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TMI Blog2018 (5) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee to its associated enterprise and a step down subsidiary by the name of Synexel Research International SAS, France. 5. When this appeal was called out for hearing, learned counsel for the assessee very fairly submitted that his grievance is not against the ALP adjustment per se but is confined to the plea that as against adopting ALP interest rate of 10.91%, based on the domestic prime lending rate in India in Indian currency (Indian PLR), and that the short plea of the assessee is that since interest free loan was given in Euro currency, the ALP should be adopted at 4.11% on the basis of interest prime lending rate prevalent in Europe in respect of Euro currency (Euro PLR). Learned counsel also submits that this issue is no longer res integra inasmuch as there are large number of judicial precedents upholding similar plea in the cases of interest free advances by Indian companies to their European AEs. In particular, our attention was invited to the decision of a coordinate bench in the case of Aurionpro Solutions Pvt Ltd Vs ACIT [(2013) 27 ITR (Tribunal) 276 (Mum)]. The plea justifying not charging the interest, in an arm's length situation, was thus not presse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n advanced to the subsidiary. Aggrieved by the adjustment proposed on this basis, assessee approached the Dispute Resolution Panel. While the DRP did not approve the action of the TPO in benchmarking the interest on the basis of interest rate on rupee denominated loans, it did "not find fault with the findings of the TPO that the credit rating of the loan given by the assessee to its subsidiary should be considered as BB" and proceeded to add that "generally, the Indian banks are charging interest rate of 2.5% to 5% above LIBOR/EURIBOR for foreign currency loans" and, therefore, the DRP was "of the view that interest rate of 4% above LIBOR would be reasonable for the loans of BB rating for a period of five years". The TPO was, accordingly, directed to recompute the ALP of interest on loan advanced by the assessee by applying interest rate of 4% above LIBOR. On this basis, the TPO computed the interest at an arms length price of Rs. 3,26,17,723 as against interest charged by the assessee at Rs. 2,51,96,838, and, make an ALP adjustment of Rs. 74,20,785. The assessee is aggrieved and is in appeal before us. 4. We have heard the rival contentions, perused the material on record and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of us, the Tribunal had, inter alia, observed as follows:- '62. As far as the first adjustment is concerned, while the TPO has adopted the rate as 4% over LIBOR rate, he has not set out the specific basis of this rate. He has mentioned about some information gathered from websites of financial institutions which, according to him, states that, "for the foreign currency denominated term loans, the maximum rate of interest is 4% over 6 months LIBOR", and then proceeded to adopt this maximum interest rate as a fair basis for his computing the arm's length price. On the other hand, the assessee has taken two specific comparables of USD borrowings, i.e. L&T and Seri Infrastructure, on the interest rate of LIBOR + 150 bps and 1.4% to 1.7% band over LIBOR respectively. There is no material whatsoever, save and except for vague observations about weak financials of the subsidiaries - which are not supported by any specific facts and proceed on sweeping generalizations and assumptions, to reject the comparables taken by the assessee. When a Transfer Pricing Officer rejects comparables taken by the assessee, he has to set out specific, cogent and legally sustainable reasons for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y rationale for adjustment on account of higher risks. On this point also, we see no merits in the stand of the TPO. (Emphasis, by Underlining, Supplied by us now)' 8. When the matter was carried in further appeal, this time by the Commissioner, before Hon'ble Delhi High Court, Their Lordships were, vide judgment, dated 25th February 2015- a copy of which was placed before us by the learned counsel, pleased to approve the reasoning adopted by the Tribunal. In doing so, Their Lordship observed as follows:- "8. The ITAT has also taken note of the fact that two specific comparables of USD borrowings i.e. L&T and Seri Infrastructure, on the interest rate of Libor had been taken into consideration. There is no material whatsoever, save and except for vague observations about weak financials of the subsidiaries - which are not supported by any specific facts and proceed on sweeping generalizations and assumptions, to reject the comparables taken by the assessee. When a Transfer Pricing Officer rejects comparables taken by the assessee, he has to set out specific, cogent and legally sustainable reasons for doing so. On this point, therefore, the stand of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the range of 140-170 basis points above LIBOR. In contrast to this comparable case, the interest charged in the present case is 247 points above the LIBOR rate. In the case of Siva Industries & Holdings Ltd. v. Asstt. CIT [2012] 26 taxmann.com 96/54 SOT 49 (Chennai), dealing with the assessment year 2006-07 and while referring to LIBOR at 4.42, interest rate on advances to subsidiary at 6%, which was thus 158 points above the LIBOR rate, was held to be an arms length price. In view of these discussions, it cannot be said that the advance to subsidiary, at 247 basis points above the LIBOR, is not at an arms length price. In any event, once DRP itself states that the Indian banks are charging 250 basis above LIBOR on similar loans, even though this interest rate could reach upto 400 basis points in some cases, there cannot be any good reason for holding that loan advanced to a subsidiary at 247 basis points above the LIBOR rate is not at an arms length price. That apart, as noted earlier in this order, once Hon'ble Delhi High Court, observes that the "assessee advanced monies to the subsidiaries which were under its management and control, which in fact substantially reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest expenses must be disallowed even when no dividend income is earned" and that in the "case of Cheminvest Ltd vs ITO, Hon'ble ITAT Special Bench has held that the disallowance under section 14A can be made even in a year in which no dividend income is earned or received by the assessee". The views so expressed by the Special Bench (reported in 121 ITD SB 318, however, have been reversed by Hon'ble Delhi High Court in the judgment reported as Cheminvest Ltd Vs CIT [(2015) 378 ITR 33 (Del)] and it is held that the existence of taxable income is a sine qua non for invoking disallowance under section 14A. Hon'ble jurisdictional High Court, in the case of CIT Vs Corrtech Energy Pvt Ltd [(2015) 372 ITR 97 (Guj)], have adopted the same approach and held that when there is no tax exempt earnings, there cannot be any occasion for disallowance under section 14A. Clearly, therefore, the very foundation of the impugned disallowance under section 14A is devoid of legally sustainable substance. For this short reason alone dealing with the basic stand of the Assessing Officer, and without dealing with the merits any further, we uphold the plea of the assessee and delete the impugned disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the CIT(A) declined the impugned claim on the ground that it was a fresh claim otherwise than by way of a revised return, and, accordingly, inadmissible in view of Hon'ble Supreme Court's judgment in the case of Goetze India Ltd Vs CIT[(2006) 284 ITR 323 (SC)]. There was no occasion to deal with the merits, thus, before any of the authorities below. 25. The legal position is by now well settled in this regard. Admittedly there is no bar on this Tribunal to admit the claim and, as the matter has not been examined on merits at any stage, in remitting the matter to the file of the Assessing Officer for adjudication on merits. That is, by and large, the normal practice being adopted by the coordinate benches as well. Consistent with the stand of the coordinate benches, while we admit the claim of the assessee for consideration, we remit this issue also to the file of the Assessing Officer for fresh adjudication on merits after giving a reasonable opportunity of hearing to the assessee, in accordance with the law and by way of a speaking order. 26. Ground no. 3 is also allowed for statistical purposes in the terms indicated above. 27. Ground no. 5 is general and does not call for a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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