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Vivimed Labs Ltd. Versus Dy. Commissioner of Incometax, Circle – 17 (2) , Hyderabad

2017 (6) TMI 179 - ITAT HYDERABAD

ALP addition in respect of transaction relating to interest on advance for investment - assessee has given advances to its AE’s - Held that:- Since the assessee has not carried/submitted any comparative study before finalizing the LIBOR rate, we find it appropriate to direct the AO to follow the direction of DRP to compute the interest rate at LIBOR + 200 points. Accordingly, ground raised by the assessee and revenue are dismissed. - ALP addition in respect of transaction relating to corpora .....

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t can only be prospective and not retrospective as held in the case of Siro Clinpharm Pvt. Ltd. [2016 (5) TMI 633 - ITAT MUMBAI ]. This provision is applicable from AY 2013-14 onwards. Hence, addition of corporate guarantee in this AY is deleted. Accordingly, the ground raised by the assessee is allowed - Disallowance u/s 14A - Held that:- Since the assessee has not received any exempt income during the year, we direct the AO/TPO to delete the addition made on this count. - Decided in favour .....

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the case are that the assessee filed its original return of income for the AY 2010-11 on 24/09/2010 u/s 139(1) of the Act, declaring total income of ₹ 10,30,93,600/- after claiming deduction of ₹ 4,65,41,901/- u/s 80IC in respect of its unit located in Haridwar. Assessee is engaged in the business of R&D - Manufacturing of Specialized Chemicals & Pharmaceuticals. AO made a reference u/s 92CA to the TPO for determining Arm s length price. Accordingly, the TPO has passed the o .....

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92CA in respect of international transactions relating to interest received on advances given. ₹ 1,61,69,956/- b) Adjustment u/s 92CA in respect of international transactions relating to corporate guarantee fee receivable ₹ 1,69,10,000/- c) Adjustment u/s 92CA in respect of investment in subsidiary companies. ₹ 97,95,550/- d) Disallowance of bad debts written off ₹ 7,34,963/-. ₹ 4,36,10,469. 3. Aggrieved by the order of the AO/TPO, the assessee raised objections be .....

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#8377; 94,27,950 is ₹ 12,52,80,067. The working of interest was shown as under: 6% on USD 1,500,000 (1 USD = ₹ 44.895) ₹ 40,40,550 6% on USD 2,000,000 (1 USD = ₹ 44,895) ₹ 53,87,400 ₹ 94,27,950 =========== 4.1 Before the DRP, the assessee submitted as under: 5.1.1 The assessee has given certain advances to Vivimed, Hong Kong, the outstanding balance as on 31.03.2010 is ₹ 12,52,80,067/-. The assessee has received interest of ₹ 94,27,950/- which is 6 .....

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consistent with the arms length standard as mandated by the Indian Transfer Pricing Regulations. Since the international transaction entered between the AE is in foreign currency, the domestic prime lending rate would have no applicability and the international rate fixed being UBOR has to be considered and accordingly, we considered the same for the purpose of determining interest rate which is in conformity with the guidelines prescribed by the RBI issued under FEMA, 1999 for external borrowi .....

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#8377; 5,18,30,000 to Vivimed, Hong Kong during the course of business operations for administrative convenience and the same is being disclosed in TP document. 4.2 After considering the submissions of the assessee, the DRP gave directions as under: 1. Considering the fact that assessee already charged interest at 6%on the advances given to its AE, Vivimed Holding Ltd., Hong Kong, we direct the TPO to adopt LIBOR plus 200 basis points for computing the interest on loans/advances given to its AE .....

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espect of international transactions relating to corporate guarantee fee receivable, the DRP held as follows: 9. The panel has gone through the submissions of assessee, the order of the TPO and the facts of the case. This panel is of the view that the corporate guarantee extended by the assessee company to its AE clearly falls under the definition of international transaction by virtue of the amendment to the relevant provisions of the law. The issue of corporate guarantee falling under the defi .....

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us Communications Ltd. (TS-167-ITAT-2013 (Mum)-TP) would be 0.5%. Accordingly, we direct the TPO to recompute the fee to be charged on corporate guarantee for loan of ₹ 76.05 cores and loan of ₹ 6.651 crores at 0.5%. 6. Adjustment u/s 92CA in respect of investment in subsidiary it is observed that during the year under consideration, the assessee has made equity investment of ₹ 98,00,000/- in Vivimed Labs in USA Inc which is wholly owned subsidiary company (AE). This investment .....

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ng the decision of Vodafone India Services Pvt. Ltd., (supra), directed the AO and TPO to follow the decision on the Hon ble High Court. 7. As regards the addition of ₹ 7,34,963/- u/s 14A of the Act, the submissions of the assessee is that no disallowance u/s 14A is to be made as the investment is made out of the internal accruals of the company and the equity raised by the company for which the company has not incurred any cost to raise the funds. 7.1 The DRP rejected the ground by holdin .....

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. 9. Accordingly, the AO passed final assessment order as per the directions of DRP. 10. Aggrieved by the order of DRP, the assessee is in appeal before us raising the following grounds of appeal: 1. Ground of objection towards addition of ₹ 17,31,122/- towards charging interest on advances of ₹ 51.83 million (ground Nos. 3 to 8). 2. Grounds of objection towards addition of ₹ 41,20,050/- towards charging corporate guarantee fees on corporate guarantee amount of ₹ 82.401 c .....

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ding such a rate. 3. Whether in facts and circumstances of the case, the Honourable DRP is correct in law in holding that the fee chargeable on corporate guarantee given to its associate enterprise @ 0.5% only, when the corporate guarantee given by the assessee has helped AE to move from its own credit rating of BBB - to that of A+. 11. As regards the ALP addition of ₹ 17,31,122/- in respect of transaction relating to interest on advance for investment, the ld. AR submitted that capital ad .....

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Ld. DR relied on the orders of revenue authorities. 13. Considered the rival submissions and perused the material facts on record. The assessee has given advances to its AE s i.e. Vivimed USA & Hong Kong. It has charged interest in the case of Vivimed Holdings, Hong Kong based on LIBOR but did not charge any interest on the advances given to USA. It has submitted that it is capital advances and were given for administrative convenience. Ld. AR submitted that capital advances towards investm .....

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ered the submissions of both the counsels and perused the material facts on record. The transaction under consideration is international transaction as the assessee lent money to its AEs. The economic activities happening in the international market is important rather than economic impact if the loan is advanced in Indian rupees. It is fact that these transactions are compared with uncontrolled environment to determine ALP. The fact that advance was lent outside India the interest rate prevaili .....

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ed applying the international market condition. Hence, we follow the consistent view of the various Tribunals, in particular, the case of PMP Auto Components (P) Ltd. Vs. DCIT [2014] 50 Taxmann.com 272 (Mum.) wherein the coordinate bench has held that the assessee is a tested party and economic/commercial as well as geographical condition in which the assessee is doing business are relevant to be considered for the purpose of determining the arm s length price. Therefore, we direct the TPO to ar .....

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f transaction relating to corporate guarantee of ₹ 41,20,050/-, the ld. AR submitted that the transaction relating to the corporate guarantee do not fall within the scope of the term international transaction . It is given out of shareholders obligation for which it has not incurred any cost. For this proposition, he relied on the following cases: 1. Rusabh Diamonds Vs. ACIT, IT Appeal Nos. 2497, 2840 (Mum.) of 2014. 2. Micro Ink Ltd., ITA No. 2873/Ahd/10 3. Bharti Airtel Ltd. Vs. Addl. CI .....

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ra), the coordinate bench has held as under: 21. We have considered the rival submissions and perused the materials available on record. We find that the TP legislation provides for computation of income from international transaction as per Section 92B of the Act. The corporate guarantee provided by the assessee company does not fall within the definition of international transaction. The TP legislation does not stipulate any guidelines in respect to guarantee transactions. In the absence of an .....

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favour of the assessee and allow the grounds raised by the assessee on this issue. 16.1. However, the amendment to section 92B by the Finance Act, 2012, this amendment can only be prospective and not retrospective as held in the case of Siro Clinpharm Pvt. Ltd. in ITA No. 2618/Mum/2014. This provision is applicable from AY 2013-14 onwards. Hence, addition of corporate guarantee in this AY is deleted. Accordingly, the ground raised by the assessee is allowed and ground raised by revenue is dismis .....

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