection and analysis. The Transfer Pricing Officer .....

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from the website of the said concern as also its Annual Report to point out that it is engaged in rendering of a wide range of BPO services in the nature of business platforms, customer service outsourcing, finance and accounting, human resources outsourcing, legal process outsourcing, sales and fulfilment, sourcing and procurement outsourcing, etc. It is also pointed out that it operates at a large scale of operations with a turnover of ₹ 1126.63 crores, whereas the turnover of the asses .....

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model basis, and thus the said concern is incomparable. 6.2 Before us, the Ld. Departmental Representative pointed out that though assessee has raised the plea of excluding the said concern before Transfer Pricing Officer but no such objection was raised before the DRP and, therefore, this being a new plea, it should not be admitted by the Tribunal. 6.3 We have carefully considered the rival submissions. In so far as the plea of the Ld. Departmental Representative to the effect that the exclusi .....

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o not find any merit in the objection raised by the Ld. Departmental Representative inasmuch as, assessee resisted the inclusion of the said concern in the list of comparables even in the course of proceedings before the Transfer Pricing Officer. The factum of assessee not having raised any objection before the DRP does not preclude it from raising it before the Tribunal because it is not a plea which is alien to the Revenue, since it was very much before the Transfer Pricing Officer hitherto. I .....

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ks International Pvt. Ltd.(supra) for the very same assessment year, the said concern has been found to be incomparable on the ground of exceptional event reflected by the acquisition of Mc Carnish LLC. during the year under consideration . Even otherwise, in our considered opinion, the assessee concern is rendering routine services and is being remunerated on cost plus basis and it is incomparable to Infosys BPO Limited, which is ostensibly engaged in a variety of services and is admittedly abl .....

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nd, therefore, it was not a good comparable. The DRP has also affirmed the rejection on the reasoning given by the Transfer Pricing Officer. Even before us, the Ld. Departmental Representative has supported the stand of the Transfer Pricing Officer by placing reliance on the decision of the Mumbai Tribunal in the case of Honeywell Automation India Ltd. ITA No.4/PN/08 dated 10/02/2009. 7.1 On the other hand, the Ld. Representative for the assessee pointed out that though the said concern was foll .....

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sion of R-Systems International Limited (BPO-Seg.) has been rejected in the following words: (v) R Systems International Ltd. (segmental): ....... If there are no extraordinary events and factors in these periods then proportionate operating margins on operating cost can be very well taken for benchmarking the margins. We find no fault for reworking the margin on the basis of adding the three months and excluding three months to work out the proportionate working margin if the financial data are .....

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to be the data relating to the financial year in which the international transaction has been entered into. The aforesaid is the clear requirement of Rule 10(B)(4) of the Income Tax Rules, 1962( the Rules ). For the said reason, the data comprised in the financial year ending on 31/12/2009 of RSystems International Limited (BPO-Seg.) cannot be used for the purpose of comparability with assessee s tested segment. So however, the plea of the assessee is that the data for all the quarters is avail .....

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n, ITA No.101 of 2015(O&M) dated 24th August, 2016. The following discussion in the decision of the Hon ble High Court in the context of R-Systems International Limited (BPO-Seg.) itself is relevant: 27. The TPO excluded the case of R-Systems International Limited from the list of comparables. The ITAT included the same. The Transfer Pricing Officer excluded the case of R-Systems International Limited on the ground that it follows the calendar year i.e. 1st January to 31st December for maint .....

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ends itself to us. It is not the financial year per se that is relevant. Even if the financial years of the assessee and of another enterprise are different, it would make no difference. If it is possible to determine the value of the transactions during the corresponding period, the purpose of comparables would be served. The question in each case is whether despite the financial years of the assessee and of the other enterprise being different, the financials of the corresponding period of eac .....

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y the Tribunal, if from the yearly data ending 31.12.2008, the results of the quarter ending 31.03.2008 are excluded and if the results for the quarter ending 31.03.2009 are included, it is possible to obtain the data for the financial year 01.04.2008 to 31.03.2009. 30. This view is not contrary to Rule 10(B)(4) which reads as under:- 10B(4) The data to be used in analysing the comparability of an international transaction shall be the data relating to the financial year in which the internation .....

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financial year is available, it matters not, if the financial year followed is different. In the case before us the data relating to the relevant financial year of R-Systems International Limited is available. 32. We are, therefore, entirely in agreement with the decision of the Tribunal that if the data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then it cannot be held as not pass .....

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nsidering the exclusion of a concern on the ground that the financial year comprised of 18 months ending as on 31/3/2005 and there was no separate data available for 12 months ending as on 31/03/2004. In this background, the Tribunal accepted the plea to exclude such a concern from the list of final comparables. Quite clearly, the facts in the instant case in relation to the R-Systems International Limited (BPO-Seg.) are quite different. Further, it may also be observed that the situation before .....

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onths, which could be ignored. The Hon'ble High Court rejected the aforesaid plea of the Revenue and upheld the exclusion of such a concern from the final list of comparable. Notably, there was no plea before the Hon'ble High Court that the data for the relevant 12 months of the concern was available in public domain and, therefore, the situation before the Hon'ble High Court was quite different from what is before us. In fact, the situation before us is identical to that considered .....

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O-Seg) is included in the final set of comparables, then the margin of the comparables shall be within +/- 5% range of the assessee s margin reflecting that the transactions of the assessee of providing IT enabled services to the associated enterprise are at an arm s length price and does not require any further adjustment. Since assessee has succeeded on the aforesaid plea, we find no reason to adjudicate other pleas on this aspect, which are kept open. Accordingly, the Assessing Officer/Transf .....

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Services Mauritius and also redeemed 1,81,00,000 of such shares at par. The Assessing Officer notes that Essar Services Mauritius was an associated enterprise and that the said shares were non-cumulative and redeemable on par without dividend. The Transfer Pricing Officer also observed that assessee had a running account with the said associated enterprise, in terms of which monies were being advanced as and when the need arose. Considering the nature and frequency of transactions in the runnin .....

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of Preference shares into a loan and charging of interest thereon. In this manner, assessee is in further appeal before us. 8.2 Before us, it was a common point between the parties that an identical situation has been considered by the Tribunal in assessee s own case for assessment year 2009-10, wherein it has been held that the Transfer Pricing Officer cannot disregard the apparent transaction and substitute it with a transaction as per his own perception. The following discussion in the order .....

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rming it as an exceptional circumstance and has charged/imputed interest, on the reasoning that in an uncontrolled third party situation, interest would have been charged. We are unable to appreciate such an approach of TPO and under what circumstances, leave above any exceptional circumstances, a transaction of subscription of shares can be re-characterized as Loan transaction. The TPO /Assessing Officer cannot disregarded any apparent transaction and substitute it, without any material of exce .....

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y scenario, if an independent enterprise subscribes to a share, can it be characterize as loan. If not, then this transaction also cannot be inferred as loan. The contention of the Ld. Counsel is also supported by the Hon ble jurisdictional High Court in the case of Dexiskier Dhboal SA, ITA No. 776 of 2011 order dated 30th August, 2012 and by various other decisions, as cited by him. The Co-ordinate Benches of the Tribunal have been consistently holding that subscription of shares cannot be char .....

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t year 2009- 10(surpa), while holding the issue in favour of the assessee. 8.4 The Ld. Departmental Representative has not disputed the fact that the instant issue is covered by the decision of the Tribunal for assessment year 2009-10(supra), which continues to hold the field as it has not been altered by any higher authority. As a consequence, following the aforesaid precedent, the action of the Assessing Officer is set-aside and assessee succeeds in Grounds of appeal No.12 & 13. 9. We may .....

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a 5.1 of his order. The total value of guarantees given by the assessee on behalf of its associated enterprises was ₹ 670,57,31,000/-. The assessee did not treat the transaction of providing Corporate Guarantee as an international transaction within the meaning of section 92B of the Act. However, the Transfer Pricing Officer disregarded the said approach and instead held that assessee ought to have charged guarantee fee from its associated enterprises as it involved providing benefit to th .....

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n in its draft assessment order dated 14/02/2014. The DRP, in principle, agreed with the approach of Transfer Pricing Officer but differed with the arm s length rate of guarantee fee. The DRP following its directions in the assessee s own case for earlier assessment year of 2009-10, directed that the guarantee fee be computed at 3% per annum and accordingly, in the final assessment order passed under section 143(3) r.w.s. 144C(13) of the Act dated 29/11/2014, the adjustment on account of guarant .....

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ontending that providing of guarantee is not an international transaction within the meaning of section 92B of the Act; that it was in the nature of shareholder activity and did not constitute any intra group services, so far as the instant assessment year is concerned. Apart therefrom, a pertinent point has been brought out to say that subsequent to the impugned assessment, on a suo-moto basis, assessee has recovered guarantee fee @1% of outstanding guaranteed amount from its associated enterpr .....

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overy no further addition is warranted. The Ld. Representative for the assessee pointed out that similar situation had prevailed before the Tribunal in assessment year 2009-10 also and it has been directed that the guarantee fee be benchmarked by taking the rate @ 1% of the outstanding guaranteed amount. 9.3 The Ld. Departmental Representative has not disputed the factual matrix brought out by the Ld. Representative for the assessee, but contended that the action of the Transfer Pricing Officer/ .....

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sar Services, Mauritius for ₹ 75,73,50,000/-. Before us, the Ld. Counsel had submitted that in the subsequent years the assessee has suo moto entered into Guarantee Agreements with its AE pursuant to which it has charged guarantee commission of 1% from its AE, w.e.f. financial year 2007-08 for a period of five years. The said guarantee commission recovered by the assessee has been recognized in the financial statement by the assessee for the assessment year 2012- 13 and has also been offer .....

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the rate of 1% of the outstanding guaranteed amount in line with the consistent views taken by the coordinate Benches, from its AE and adjustments should be made accordingly. Thus, grounds 12 & 13 as raised by the assessee are treated as partly allowed. 9.5 Following the aforesaid precedent, we direct the Assessing Officer/Transfer Pricing Officer that the guarantee fee be benchmarked by adopting the rate at 1% of the outstanding guaranteed amount for maintaining consistency with the preced .....

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on of ₹ 40,22,26,882/- and business loss of ₹ 9,03,07,429/-. 11.1 In this context, the brief facts are that in its return of income for assessment year 2010-11, assessee claimed carry forward and set-off of unabsorbed depreciation and business loss totalling to ₹ 32,32,55,033/- and ₹ 13,86,21,348/-. Out of this, a sum of ₹ 1,47,59,086/- pertained to Global Vantage Private Limited, because in terms of scheme of arrangement the BPO division of Global Vantage Private L .....

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as merged with the assessee in the instant assessment year and as a consequence in the return of income assessee claimed carry forward and set-off of unabsorbed depreciation and business loss of the BPO division of Aegis BPO Services Gurgaon Limited of ₹ 13,86,21,348/- and ₹ 9,79,88,094/- respectively. The Assessing Officer on the basis of assessment order passed by the Assessing Officer in the case of GVPL for assessment year 2003-04 disallowed the benefit of carry forward and set-o .....

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Ld. Representative for the assessee pointed out that similar situation had arisen before the Tribunal in assessee s own case for assessment year 2009-10(supra), wherein the Assessing Officer was directed to verify and allow business loss and unabsorbed depreciation pertaining to the erstwhile units, which had merged with the assessee company. The only plea of the assessee before us is that similar directions be given to the Assessing Officer in the instant year also. 11.3 The Ld. Departmental R .....

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e succeeds for statistical purposes. 12. Now, we may take up Grounds of appeal No.19 and 22, which relate to a similar issue. 12.1 In brief, the relevant facts are that in earlier years, assessee had subscribed to the preference shares of Essar Services Mauritius and a part of such shares have been sold by the assessee during the previous year relevant to the assessment year under consideration. While computing the capital gains, assessee determined a loss of ₹ 22,48,78,471/- primarily on .....

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earlier, Transfer Pricing Officer had re-characterized the preference shares as being akin to giving of an interest free loan. The Assessing Officer relied upon the order of the Transfer Pricing Officer and held that there could not be any capital loss and the resultant exchange gain of ₹ 4,33,10,670/- also could not be treated as capital in nature. Therefore, he assessed it as business income. The aforesaid stand has been affirmed by the DRP also. 12.3 On both these aspects, it was a comm .....

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ransaction of subscription of preference shares into advancing of unsecured loans as done by the TPO is not correct, because the actual transactions cannot be disregarded or substituted for some other transaction other then exceptional circumstances which has not been brought on record. Nowhere the Assessing Officer or the TPO has indicated how in the instant case exceptional circumstances can be inferred from the material on record. The assessee had entered into these arrangement for specific p .....

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chase and redemption cannot be held to be a loan transaction and accordingly such a loss cannot be disallowed which is purely on account of indexation. We thus, direct the Assessing Officer to work out gain/loss after treating it as a transaction of purchase and redemption of shares. Thus, Ground no. 20 is treated as allowed. ......................................................................................................................... 60......... As admitted by both the parties, this .....

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the assessee, shall be taxable under the head capital gains because the foreign exchange gain has been account of capital asset i.e. on account of shares and any such claim would also be of a capital in nature. The Assessing Officer has erred in law in making the said addition as normal business profits of the assessee. Accordingly, Ground no. 23 as raised by the assessee is treated as allowed. 12.4 In view of the aforesaid precedent, the action of the Assessing Officer in disallowing the curren .....

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ked as assessee had not deducted tax at source under section 194A of the Act on interest payments to IBM India Private Limited and Orix Auto Infrastructure. Thus, on this aspect assessee has to fail. 14. 14. By way of Ground of appeal No.21, assessee has challenged the decision of the lower authorities disallowing interest expenditure of ₹ 5,37,76,428/-. In this context, brief facts are that the Assessing Officer observed that assessee debited a sum of ₹ 18,67,04,773/- in the P&L .....

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oans to subsidiaries/sister concerns stood at ₹ 110,93,88,518/- in this year as against ₹ 17,50,79,147/- as on 31/3/2009. In this background, the Assessing Officer show caused the assessee as to why the interest expenditure claimed in the P&L account be allowed in its entirety as a portion of the borrowings were diverted towards loans and advances to the subsidiaries/sister concerns. In reply, assessee pointed out that the loans were advanced to the subsidiaries/sister concerns o .....

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terest on the borrowed funds and accordingly a disallowance of ₹ 5,37,76,428/- was made, which has also been affirmed by the DRP. 14.1 Before us, the Ld. Representative for the assessee has made various submissions on this aspect. Firstly, it is pointed out that assessee had sufficient own funds and, therefore, following the ratio of the judgment of the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd., 313 ITR 340(Bom), it has to be presumed that the loans a .....

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ax, salary and other staff welfare expenses, etc. In this context, reliance has been placed on the judgment of the Hon ble Supreme Court in the case of S.A. Builders vs. CIT, 288 ITR 1, to submit that where money is advanced to the subsidiaries/sister concerns for commercial expediency and the funds so advanced are utilized by the subsidiaries/sister concerns for some business purpose, then the interest expenses incurred for availing such funds is liable to be allowed. It has also been pointed o .....

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4.3 We have carefully considered the rival submissions. In the context of the disallowance out of interest expenditure, the initial plea of the assessee is that it is in possession of enough own non-interest bearing funds to cover the advances to the subsidiaries/sister concerns and, therefore, following the ratio of the judgment of the Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (supra), no disallowance is called for. In this context, at the time of hearing, t .....

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aries/sister concerns and, therefore, in terms of the judgment of the Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd.(supra), the presumption is that the advances to the subsidiaries/sister concerns are out of such owned non-interest bearing funds. On this count itself, we find that the disallowance of ₹ 5,37,76,428/- made by the Assessing Officer is liable to be deleted. Apart from the aforesaid plea, assessee had also pointed out at the time of hearing that .....

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