TMI Blog2018 (11) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... denied to the assessee company.We also note that subsequent to the donation, the withdrawal of benefit or cancellation of certificate of section 80G in the hands of the payee would not affect the interest of the assessee. In we direct the AO to grant the deduction u/s 80G of the Act in respect of donation given by the assessee in accordance with law. - Decided in favour of assessee Upward transfer pricing adjustment - addition of interest charged to the assessee’s subsidiary - applicability of LIBOR rate - Held that:- It has been consistently held in several decisions by the tribunal that wherever the transaction of loan between the associated enterprises is in foreign currency then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. Therefore the domestic prime lending rate would have no applicability and the international rate LIBOR would come into play. It has therefore been held that LIBOR rate has to be considered while determining the arms length rate of interest in respect of transactions of loan in foreign currency between the associated enterprises. This view has also been accepted by the Hon'ble Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A) deleting the aforesaid addition. His order on this issue is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. - ITA No.1903/Kol/2017 And ITA No.1974/Kol/2017 - - - Dated:- 16-11-2018 - SHRI S. S. GODARA, JM AND DR. A.L.SAINI, AM For The Assessee : Shri S. Jhajharia, AR For The Revenue : ShriSaurabh Kumar, Addl. CIT (Sr. DR) ORDER Per Dr. A. L. Saini: The captioned two appeals filed by the Assessee and Revenue, pertaining to Assessment Year 2013-14, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)- 22, Kolkata, dated 29.06.2017,which in turn arises out of fair assessment order passed by the Assessing Officer under section 143(3) read with section 92CA(4) and 144C (3)of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. Since, these two appeals relate to the same assessee, same assessment year, and issues involved are identical, therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 3. First, we shall take assessee s appeal in ITA No. 1903/K/2017, for A.Y. 2013- 14, wherein the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. Based on the report prepared by the Investigation Wing of the Income tax department, the learned AO issued show cause notice to the assessee to explain why the said donation be treated as bogus. It was submitted to the AO vide letter dated 21.11.2016 that the assessee never admitted before any authority that the assessee made bogus donations to any unscrupulous trust. Besides, no evidences were produced before the assessee by the investigation wing of the Income tax Department to show that any consideration has been received in form of cash or otherwise. Also no opportunity was afforded to cross-examine the departmental witnesses, the statements of whom were relied upon by the officials of the investigation wing of the Income Tax Department in alleging that bogus donations were made by the assessee to various unscrupulous trusts especially Gobind Ram Goel Charitable Trust to whom the assessee donated an aggregate sum of ₹ 25,00,000/- during the financial year 2012-13. Further no copiesof documents were provided to the assessee, which were relied upon by the Income Tax Authorities alleging that the assessee made bogus donations to unscrupulous trusts. Besides, copies o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Department. Further, no any copies of documents were provided to the assessee which were relied upon by the income tax authority. 9. We note that explanation 2 to section 80G of the Act states that the assessee is entitled for deduction u/s 80G of the Act,even if, subsequent to the donation any part of the income of the institution has become chargeable to tax due to noncompliance with any of the provisions of section 11, 12 and 12A of the Act. At this juncture, it is relevant to quote the explanation 2 to section 80-G of the Act, which states as follows: Explanation 2: For the removal of doubts, it is hereby declared that a deduction to which the assessee is entitled in respect of any donation made to an institution or fund to which sub-section (5) applies shall not be denied merely on either or both of the following grounds namely- ( i) that subsequent to the donation, any part of the income of the institution or fund has become chargeable to tax due to noncompliance with any of the provisions of section 11, section 12 or section 12A. ( ii) that under clause (c) of sub-section (1) of section 13, the exemption under section 11 or section 12 is de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 22/2015 dated 17.12.2015. 5. Whether on the facts and circumstances of the case and also in law, the Ld. CIT(A) has erred in deleting the addition of ₹ 1,04,168/- as disallowance made u/s 14A read with rule 8D overlooking the fact that the same was made in accordance with the provisions of IT Act, 1961. 6. Whether on the facts and circumstances of the case and also in law, the Ld. CIT(A) has erred in deleting the addition of ₹ 1,48,506/- (disallowed u/s 14A) to the Book Profit of assessee company. 7. That on the facts and circumstances of the case, it is humbly requested to set aside the order of Ld. CIT(A) and restore back the assessment order passed by the AO. 12. Ground No. 1 and 2 raised by the Revenue relates to upward transfer pricing adjustment of ₹ 92,42,535/-, on account of interest charged to the assessee s subsidiary, by the name of M/s. GAO Classic in the Russian Federation. 13. When this appeal was called out for hearing, the learned counsel for the assessee invited our attention to the order of the Tribunal in ITA No. 977 978/K/2017 passed by the Division Bench of this Tribunal in assessee s own case, for the A.Y. 2011-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d operations, purchase of goods 4. Borrower's Country Russia 5. Year of Loan 8 December, 2003 6. 4% p.a. (original agreement); increased to 8% on 02.04.2008 4% p.a. (original agreement); increased to 8% on 02.04.2008 7 Put or Call option Both options 8. Security unsecured 9 Seniority N.A. 10. Any other condition n.a. 5. The Transfer Pricing Officer (TPO) examined the rate of interest charged on the loan by the assesee in the light of mandate laid down in section 92 of the Act that the rate of interest on such loans must be at arms length i.e. rate at which similar loan would be given or taken by unrelated parties. 6. The plea of the assessee before the AO was that the loan to the subsidiary ZAO Classic was a trade investment in form o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. 8. On appeal by the assessee the CIT(A) deleted the addition made by the AO by following the decision of ITAT Chennai in the case of Siva Industries Holdings Limited vs. The Assistant Commissioner of Income Tax (supra) . The following were the relevant observations of CIT(A): 4.2. I have considered the facts of the case. The assessee had advanced a loan in foreign currency to its subsidiary ZAO Classic, Russia on which it was charged interest at the rate of 8% p.a. The TPO was of the view that price of the loan i.e. the interest charged has to be worked out on the basis of taking two parties as separate and bench-marking the price of the loan on the basis of what an independent third party would charge from ZAO Classic, Russia based on its analysis of risk associated with the loan. The assessee stated in reply to show cause notice issued by the TPO, that foreign currency loans are given by banks bearing UBOR based rate as a global practice. The average of LIBOR based rate for the year under consideration was 4.68%. Thus the rate of 8% charged by the assessee was higher than the LIBOR rate. The assessee also relied upon a number of decisions, in particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal. 10. After hearing the submissions of the ld. Counsel for the assessee we are of the view that there is no merit in ground no.1 raised by the revenue. It has been consistently held in several decisions by the tribunal that wherever the transaction of loan between the associated enterprises is in foreign currency then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. Therefore the domestic prime lending rate would have no applicability and the international rate LIBOR would come into play. It has therefore been held that LIBOR rate has to be considered while determining the arms length rate of interest in respect of transactions of loan in foreign currency between the associated enterprises. This view has also been accepted by the Hon'ble Delhi High Court in the case of CIT vs Cotton Naturals (I) Ltd. 276 CTR 445 (Delhi) and by the Hon'ble Bombay High Court in the case of Tata Auto Comp System Ltd approving the decision of ITAT in the case of Tata Auto Comp Vol.52 SOT 48 (Mum). In view of the above settled legal position we find no merits in ground no.1 and dismiss the same. 14.Respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. 18. The learned DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, the learned counsel for the assessee defended the order passed by the Ld. CIT(A). 19. We have given a carefully consideration to the rival submissions and perused the material available on record, we note that the Assessing Officer added back a sum of ₹ 44,35,569/- being 40% of ₹ 1,10,88,923/- on account of payment of employee s contribution to EPF by applying provisions of the section 2(24)(x) read with section 36(1)(va) of the Act. While making addition on this account, the Ld. AO relied upon Circular No. 22/2015 dated 17.12.2015 issued by the Central Board of Direct Taxes CBDT. We note that through this Circular, the Ld. Assessing Officer disregarded the ratio pronounced by the Hon ble Supreme Court in the case of CIT vs Alom Extrusions Ltd. (2009) 185 taxman 416 (SC). We note that these payments were made by the assessee before the due date of filing of return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputed the disallowance u/s 14A read with rule 8D, to the tune of ₹ 1,48,506/- under Rule 8D(2)(iii) of the IT Rules. Since the assessee had already disallowed and added back suo moto ₹ 44,338/- in its computation of total income, the balance expenditure to the tune of ₹ 1,04,168/- (Rs. 1,48,506 - ₹ 44,338) was disallowed and added back to the total income of the assessee. 22. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) with success. The Ld. CIT(A) deleted the addition stating that the Assessing Officer has passed a non-speaking order therefore relying on the judgment of DCIT vs AshishJhunjhunwala in ITA No. 1809/K/2012 of Kolkata Tribunal, restricted the disallowance u/s 14A to ₹ 44,338/- that is the amount of disallowance made by the assesseesuo moto in its return of income. 23. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. The learned DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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