TMI Blog2016 (7) TMI 1499X X X X Extracts X X X X X X X X Extracts X X X X ..... e of foreign currency loans should be arrived on the basis of LIBOR. Thus we direct the AO to restrict the disallowance in respect of notional interest adjustment towards advance granted to AE, on the basis of LIBOR. We direct accordingly. Disallowance of expenses u/s.14A - Held that:- In the appellate order passed for AY 2008-09 and AY 2009-2010, the CIT(A) has accepted the fact of the investments (including share application money) being funded through own funds of the assessee and has deleted the disallowance of interest expenditure. Further the assessee had sufficient owned funds of ₹ 144.1 crores for making incremental investments during the year of ₹ 5.24 crores in Alok Industries Limited (excluding share application money converted into shares during the year. In view of the decision of Hon’ble Jurisdictional High Court in the case of HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] and Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] as well as various judicial pronouncements referred by ld. AR, no disallowance on account of interest is to be made u/s.14A, when the investments are made from own funds. Accordingly, we direct the AO not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Act and at ₹ 26,78,15,875 u/s 115JB of the Act. Assessee s claim of TUF subsidy being capital in nature, was also declined. 3. First transfer pricing adjustment of ₹ 71,05,654 incorporated in the assessment order is on account of fees for guarantee issued by the assessee in favour of its Associated Enterprise. The relevant facts are that the assessee during the period under consideration had given various guarantees to Banks on behalf of its subsidiary company Grabal Alok UK Ltd. The assessee had not benchmarked any of these guarantees in its transfer pricing study report as international transactions on the ground that the guarantees provided by the assessee on behalf of its AE emanated out of the ownership of the concerned subsidiary and were quasi equity in nature and that the concerned guarantees had been provided due to business synergies between the assessee and its subsidiary and for the business purposes of the assessee company. The TPO did not accept the assessee's contention and held that in an arms length context, any party extending a guarantee would expect financial compensation for the same in the form of an appropriate guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aceuticals Limited (ITA No 5031/Mum/2012); v)Cox Kings Limited (ITA No. 135.4 7770/Mum/2014) dated 4 November 2015; vi) Manugraph India Limited (ITA No.491/Mum/2015) dated 16 September 2015 vii) Hindalco Industries Limited (ITA No. 4857/Mum/2012) dated 16 September 2015. 8. On the other hand, ld. DR relied on the order of lower authorities and contended that the transaction of provision of bank guarantee, in the facts of the present case has a bearing on the assets of the assessee at the time of the transactions and also on a future date to the extent that the banks had provided the funds to the subsidiary had obtained a charge on the assets of the assessee to the extent of such guarantee given. The argument of business expediency has no relevance to transfer pricing assessment wherein providing corporate guarantee would be a service rendered by the assessee, that had conferred a benefit to its AE, for which compensation was required to be paid by the concerned AE equivalent to the price payable in' a similar arms Iength transaction with an unrelated party. 9. We have considered rival contentions, carefully gone through the orders of authorities below and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal High Court in the case of Reliance Utilities Power Limited, 313 ITR 340. He further contended that investment so made in share application money of the company should be excluded. 12. On the other hand, ld. DR relied on the order of lower authorities. 13. We have considered rival contentions and found from the record that during the year under consideration, the assessee had given advances to its Associate Enterprise Grabal Alok International Ltd ('GAlL') of ₹ 81,08,748/-. The said advance were given in the normal course of business and adjusted against payables. Based on the various precedents of Courts and Tribunals, it has been held that ALP interest in the case of foreign currency loans should be arrived on the basis of LBOR. In this regard, reliance is placed on various decisions which are as follows: i) Tata Autocomp Systems Limited (ITA No. 1320 of 2012) (Bom HC); ii)Cotton Naturals (I) Pvt Ltd (ITA No 233/2014) (Delhi HC); iii) Cotton Naturals (I) Pvt Ltd (ITA No 3265/Del/2011) (Del Tribunal); iv)Everest Kanto Cylinders Limited (ITA No 7073/Mum/2012) dated 25 September 2014 (Mumbai Tribunal) v)Bharti Airtel Limited (ITA No 5816/DeI/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t own funds which were far in excess of investments as observed from the aforesaid chart, a presumption may be drawn that the amount had been invested lout of own funds. 18. From the record we found that in the appellate order passed for AY 2008-09 and AY 2009-2010, the CIT(A) has accepted the fact of the investments (including share application money) being funded through own funds of the assessee and has deleted the disallowance of interest expenditure. Further the assessee had sufficient owned funds of ₹ 144.1 crores for making incremental investments during the year of ₹ 5.24 crores in Alok Industries Limited (excluding share application money converted into shares during the year. In view of the decision of Hon ble Jurisdictional High Court in the case of HDFC Bank Ltd. 366 ITR 505 and Reliance Utilities Power Ltd., 313 ITR 340 as well as various judicial pronouncements referred by ld. AR, no disallowance on account of interest is to be made u/s.14A, when the investments are made from own funds. Accordingly, we direct the AO not to make any disallowance on account of interest. 19. In view of the above disallowance u/s.14A works out at ₹ 12,44,207/- as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the assessee cannot be entertained. Accordingly the claim made by the assessee was rejected. 23. By the impugned order CIT(A) rejected the claim of the assessee. 24. We have considered rival contentions. The Hon ble Supreme Court, in the case of National Thermal Power Company Ltd. vs CIT (229 ITR 383) (copy is enclosed at PB Page No. 516 -519), has observed that even if a claim is not made before the AO, it can be made before the Appellate authority. Further the Bombay High Court in the case of CIT vs Pruthvi Brokers Shareholders Pvt. Ltd (349 ITR 336), having considered the decisions of the Supreme Court in the case of Goetze India Ltd. (supra) and also National Thermal Power Company Ltd. v CIT (supra), held that the Appellate authorities are entitled to consider the new claim of the assessee and adjudicate upon the same on merits of the case. As all the facts are available on record, we adjudicate assessee s claim of TUF subsidy. From the record we found that the assessee has received reimbursement of interest cost as per TUF scheme. The object of the scheme was to encourage the upgradation of technology. Therefore, the income to the extent of duty credit and rei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are not in dispute. Moreover, in the case of Sawhney Steels and Press Works Ltd. others (supra), it was found as a fact that the subsidy was given to meet recurring expenditure and was not for acquiring a capital asset. Whereas in the instant case, admittedly, there is no provision in the scheme to grant subsidy to meet any recurring expenditure and neither such a case has been set up by the Department. The only objections of the Department are that the subsidy has been given after commencement of production and, secondly that it was for repayment of loans. Both these factors do not distract from the nature of the subsidy being treated as capital, as explained by the Hon‟ble Supreme Court in the case of CIT vs. Ponni Sugars Chemicals Ltd. [2008] 306 ITR 392 (SC). 3. We have heard learned counsel for the appellant. 4. Learned counsel for the revenue submitted that the subsidy was not given at hte time of setting up of the industry but after commencement of production for repayment of loan. In such situation, the amount should have been treated as revenue receipt as per judgment of the Hon‟ble Supreme Court in Sahney Steel Press Works Ltd. Ors. v. CIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the assessee. In these circumstances, we are of the opinion that as held hereinabove in order to sustain competitiveness in the domestic as well as international markets and overall long-term viability of the industry, the concerned Ministry adopted the TUFS scheme envisaging Technology Upgradation of the Industry. Hence, the subsidy received in this regard falls into capital field. Hence respectfully following the precedent as above we set aside the order of the ld. CIT(Appeals) and decide the issue in favour of the assessee. 25. In DCIT vs. Gloster Jute Mills Ltd (ITA 766/Kol/2010) order dated 2 July 2014, Kolkata Tribunal held that in order to sustain competitiveness in the domestic as well as international markets and overall long-term viability of the industry, the concerned Ministry adopted the TUFS scheme envisaging Technology Upgradation of the Industry. Hence the subsidy received in this regard falls into capital field. 26. Similar view has been taken by Delhi Bench of the Tribunal in the case of DCIT vs M/s Sutlej Textiles Industries Ltd (ITA No 5142/Del/2013) dated 3 July 2015; and by Chennai Bench of the Tribunal M/s CNV Textiles Pvt Ltd vs OCIT (ITA746 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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