TMI Blog2018 (12) TMI 1647X X X X Extracts X X X X X X X X Extracts X X X X ..... apparent that he has not considered the directions of the DRP while deciding this issue. We also note that the assessee has not filed any appeal against this direction of the DRP for assessment year 2006-07. Accordingly, in view of the factual matrix, this issue needs to be restored to the file of the CIT (A) to be decided afresh after considering the directions of the DRP in this regard in assessment year 2006-07 and after giving the assessee a proper opportunity present its case. Accordingly, this ground stands allowed for statistical purposes. Addition of excess claim of depreciation u/s 32 - capital subsidy under West Bengal Incentive Scheme, 2000 as part of interest fixed asset - AO reduced the cost of the fixed assets by the capital subsidy and consequently reduced depreciation - HELD THAT:- As decided in assessee's own case , [ 2018 (10) TMI 1629 - ITAT DELHI] CIT (A) has noted that he has examined the documents relating to West Bengal Incentive Scheme, 2000 and that further this subsidy is a one-time receipt. It has also been mentioned that nowhere on the perusal of the documents it was found that the subsidy was to be related to the reduction of the cost of fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of international transaction entered into by the assessee with its AEs. The TPO passed the order u/s 92CA(3) of the Act on 31.10.2011 and proposed to make an addition of ₹ 17,76,54,391/- on two international transactions, namely Corporate Guarantee and Interest on loan. Thereafter, the AO passed the final assessment order u/s 143(3) r.w.s. 144C(3) of the Act on 31.01.2012 by assessing the normal income at ₹ 206,74,23,681/-. 6. Being aggrieved the assessee carried the matter to the ld. CIT(A) who allowed part relief on account of corporate guarantee and held that corporate guarantee rate of 0.5% was appropriate and that the rate of 0.6% should be taken as CUP for benchmarking the counter guarantee given by the assessee to ABN Amro Bank for the loan availed by Dabur, U.K. The relevant findings have been given in paras 5.5 to 5.7 of the impugned order which read as under: 5.5 I have carefully considered the submissions made by the appellant. The AO has observed that the Appellant has failed to charge service fees for the corporate guarantee given to its UK Subsidiary. The ALP of services fee for providing corporate guarantee has been computed by the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te reasonable. Comparability norms as required for applying CUP have not been satisfied In present case, the appellant has given corporate guarantee to a foreign bank for providing loan to its foreign AE in foreign currency The situation adopted by the TPO in CUP method is of Indian bank giving guarantee in India for amount in INR Bank guarantee and corporate guarantee are also not identical instruments. In corporate guarantee, primary liability is of borrower and liability of guarantor arises only in case of default on part of borrower. In case of bank guarantee, liability is only of the person who has obtained bank guarantee Moreover, in present case, the concerned bank is ABN AMRO whereas TPO has used data obtained from different banks in India and it is very likely that rates charged by banks are quite different. In the case of Glenmark Pharmaceuticals Ltd. Vs. Addl. CIT (supra) the Hon ble ITAT, Mumbai has observed as under: 16. List of Decisions of Tribunal - Approved Corporate Guarantee rates: Further, to substantiate assessee's Guarantee commission rate at 0.53% is competent and is at arm's length, Ld Counsel tabulated the list of the decisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d direct the A.O. to recompute the commission for guarantee given by the assessee to its Associated Enterprises @ 0.5% being the arm's length price. 5.6 As regards the loan of GBP 2.5 Million availed by Dabur Oncology Ltd UK (Dabur UK), the appellant has contended that Dabur UK has not been benefitted from the corporate guarantee given by the appellant. In my view, the contention of the appellant is not correct. The letter dated 27/05/2014 written by RBS reveals that since Dabur UK has been benefitted by the corporate guarantee provided by the appellant, the appellant needs to be remunerated for it, because in non-AE situation, no third party would have given corporate guarantee without charging any fee. The appellant contended that rate of 4.75% charged by the AO/TPO is improper and un-realistic. Further, in various rulings cited by the appellant, the rate of corporate guarantee has been upheld at 0.5%. The appellant has submitted a letter from Royal Bank of Scotland (RBS) (formerly ABN AMRO bank) wherein it has been mentioned that the same loan that was taken by the overseas AEs on the basis of appellant s corporate guarantee at interest rate of LIBOR plus 0.5% wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to Hospira INC, US and charged fees @0.6% from Dabur Oncology PLC, UK. In this regard, the appellant company had given the counter guarantee to ABN AMRO Bank UK for the equal amount. For giving the said counter guarantee in the form of the corporate guarantee, the appellant company had not charged any guarantee charges/fees from Dabur Oncology PLC, UK. However, ABN AMRO Bank, UK, had charged a fee @0.6% from Dabur Oncology PLC. The appellant has submitted that Dabur Oncology Pic, UK has already paid a service fee to ABN AMRO Bank for the bank guarantee and the former cannot be asked to pay twice the guarantee for the same purpose. The appellant has further submitted that the guarantee agreement was entered between ABN Amro Bank UK and Dabur Pharma Ltd India and no guarantee charges were levied on the appellant by ABN Amro Bank. The guarantee fee was directly paid by the UK subsidiary of the Appellant. The appellant has submitted that no guarantee fee can be recoverable again by it from its UK subsidiary. I have carefully considered the submission of the appellant. In the present case, ABN Amro Bank has given the guarantee to Hospira Inc, US for the loan of USD 5.20 Millions avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Internal CUP @ 6.5%. Loan from HSBC and ABN Amro (PCFC) Dabur Pharma (Thailand) Company Ltd., Thailand (in short Dabur Thailand ) THAI BHAT 7% PA 13.54 156.89 The interest earned on the above loans is ₹ 8,99,76,604/- The appellant has stated that the foreign loan given by the appellant was justified to be arm s length on the basis of internal CUP (availing loan from HSBC @6.50%PA) and complete details were provided to the TPO in the course of the assessment. However, the TPO disagreed with the approach of the appellant on the ground that while benchmarking the interest the appellant has not only taken the interest it is paying in India. The TPO has observed that in a situation when the Indian company has been chosen as the tested party, the comparables rates for benchmarking the interest have to be selected from the Indian domain and the rates charged by a third party to Dabur Oncology cannot be treated as CUP. The appellant has relied on different case laws an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest charged by the appellant at 7% from its AEs, viz., (i) Dabur Oncology Pic, UK (in short Dabur UK ) ( ii) Dabur Pharma (Thailand) Company Ltd, Thailand (in short Dabur Thailand j satisfies the arm length principles. Accordingly, the AO/TPO is directed to delete the addition made in this regard. These grounds of appeal are allowed. 8. Now the department is in appeal. The ld. Counsel for the assessee at the very outset sated that this issue is covered by the earlier common order dated 03.10.2018 of this Bench of the ITAT in assessee s own case in ITA Nos. 575 3495/Del/2014 for the assessment years 2005-06 and 2007-08 respectively (copy of the said order is placed at page nos. 87 to 124 of the assessee s compilation). 9. In his rival submissions, the ld. CIT DR strongly supported the order passed by the AO but could not controvert the aforesaid contention of the ld. Counsel for the assessee. 10. After considering the submissions of both the parties and the material available on the record, it is noticed that an identical issue having similar facts has already been adjudicated by this bench of the Tribunal in ITA Nos. 575 3495/Del/2014 for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first charge on the assets of the borrower as security for the loan. The Department was not able to point out any factual infirmity in this categorical observation of the Ld. Commissioner of Income Tax (A). However, we do not fully agree with the findings of the Ld. Commissioner of Income Tax (A) in this regard that the benefit of interest saving of 1% should be shared between the AE and the assessee equally as no cogent reasoning has been given for the same and, accordingly, we deem it fit to modify the order of the Ld. Commissioner of Income Tax (A) in this regard to the extent that corporate guarantee fee @1% should be applied in the case of the assessee in place of 0.5% as has been applied by the Ld. Commissioner of Income Tax (A). We accordingly direct the Assessing Officer to re-compute the ALP for corporate guarantee fee @1%. Thus, this ground stands partly allowed. 10.1 Coming to the second limb of the transfer pricing adjustment which pertains to interest on loan, it is seen that the assessee had given loan to two foreign subsidiaries in UK and Thailand and had charged interest rate of LIBOR plus 1.1% and 7% respectively whereas the TPO had applied the interest rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of depreciation u/s 32 of the Act. 13. The fact related to this issue in brief are that the assessee received a capital subsidy of ₹ 1.50 crore under West Bengal Incentive Scheme, 2000 as part of interest fixed asset. The AO reduced the cost of the fixed assets by the capital subsidy and consequently reduced depreciation by ₹ 17,94,174/-. 14. Being aggrieved the assessee carried the matter to the ld. CIT(A) who deleted the addition by following the order of his predecessor for the assessment year 2007-08 and the relevant findings have been given in para 8.4 of the impugned order which read as under: 8.4 I have carefully considered the facts of the case. The issue whether subsidy of ₹ 1.50 crores received by the appellant in FY 2006-07 is revenue or capital has already been decided by the Ld. CIT(A)-XXIX in AY 2007-08 in favour of the appellant. In AY 2007-08 the Ld. CIT(A) has held that subsidy received by the appellant is in nature of capital receipt and it would not go to reduce cost of acquisition of fixed assets. In view of it, the AO is directed to delete the disallowance of depreciation of ₹ 17,94,174/- in this regard. These grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X
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