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House of Pearl Fashions Limited Versus DCIT Circle 12 (1) , New Delhi

2017 (11) TMI 639 - ITAT DELHI

Addition on account of the International Transaction in the nature of interest on loans granted to Associated Enterprises - contentions of the assessee about non-chargeability of interest is that such AE was running into losses, thereby necessitated the assessee in the capacity of a parent to pump funds - Held that:- On a perusal of the financials of the Multination Textile Group Limited, Ld. CIT (A) found that the claim of the assessee was factually incorrect, inasmuch as the dividend payment f .....

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interest free loans was rejected holding that international transactions can not be equated with ordinary business transactions. Thus having regard to the facts and circumstances of the case, we do not find any merit in the argument that no ALP interest could be added on account of the loan advanced to Multination Textile Group Limited, Mauritius. - Rate of interest - according to the assessee 6% offered in respect of House of Pearl Fashions Limited, USA is proper, whereas in respect of Mult .....

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of Nor Pearl Knitwear Limited, Bangladesh and in the case of other two concerns is the assessee only. In respect of the same tested party the TPO cannot adopt two different yardsticks. Shifting of the testing parties in the same breath is not permissible. We, therefore, in this set of circumstances agree with the Ld. AR that since loans or advances in case of the two other concerns also in foreign currency, and all the three persons stand in the same footing, as such, the same treatment has to b .....

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(8) TMI 962 - DELHI HIGH COURT) and Godrej & Boyce Manufacturing Company Limited vs. DCIT (2017 (5) TMI 403 - SUPREME COURT OF INDIA), we find that the enhancement of the disallowance made by the AO by invoking Section 14A read with Rule 8D of the Rules is bad and cannot be sustained. We, therefore, direct the AO to delete the same. - ITA No.-1589/Del/2014 - Dated:- 8-11-2017 - SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI K.N. CHARY, JUDICIAL MEMBER For The Assessee : Sh. Pradeep Dinodia, CA Sh. .....

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f the assessee, and enhancing the disallowance u/s 14A read with Rule 8D of the I.T. Rules to a tune of ₹ 29,03,632/-. 2. Briefly stated relevant facts are that the assessee is engaged in the business of manufacturing and trading of readymade garments and job work besides involving in the activities mainly in various subsidiaries throughout the world. Portfolio of the assessee comprises of shares and securities of many group companies and also of non group companies. During the relevant ye .....

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ernational transactions entered into by the assessee with the associated enterprises, AO referred the determination of the Arm s Length Price (for short referred to as ALP ) of the International transaction to the TPO. TPO vide order dated 30.01.2013 determined the ALP of the interest transaction with the AEs at ₹ 87,23,089/- by taking the ALP of the interest at 16%, basing on the SBI PLR for the FY 2008-09 at 12.75% PLUS 350 basic points. Pursuant to the draft assessment order assessee ca .....

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matter and by way of impugned order made an addition of ₹ 87,23,089/- on account of the ALP of the interest component and ₹ 26,87,332/- by making disallowance u/s 14A of the Income Tax Act, 1961 (for short called as the Act ). Hence, the assessee is before us in this appeal. 3. It is the argument of the Ld. AR that out of the three AEs who were extended loans, interest at 6% was offered in respect of Nor Pearl Knitwear Limited, Bangladesh and House of Pearl Fashions Limited, USA, whe .....

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g the deemed interest in respect of Multination Textile Group Limited, Mauritius. 4. His further argument is that out of the two concerns Nor Pearl Knitwear Limited, Bangladesh interest at the rate of 6% per annum and House of Pearl Fashions Limited, USA @ interest rate of 6% per annum, TPO vide paragraph no. 4.3 of his order accepted the interest declared by the assessee at 6% in respect of Nor Pearl Knitwear Limited, Bangladesh stating that the AE obtained loan from HSBC Bank at Bangladesh at .....

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n this premise he took the ALP of the interest at 16% and in that process the AO ignored the 5 direction given by the DRP to consider the SBI rate as on 30th June of the relevant previous year which was about 8% and including the 150 basic point the rate of interest works out to 9.50 as against the 16% charged by the TPO. Ld. AR submitted that when the foreign AEs could get loans in their countries, where the interest charged is far less than 6%, it is totally unjustified on the part of the auth .....

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n the capacity of a parent to pump funds, but in view of the legal difficulties, instead of equity, funds are given in the form of loan so that in future they could be recovered easily. On this aspect Ld. CIT (A) observed that the plea taken by the assessee before him was that if the interest would have been charged then the profit of the AE would be less and automatically the dividend which the assessee had to receive from the AE would also be less. On a perusal of the financials of the Multina .....

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321, 2322/DEL/2008) and VVF Ltd. vs. DCIT (2010-TIOL-55-ITAT-MUM). Ld. CIT (A) also noted the decision of Mumbai Tribunal in Tata Autocomp Systems Ltd., Mumbai vs. ACIT (ITA No. 7354/MUM/2011 (AY 2007-08)). In these decisions the contention of the assessee that they have not earned any interest and it was commercially expedite to earn interest free loans was rejected holding that international transactions can not be equated with ordinary business transactions. In Perot Systems case (supra) it w .....

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from the centre or otherwise, business conditions must be accepted by the acting units which differs from those which in the same circumstances would have agreed upon between un-related parties. The aim is to examine whether there is anomaly in the transaction which arises out of special relationship between the creditor and the debtor. Hence the contention of having actually not earned any income cannot come to the rescue of the assessee in this scenario. The case laws from the Apex Court cite .....

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mane to the facts of this case. Hence in our considered opinion they do not help the case of the assesse. 6. These decisions are applicable to the facts of the case on hand and having regard to the facts and circumstances of the case, we do not find any merit in the argument that no ALP interest could be added on account of the loan advanced to Multination Textile Group Limited, Mauritius. 7. Now coming to the rate of interest, according to the assessee 6% offered in respect of House of Pearl Fa .....

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sh holding that in view of such concern obtaining loan at interest rate of SIBOR plus 3% p.a. However, when the matter came to the other two concerns, he had taken a view that the arm s length rate of interest would be the interest rate expected by an Indian lender either from bank or from any mutual fund etc., and on this premise he had chosen 16% taking clue from SBI PLR plus 350 points. There is an inherent inconsistency in the view taken by the TPO because, if at all the ALP interest in so f .....

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in the same breath is not permissible. We, therefore, in this set of circumstances agree with the Ld. AR that since loans or advances in case of the two other concerns also in foreign currency, and all the three persons stand in the same footing, as such, the same treatment has to be given to them equally. With this view of the matter, we direct the AO to re9 compute the ALP of the interest at 6% in respect of House of Pearl Fashions Limited, USA AND Multination Textile Group Limited, Maritius .....

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