TMI Blog2018 (11) TMI 1578X X X X Extracts X X X X X X X X Extracts X X X X ..... al purposes. ALP addition on account of corporate guarantee - Held that:- The approach of the TPO applying bench marking for ALP for corporate guarantee cannot be upheld. There cannot be universal application of any rate of commission. It depends upon terms and conditions on which loan has been given, risk undertaken and relationship between bank and client, economic and business interest are some of the major factors which are required to be taken into consideration to arrive at appropriate rate of commission. In the present case, neither the assessee nor the TPO analyzed the transactions in terms of the above stated facts. Therefore, we deem it appropriate to remand the matter to the file of the TPO/AO for fresh adjudication after analyzing the transaction in the above stated terms. TPO shall bench mark the transactions of services of providing bank guarantee to its AE by adopting comparable unrelated transactions. As held in Tata Auto Comp. System Ltd [2015 (4) TMI 681 - BOMBAY HIGH COURT] the considerations applied for issuance of corporate guarantee are distinct from that of bank guarantee. Therefore, bank guarantee commission cannot be applied. Accordingly, this ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to give a second innings to the litigant. Thus, there is no merit in the ground of appeal raised by the assessee. Deduction of expenses incurred in foreign currency from export turn over while computing deduction u/s 10A/10AA - Held that:- Hon'ble DRP directed that telecom expenditure, insurance charges incurred in foreign currency incurred in connection with delivery of software, be reduced from the total turnover as well as export turnover following the decision of the jurisdictional High Court in the case of CIT vs. Tata Elxsi [2011 (8) TMI 782 - KARNATAKA HIGH COURT] and expenditure incurred towards travelling and salary of the employees of the assessee deployed abroad for development, testing, installation and management of software outside India, directed the AO to exclude same from the export turnover following the decision of the coordinate bench of Tribunal in the assessee’s own case for assessment years 2004-05, 2006-07 and 2008-09. Reduction of communication and insurance charges from export turnover so that the AO has adopted excessive amount as the amounts were not incurred on export or delivery of software outside India. This requires verification of facts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above international transactions. TPO had chosen to bench mark the international transactions of interest on loans and corporate guarantee. TPO noticed that the assessee-company had advanced loans to its wholly owned subsidiary in USA, Sasken Inc and charged interest on said loan at 3.24% and the same was claimed to be at arm s length as LIBOR rate during the financial year 2010-11 relevant to assessment year 2011-12 was at 0.9%. It was claimed that since interest charged was higher than LIBOR rate of interest, the same was at arm s length and no adjustment was required in respect of interest on loan advanced to Associated Enterprises (AE), USA. As regards transaction of corporate guarantee, it was claimed that corporate guarantee provided to its AE, Sasken, OY was not international transactions at all and reliance was placed on the decision in the case of Bharti Airtel Ltd. in ITA No.5861/2011. 3.1 However, TPO declined to accept the contention of the assessee and proceeded to bench mark both the transactions by applying CUP method. TPO was of opinion that interest rate which the assessee would have earned in advancing loan to unrelated third party with similar standing shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee should be accepted and also submitted that said loans were subsequently i.e. on 31/03/2015 converted into equity. It was further submitted that loans were advanced only for business purpose therefore no bench marking is required. Without prejudice to the above, it is further contended that rate of interest adopted by the TPO was excessive. 6. Hon'ble DRP, after considering the objections of the assessee, had confirmed the reasoning of the TPO after giving broad analysis, factors to be taken into consideration to decide the rate of interest to be applied. In respect of corporate guarantee also, confirmed the findings of the TPO. Hon'ble DRP also confirmed the addition u/s 14A. As regards exclusion of royalty income from eligible profits for deduction u/s 10A/10AA of the Act, the stand of the AO was confirmed. As regards exclusion of expenditure incurred in foreign currency from export turnover for the purpose of computing deduction u/s 10A, Hon'ble DRP, placing reliance on the decision of the co-ordinate bench of Tribunal in the assessee s own case of for assessment years 2004-05, 2006-07 and 2008-09, directed the AO to reduce it from export turnover as well as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of making impugned adjustment, inter alia, by considering the annual average yield for BB rated bonds for 5 years or more term at 13.46% instead of LIBOR is contrary to facts, bad in law and consequently the TP adjustment determined amounting to ₹ 1,35,24,952/- is to be deleted in entirety. Grounds on merit in respect of TP adjustment on Corporate Guarantee 6. The learned TPO has erred in concluding that corporate guarantee given to M/s Sasken OY, Finland amounting to Euro 17 Million [INR 1,033,398.000 as on 01.04.2010 and INR1.077,768.000 as on 31.03.2011; average INR 1.055,583.000] constituted 'international transaction' under section 92B of the Act. On facts and in the circumstances of the case and law applicable, corporate guarantee given was not an international transaction since it had no bearing on profits. income, losses or assets and consequently the addition of ₹ 97,I1,364/- is to be fully deleted. 7. Without prejudice, the entire basis of making impugned adjustment, inter alia, by considering the corporate bond rates is contrary to facts, bad in law and consequently the TP adjustment determined amounting to ₹ 97,11,364/- is to be del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reduced from export turnover while computing deduction under section 10A and 10AA of the Act. Ground relating to excessive reduction of communication expenses and insurance charges from export turnover while computing deduction under section 10A 16. The learned AO has erred in a. excluding the communication expenses of ₹ 1,58,11,331/- (comprising off courier charges ₹ 28,04,822/-, Post and Telegraph ₹ 9,37.929/- Telephone charges - office ₹ 96,26,647/- and Telephone charges - mobile ₹ 24.41,934/-) from export turnover of STPI units and SEZ units without appreciating the fact that the aforesaid expenditure were not at all incurred for the purpose of export / delivery of computer software outside India: and b. excluding the insurance charges of ₹ 1.73.99.746/- (comprising of Asset insurance charges ₹ 17.16884/- ECGC Insurance charges ₹ 50,37,621/-. Liability insurance charges ₹ 27.57,920/-. Errors and Omission (E O) insurance charges ₹ 43,29,936/- and Employee Insurance charges ₹ 35,57.384/-) from the export turnover STPI units and SEZ units without appreciating the fact that the aforesaid expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law. 9. Being aggrieved by that part of directions of the Hon'ble DRP which are against revenue, the revenue is also in appeal before us in IT(TP)A No.627/Bang/2016 raising the following grounds of appeal: 1. The directions of the Dispute Resolution Panel are opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in directing the Assessing Officer to exclude all items of expenditure from both, the Export Turnover as well as the Total Turnover. 3. For these and other grounds that may be urged at the time of hearing, it is prayed that the directions of the Dispute Resolution Panel, in so far as it relates to the above grounds may be reversed. 4. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above. 10. First, we shall take up the assessee s appeal i.e. IT(TP)A No.550/Bang/2016. Ground No.1 is general in nature and does not require any adjudication. Grounds No.2 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate bonds in India have no applicability and LABOR rate should be taken as bench mark for international transactions. The Hon ble Bombay High Court in the case of CIT vs. Tata Auto Comp. System Ltd. (374 ITR 316) rules that ALP in case of loans advanced to AE would be determined on the basis of rate of interest being charged in the country where loan is received and consumed. In the light of this position of law, we are required to adjudicate the issue of rate of interest to be charged by the assessee from its AE. In the present case, we find from the perusal of TP study report filed before us at pages 179 to 182, we find that assessee as well as TPO had not undertaken the exercise of analyzing the transaction. No material was brought on record indicating the terms of loan i.e. tenure of loan, security offered, terms of repayment of loan, currency in which loan is to be repaid etc. and RBI policy governing advancing of loans by Indian holding company to its foreign subsidiary companies credit rating etc. determination of credit rating of the lender and borrower, identification of comparable, third party loan agreements. Therefore, we remand the matter back to the TPO with a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or fresh adjudication after analyzing the transaction in the above stated terms. TPO shall bench mark the transactions of services of providing bank guarantee to its AE by adopting comparable unrelated transactions. We make it clear that as held by the Hon ble Bombay High Court in Tata Auto Comp. System Ltd (supra), the considerations applied for issuance of corporate guarantee are distinct from that of bank guarantee. Therefore, bank guarantee commission cannot be applied. Accordingly, this ground of appeal is partly allowed for statistical purposes. 14. The next ground of appeal (Nos.10 to 13) relates to disallowance u/s 14A of the Act. During the previous year relevant to assessment year under consideration, assessee earned dividend income of ₹ 6,98,25,510/-. The assessee-company itself offered disallowance under the provisions of section 14A offering to tax a sum of ₹ 8,32,554/-. However, the AO was of the opinion that the amount of disallowance should be computed having regard to provisions of the rule 8D of Income-tax Rules, 1962. Accordingly, he computed disallowance as under: 14.1 Applying rule 8D of IT Rules, AO computed disallowance at ₹ 1,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of fact and law. Thus, grounds of appeal No.10 to 13 are dismissed. 15. Ground No.14 relates to exclusion of royalty income from eligible profits for deduction u/s 10A/10AA of the Act. It is contended that the AO has denied the benefit without appreciating the fact that royalty income was earned from 10A and 10AA eligible units. AO denied benefit on the ground that royalty income was not derived directly from the industrial undertaking and therefore, cannot form part of eligible profits for deduction u/s 10A. Reliance in this regard is placed on the decision of the Hon ble Supreme Court in the case of Liberty India v. CIT [2009] 317 ITR 218. 15.1 Being aggrieved, objections were filed before the Hon'ble DRP. Hon'ble DRP also confirmed addition. 15.2 Being aggrieved, assessee is in appeal before us in the present grounds of appeal. 15.3 Learned AR of the assessee contended that royalty income was derived from eligible 10A units and there was direct nexus between business undertaking and royalty income and therefore, eligible for deduction u/s 10A. Reliance in this regard was placed on the decision of the jurisdictional High Court in the case of CIT vs. Wipro (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, plea of the Learned AR of the assessee for remand of case to examine nexus cannot be allowed as no remand can be ordered to improve the chances of either of party to the case. Reliance can be placed on the following decision of the ITAT: i. Asst. CIT vs. Anima Investment Ltd. (2000) 73 ITD 125(Delhi); ii. Asst. CIT vs. Arunodoi Apartments (P) Ltd. (2002) 123 Taxman 48(Gau.) The Courts have held that appeals are not to be decided for giving one more innings to the lower authorities in the appellate jurisdiction. i. Rajesh Babubhai Damania vs. CIT (2001) (251 ITR 541)(Guj). ii. CIT vs. Harikishan Jethalal Patel (1987) 168 ITR 472 (Guj) Remand not for the benefit of the party seeking it to fill up gaps. Even the Hon ble jurisdiction High Court in the case of Karnataka Wakf Board vs. State of Karnataka, reported in AIR 1996 Kar.55 at pages 63 64 held as under: Where the party had an opportunity of adducing evidence in the case but with open eyes failed to adduce that evidence, the case should not be remanded to give a second chance to the party to adduce that evidence. The policy of the law is that once that matter has been fairly tried between the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t turnover while computing the amount of deduction u/s 10A as the same was not incurred for the purpose of rendering technical services and software services outside India. In this regard reliance was placed on the decision of the Hon ble Karnataka High Court in the case of CIT/ACIT vs. M/s. Mphasis Ltd.in ITA No.1075/2008 ITA No.196/2009 and CIT/ACIT vs. M/s. Kshema Technologies Ltd.- in ITA No.703/2009 16.3 We find that the Hon'ble DRP had set aside the issue to the AO to verify exact nature of the expenditure incurred and directed the AO to follow decision of the Tribunal in assessee s own case for assessment years 2004-05,2006-07 and 2008-09 after due verification and therefore, we do not find any grievance in the direction of the Hon'ble DRP. Accordingly, we dismiss this ground of appeal as infructuous. 17. Ground No.16 challenges the amount of reduction of communication and insurance charges from export turnover so that the AO has adopted excessive amount as the amounts were not incurred on export or delivery of software outside India. This requires verification of facts. Accordingly, we remand this issue back to the file of the AO to verify the contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer to the income. All profits of the 4 (2009) 319 ITR 306 unit of the assessee have been derived from manufacturing activity. The salaries paid by the assessee, it has not been disputed, relate to the manufacturing activity. The disallowance of the Provident Fund/ ESIC payments has been made because of the statutory provisions - Section 43B in the case of the employer's contribution and Section 36(v) read with Section 2(24)(x)in the case of the employee's contribution which has been deemed to be the income of the assessee. The plain consequence of the disallowance and the add back that has been made by the Assessing Officer is an increase in the business profits of the assessee. The contention of the Revenue that in computing the deduction under Section 10A the addition made on account of the disallowance of the Provident Fund / ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the Assessing Officer must follow. The second question shall accordingly stand answered against the Revenue and in favour of the assessee. Respectfully following the ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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