TMI Blog2018 (5) TMI 1945X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be said to have been be decided on merits of the issue. In view of the same, the assessee s ground of appeal No. 4(l) is rejected. MAM - method adopted by the TPO - assessee has adopted CPM method, whereas the TPO has adopted TNMM as the most appropriate method - HELD THAT:- At the time of hearing, the Ld. Counsel for the Assessee submitted that the assessee has no objection to the adoption of TNMM as the most appropriate method but submitted that only the segmental results of the comparable companies should be considered. He sought for such a direction to the TPO. In view of the agreement of the both parties, we remit the issue to the file of the TPO with a direction to consider only the segmental results of the assessee as well as the comparables, for determining at the Arm s Length Price of the international transaction.. In the result, the ground of appeal No. 4 is partly allowed. Corporate guarantee as an international transaction - HELD THAT:- In the case of Dr. Reddy s Laboratories Vs. ACIT [ 2017 (5) TMI 529 - ITAT HYDERABAD] wherein it has been held that before the amendment of Sec. 92B of the IT Act w.e.f A.Y 2013-14 , thus corporate guarantee cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arm s Length Price of the said transactions. The TPO passed an order u/s 92CA(3) of the IT Act on 29.01.2016 proposing Transfer Pricing adjustment and, accordingly, a draft assessment order was passed. Against such draft assessment order, the assessee preferred its objections before the DRP, and DRP has passed directions u/s 144C(5) of the IT Act on 09.12.2016. Consequent thereto, the final assessment order was passed, against which, the assessee is in appeal before us. 3. At the time of hearing, the Ld. Counsel for the assessee submitted that assessee does not wish to press grounds of appeal No. 2 and 3. Therefore, the same are rejected as not pressed. Ground No. 1 being, general in nature, needs no adjudication. 4. As regards ground no.4, we find that the assessee has raised its objections on the various issues relating to the Transfer Pricing Adjustment. One of the issues so raised in ground No. 4(i), is that the assessee as well as its AE have incurred losses and hence no Arm s Length Price adjustment can be made in respect of the international transactions with its AE. In support of his contentions, the Ld. Counsel for the assessee has placed reliance upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove three decisions, there was no decision as to correctness of the order of the DRP, and therefore it cannot be said to have been be decided on merits of the issue. In view of the same, the assessee s ground of appeal No. 4(l) is rejected. 5. The next objection of the assessee in ground No. 4(b)is on the method adopted by the TPO. The assessee has adopted CPM method, whereas the TPO has adopted TNMM as the most appropriate method. At the time of hearing, the Ld. Counsel for the Assessee submitted that the assessee has no objection to the adoption of TNMM as the most appropriate method but submitted that only the segmental results of the comparable companies should be considered. He sought for such a direction to the TPO. 5.1 The Ld. DR, though relied upon the orders of the authorities below, fairly submitted that the issue may be remitted to the file of the TPO for considering the segmental results of the assessee as well as comparable companies. 5.2 In view of the agreement of the both parties, we remit the issue to the file of the TPO with a direction to consider only the segmental results of the assessee as well as the comparables, for determining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied retrospectively and for the years under consideration the assessee having not incurred any costs in providing corporate guarantee it would not constitute International Transaction within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect. 6.1 Respectfully following the same, we hold that the corporate guarantee is not an international transaction for the A.Y 2012-13 and the ground of appeal No. 5 is accordingly allowed. 7. As regards ground No. 6, brief facts of the case are that assessee had made advances to the tune of ₹ 23,12,33,188/- to M/s Cura Global GRC Solutions Ltd. The assessee submitted before the A.O, that no outside funds were utilized and no interest expenditure is incurred by the company in relation to giving advances to subsidiary companies. It is also submitted that the assessee did not charge any interest on similar transactions to unrelated parties. Without prejudice to the said objection, the assessee has also submitted that if rate of interest is to charged, then the appropriate rate of interest would be LIBOR plus percentage and not domestic rates as proposed by the A.O as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the same AY of receipt of funds, as long as the shares allotted, it gives true nature of the transaction. In the given case, even there is no outstanding balance in the books of assessee as loans and advances, the same transaction was duly justified by receiving allotted shares in the subsequent AY. In our considered view, there is no element of profit in the above transaction. Moreover charging of interest is depending upon the contractual obligations between the parties. In the given case, assessee has transferred funds with an intention to make investment, it cannot be treated as international transaction as held by various courts, particularly, in the case of KAR Therapeutics Estates Pvt. Ltd. (supra) wherein the coordinate bench has held as under: 9. Considered the submissions of both the parties and perused the material facts on record as well as the orders of revenue authorities. There is no dispute that the assessee had remitted $ 3387182 towards investment in share capital. The shares were allotted to the extent of $ 2654797 in the same AY. The subsidiary company has treated the balance remittance as interest free unsecured loan and repayable on demand in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional transaction and accordingly the ground raised on this issue is allowed. 7.4 In the case of GSS Infotech Ltd. Vs ACIT (supra), the Tribunal has considered the similar issue and at para 4.3 of its order, has held as under: 4.3. We have considered the rival contentions and perused the documents placed on record. From the orders of the TPO as well as the AO it is not clear whether the amount advanced is for the purpose of equity or the amounts advanced originally as loans and later converted to equity. Since facts are not clear, we are unable to give any finding whether the amounts advanced were in the nature of equity or not? TPO order in fact shows that the sums were shown as outstanding and he categorized them as interest free loans. There are also opening balances pertaining to earlier year to an extent of ₹ 43,12,68,000/-. It is not known whether department has accepted the advances in earlier year without any TP adjustment. In the absence of relevant facts, it is difficult to give a finding and apply various case law. Therefore, we are of the opinion that the facts required to be examined by the AO afresh. First of all, AO has to ascertain the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut if it is treated as a loan, then the rate of interest would be at LIBOR plus percentage as directed by the Tribunal in the case of GSS infotech Ltd. Vs ACIT. Thus, the ground of appeal No. 6 is treated as partly allowed for statistical purposes. 8. As regards ground No. 7, i.e interest on outstanding receivable, we find that the assessee had outstanding receivables of nearly 37.94 crores from its AE s. The TPO held that they partake the nature of advances and therefore the assessee should have charged interest on the same after allowing reasonable period, i.e. one month credit perid. The DRP confirmed the view of the TPO and the assessee is in second appeal before us. 8.1 The Ld. Counsel for the assessee relied upon the decision of the Tribunal in the case of Batronics India Ltd. Vs DCIT (supra) and also GSS infotech Ltd. Vs ACIT (supra) in support of his contentions that no interest is chargeable on outstanding receivables from the AE and even if it is chargeable, the credit period cannot be only one month, has held by the TPO. 8.2 The DRP relied on the orders of the authorities below. 8.3 Having regard to the rival contentions and materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it can claim deduction u/s. 10A. Therefore, in our view, putting a limit of two months of credit period itself is arbitrary. Moreover, as seen from the calculation provided in page 7 of the assessment order, the date of realization was shown as 02-02-2011 and interest was levied from 01-04-2010 to 02-02-2011 which is not pertaining to the year under consideration. As far as this year is concerned, the invoices raised on 31-12-2009 were outstanding only for a period of three months by the end of the accounting year. We are of the opinion that this period is reasonable and so no interest can be levied, just because amounts are shown as outstanding . Accordingly, we cancel the interest levied and allow assessee s contentions. Grounds are considered allowed . 8.4 In the case of Batronics India Ltd. Vs DCIT (supra) also the Tribunal at para 21 to 23 has held as under: 21. As regards the addition of ₹ 7,05,11,490/- towards interest on receivables, the ld. AR submitted that change of nature from mobilization advances to receivables is not warranted. He submitted that as the case of non-charging of interest in the controlled transactions is not comparable w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered allowed. 23.1 In the case of Lanco Infratech Ltd. Vs. DCIT (supra), the coordinate bench has held as under: 9. We have considered the rival contentions. It is well accepted practice that the construction industry pay advances at a certain percentage of the contract value to mobilise various resources for the execution of contract and these advances are given in the regular course of business. As seen from the facts of assessee's case, assessee is undertaking an EPC contract and has received mobilization advances as part of that. Like-wise, assessee has given some works to other parties on sub-contract basis and necessarily it has to provide mobilization advances to the parties. It is also noticed that assessee has advanced mobilization advances to both AEs and non -AEs arid no interest has been charged from either party. Not only that assessee is also not required to pay any interest on the mobilization advances received, which are in fact more than the amounts advanced by assessee. Thus, there is complete uniformity in the act of assessee' in not charging interest from both AE and non-Ali; and also not paying interest/claiming interest for ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
