TMI Blog2018 (9) TMI 1909X X X X Extracts X X X X X X X X Extracts X X X X ..... THAT:- CIT(A) held that the TP Provisions do not apply to the transactions of providing corporate guarantee prior to the amendment brought in by way of an explanation to Section 92B of the Act, by Finance Act, 2012. Further at page 45 he held that the methodology applied by the TPO in computing the ALP of the transactions was without reasonable and justifiable basis. We find that the findings of the Ld. CIT(A), are in line with the decision of the Kolkata C Bench of the Tribunal in the case of M/s. EIH Ltd. vs. DCIT [ 2018 (1) TMI 1372 - ITAT KOLKATA] - Ground No. 2 of the revenue is dismissed. Disallowance made u/s 14A r.w.r. 8D - excess of own funds - HELD THAT:- CIT(A) considered the disallowance u/s 14A r.w.r. 8D(ii) and came to a factual conclusion that the assessee has adequate interest free funds totalling to ₹ 49,367.68 Lakhs to justify the investment of ₹ 40.02 Lakhs. He applied the decision of CIT vs. HDFC Bank Ltd. [ 2014 (8) TMI 119 - BOMBAY HIGH COURT] and other decisions and held that no disallowance can be made u/s 14A r.w.r. 8D(ii). Ground No. 3 of the revenue is dismissed. Accrual of income - accrued interest - real income theory applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (AE) is to be benchmarked against US LIBOR. 2.1. On the issue as to whether corporate guarantee is an international transaction or not, as the term guarantee was inserted in the definition of international transaction in Section 92B of the Act, by inserting an explanation to the Finance Act, 2012, w.r.e.f. 01/04/2002, the ld. D/R submitted that the amendment is retrospective and thus the arm s length price has to be computed on this transaction. On merits, he relied on the order of the ld. Transfer Pricing Officer (TPO). 2.2. On the issue of disallowance u/s 14A r.w.r. 8D, he relied on the order of the Assessing Officer and submitted that the disallowance was rightly made under Rule 8D(ii) of the Income Tax Rules, 1962. 2.3. On the addition of ₹ 9,69,178/-, towards accrued interest on loan, he relied on the order of the Assessing Officer and submitted that under accrual system of accounting, the same has to be brought to tax. 3. The ld. Counsel for the assessee, on the other hand submitted that all the four issues are covered in favour of the assessee and that the order of the ld. CIT(A) was in line with the decisions of various Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, reliance was placed on the decision of the Delhi Bench of the ITAT in the case of Kohinoor Foods Ltd. vs. ACIT (67 SOT 108). 4.2. The ld. CIT(A) while determining the ALP of interest on loan given to AE, held that (Comparable Uncontrolled Price) CUP is the Most Appropriate Method (MAM). He disagreed with the order of the ld. Transfer Pricing Officer that US LIBOR cannot be considered as a benchmark against US Dollar denominated loan. At para 4 of his order, he held as follows:- 4. Having examined the matter, it is to be said that the case law relied upon by the appellant, namely the judgment of ITAT(Delhi) in case of Kohinoor Foods Ltd. vs. ACIT applicable in the case at hand, and covers the matter. The matter is well covered by the general consensus among the Hon'ble ITAT Benches that international transactions involving cross- border country loans to AE can be bench marked against LlBOR, as also supported by the RBI's circular that a spread ranging from 1 % - 2% over LIBOR is reasonable {or advancing loans. Therefore, in deciding the matter, it is held that an interest rate of LIBOR plus 2% can ,be held to be Arm's length rate of interest, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain section 92B. Under this Explanation, five categories of transactions have been clarified to have been included in the definition of 'international transactions'. Clauses (a) (b) and (d) do not cover guarantee, lending or loans. Other two, (c) and (e) deal with (i) capital financing, and (ii) business restructuring or reorganization. Clause (c ) refers to lending or guarantee. But the Explanation which is for removal of doubts or is clarificatory, cannot be read independent of Section 92B(1). Section 92B(1), provides those transactions as international transactions which are in the nature of purchase, sale or lease of tangible or intangible property (explained by clauses (a) and (b) of the Explanation), or provision of services, (explained by clause (d) of the Explanation), or lending or borrowing money (explained by Clause (c) of Explanation). The plain reading of provisions of sec. 92B(1) of the Act indicate that the various transactions mentioned in section 92B(1) of the Act, (i.e. purchases, sales, provision for services, lending or borrowing or any other transaction) should have bearing on the profits, incomes, losses or assets of such enterprises. In our opinion, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Revenue because in that case, the parent company charged a fee of 0.5% on the AE for rendering this service. On this factual aspect, the Tribunal as well as the Hon'ble High Court held that it is an international transaction. Since in the case in hand, the assessee has not charged a penny from the AE, so the facts of the case are different and case law is distinguishable and, therefore, the Hon'ble High Court's order cannot come to the rescue of the Revenue. We find that the ld. AR pointed out that in the said case, the Hon'ble Bombay High Court did not answer the specific question as to whether the issuance of corporate guarantee is inherently within the ambit of definition of 'international transaction' irrespective of whether or not such transactions have any bearing on profits, income, lossess or assets of such enterprises u/s. 92 B of the Act. We also note that the Ahmedabad Bench of this Tribunal supra after considering the decision of the Hon'ble Bombay High Court in Everest Kanto Cylinder Ltd. (supra) observed as under: We are unable to see, in the judgment of Hon'ble Bombay High Court, any support to the proposition that issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) on this issue and dismiss this ground of the revenue. Accordingly, Ground No. 2 of the revenue is dismissed. 6. Ground No. 3 is on the disallowance made u/s 14A r.w.r. 8D. 6.1. After considering rival submissions, we find that the ld. CIT(A) considered the disallowance u/s 14A r.w.r. 8D(ii) and came to a factual conclusion that the assessee has adequate interest free funds totalling to ₹ 49,367.68 Lakhs to justify the investment of ₹ 40.02 Lakhs. He applied the decision of the Hon ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. [366 ITR 505] and other decisions and held that no disallowance can be made u/s 14A r.w.r. 8D(ii). 6.1. We find no infirmity in this finding of the ld. CIT(A) and uphold the same. Ground No. 3 of the revenue is dismissed. 7. Ground No. 4, is against the action of the Assessing Officer in adding the sum of ₹ 9,69,178/-, towards accrued interest. 7.1. The amounts given to three parties, namely, Smt. Sadhna Bhagwat, Ranglal Modi Sons and Durga Prasad Agarwal, have become non-realisable. Once these loans have become Non-Performing-Assets and when the realization of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
