TMI Blog2016 (8) TMI 1417X X X X Extracts X X X X X X X X Extracts X X X X ..... application money as Loan advanced to Associate Enterprise - Held that:- AR for the assessee company stated that the share application money can not be treated as loan amount merely because there is a delay in issuance of shares by the subsidiary in the name of the assessee. The assessee company further stated that the same identical issue is covered by the Hon`ble Mumbai Tribunal`s order in assessee's own case for A.Y. 2007-08. Share application money can not be treated as loan amount merely because there is a delay in issuance of shares by the subsidiary in the name of the assessee. Addition in respect of interest and finance expenses related to acquisition of shares of foreign subsidiary and disallowance of the same under section 36 (1) (iii) - Held that:- Interest expenditure incurred by the assessee is out of commercial exigency of the business and hence should be allowed as business expenditure under section 36 (1) (iii) of the Act, and we accordingly direct the Ld. CIT (A) / AO to delete the addition for A.Y.2008-09. Expenditure towards the foreign travel of its employees for expansion of its business acquired in Canada - Held that:- Since the foreign travel expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain additions and disallowances were made including transfer pricing adjustments on account of certain transactions with its Associated Enterprises ( AE ) namely AVTL Ltd. Canada,( here in after referred as AVTL Canada), Aditya Birla minacs (here in after referred as Minacs Philippines) and Transwork BPO Philippines Ltd (here in after referred as TBPO Philippines). 5. Since these four cross appeals relate to the same assessee, different assessment years and involve common issues, therefore these have been clubbed and heard altogether and a consolidated order is being passed for the sake of convenience and brevity. 6. The Ground No. 1 of Revenue appeal in ITA No 610/M/13 and ground No. 2 of assessee`s appeal in ITA No. 620/M/13 for A.Y 2008-09.And Ground of Appeal No. 4 of Assessee`s Appeal No 4276/M/2015 Ground of Appeal No. 2 of Departmental`s Appeal No. 4790/M/2015) for A.Y.2009-10: Issue involved is: Addition on account of Interest on Loan to Associate enterprise (AE) at LIBOR+2%: 7. The contention of the assessee is that the Ld. CIT (A) has erred in directing the AO/TPO to recompute the addition U/s 92C of the Act on account of loans given to associate enterpris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... external CUP, as it has benchmarked the transactions by using Internal CUPs of LIBOR +0.65% ,(JPY LIBOR + 1% +0.2% upfront fees). The Internal CUPs have been determined based on the loan availed from DBS Bank, Singapore. Further, the Ld. AR for the assessee submitted that the said identical issue is covered by an order of the Hon`ble Mumbai Tribunal in assessee`s own case vide ITA No. 7033/Mum/2012 dated 16/03/2016, wherein it was held that Internal CUP is always preferable to external CUP. The relevant para 8 of the Tribunal order reads as under: 8. Thus, the LIBOR +BPS point would be correct method for benchmarking the arm`s length price in case of interest is paid in foreign currency. Since assessee`s charging interest rate at the LIBOR+1% which is based on internal CUP, therefore, such a benchmarking gives the most appropriate result of arm`s length price because internal CUP is always preferable to external CUP, which gives far more accuracy of ALP. Accordingly, we accept the Ld. Counsel`s contention on this score and direct the AO to accept the interest rate charged at LIBOR +1% as on arm`s length price. Accordingly, ground no. 2 is treated as allowed. Thus, respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the ground No. 1 of Assessee`s appeal in ITA No. 620/M/13 for A.Y. 2008-09, and grounds Nos: 1,2 and 3 of Assessee`s Appeal No. 4276/M/2015 for A.Y. 2009-10 are allowed and ground No. 1 of Revenue`s Appeal No. 4790/M/2015 for A.Y. 2009-10 is dismissed. 18. Ground No.3 of Assessee`s appeal in ITA No. 620/M/13 for A.Y. 2008-09 and Ground No. 3 of Revenue`s appeal No. 4790/M/2015 for A.Y. 2009-10: Issue involved is: Addition on account of adjustment in respect of interest on recharactarising share application money as Loan advanced to Associate Enterprise. 19. The facts of this issue are that , the assessee company has advanced a sum of USD 10,30,140/- ( i.e. ₹ 4,23,84,720) for subscribing to the shares of its Associate Enterprise, Transwork BPO Philippines Ltd. ( TBPO, Philippines). TBPO Philippines has converted the share application money into equity shares on 24 March 2011 and issued certificate on 24 January 2012. The Transfer Pricing Officer/Assessing officer has recharacterised the share application money advanced to Associate Enterprise as loan and made an adjustment of ₹ 59,20,349/- on account of interest recoverable at the rate of LIBOR +4.45% from the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4790/M/2015 for A.Y 2009-10 : Issue involved is: Addition in respect of interest and finance expenses related to acquisition of shares of foreign subsidiary and disallowance of the same under section 36 (1) (iii) of the I.T. Act. 26. For A.Y. 2008-09 the Assessing Officer did the addition in respect of interest and finance expenses related to acquisition of shares of foreign subsidiary. Against the said addition, the assessee filed an appeal before CIT (A)-15, Mumbai, who has confirmed the action of the Assessing Officer, therefore not being satisfied from the order of the CIT(A), the assessee is in further appeal before us on this issue. 27. For A.Y. 2009-10 the Assessing Officer did the addition in respect of interest and finance expenses related to acquisition of shares of foreign subsidiary. Against the said addition, the assessee filed an appeal before CIT (A)-55, Mumbai, who has deleted the addition made by the Assessing Officer, therefore not being satisfied from the order of the CIT(A), the Revenue is in further appeal before us on this issue. 28. The issue involved in this case is that the assessee company has incurred interest expenses of ₹ 18,35.14,582/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to enhance its presence in the world market for its BPO business. Accordingly, the interest expenditure incurred by the assessee is out of commercial exigency of the business and hence should be allowed as business expenditure under section 36 (1) (iii)/37 (1) of the Act. Further, in A.Y. 2007-08 the assessee had net gain of ₹ 5.29 Crores arising from same borrowing of USD 75.4 million, the Assessing Officer taxed the same income arising from the same borrowing when it is positive and offered by the assessee to tax subsequently. If there is expenditure on similar transaction of borrowing the Assessing Officer can not use different yardstick and deny the claim of the expenditure in view of principles of consistency. Further, after considering all the contentions of the Assessee Company, the Ld. CIT (A) in subsequent year i.e. A.Y. 2009-10 has accepted the claim of the assessee and allowed the interest expenditure incurred by the assessee company. The Ld. AR for the assessee company has cited before us the following judgments wherein it has been held that interest expenditure should not be disallowed in relation to loan given to subsidiaries based on commercial expediency: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental Representative for the Revenue has primarily reiterated the stand of the Assessing Officer and CIT (A). On the other hand, the Ld. AR for the assessee company stated that assessee company wanted to expand its existing business operations in North America, Canada and European countries. It had the option to either set up of branch in those countries or form new companies in those countries or acquire some operative company having business activities and presence in those countries. 36. Since the foreign travel expenses are incurred by the assessee company in respect of the visit of its employees to overseas places in pursuance of its acquisition of call centre business in Canada and expanding the business thereof, the same should not be disallowed because all these expenses are related to business purpose and covered under the provisions of section 37 (1) of the Act, therefore, we do not hesitate to direct the CIT (A) / AO to delete the said addition. In the result, appeal of the assessee is allowed on this ground. 38. Ground No. 6 of Assessee`s Appeal No.4276/M/2015 for A.Y. 2009-10 relates to charging of interest U/s 234B of the Act. This ground is consequential in nat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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