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TMI Blog2018 (9) TMI 1909X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign associated enterprise. 3. Whether on the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting disallowance u/s 14A read with Rule 8D. 4. Whether on the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting a sum of Rs. 9,69,178/- towards accrued interest on loan. 5. That the appellant craves for leave to add, delete, amend or modify any ground before or at the time of appellate proceedings." 2. The ld. D/R, Shri Goulen Hangshing, relied on the order of the Assessing Officer as well as the order of the TPO and submitted that the ld. CIT(A) has erred in accepting the contentions of the assessee that the interest on loan given to Associate Enterprises (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Rs. 6,97,64,000/-. Before the ld. CIT(A), the assessee submitted that it had charged interest @ 5% on the loan given to its AE i.e. EuroAsian Ventures FZE, which is at arm's length when benchmarked against LIBOR and hence no adjustment on this account was called for. He further relied on the decision of the Chennai Bench of the Tribunal in the case of Siva Industries & Holdings Ltd. vs. ACIT (145 TTJ (Chennai) 497) and other decisions of the Tribnal for the proposition that if the loan advanced to an AE is denominated in foreign currency then interest rate thereon should be benchmarked against international rates being LIBOR and not against the domestic lending rate. Further, 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 examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Explanation states that- "For the removal of doubts, it is hereby clarified that (i) the expression "international transaction" shall include .... (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business." The Explanation states that it is clarificatory in nature and is 'for the removal of doubts'. Thus, it does not alter the basic character of definition of 'international transaction' under the main 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 trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e guarantee from its AE. We find that the Ahmedabad Tribunal in the case of Micro Ink in ITA No. 2873/Ahd/2010 had observed that if a subsidiary (AE in the instant case) could not borrow money from third party sources on its own standing and the guarantee provided by the parent (assessee in the instant case) enables it to make such borrowing, then the guarantee could be said to be a shareholder function, not warranting a guarantee fee. This ratio would squarely be applicable to the facts of the instant case before us. 12.13 The Ld. CIT, DR's reliance in the case of Everest Kanto Cylinder Ltd. (supra) would not come to the rescue of 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'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Act 2012 can be made applicable only from Asst Year 2013-14 onwards. 12.16. Moreover, we find that though the Explanation was introduced by Finance Act 2012, the rules were notified only on 10.6.2013. Hence the assessee cannot be expected to report this transaction also as an international transaction in its transfer pricing study and the audit report thereon. 12.17. In view of the aforesaid findings and respectfully following the various judicial precedents, we allow the Grounds 1.1. to 1.4 raised by the assessee." 5.1. Consistent with the view taken therein, we uphold the order of the ld. CIT(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 Rs. 49,367.68 Lakhs to justify the investment of Rs. 40.02 Lakhs. He applied the decision of the Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X
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