TMI Blog2020 (1) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... T MUMBAI] , decided in favor of assessee. Exchange Gain/Loss in valuation of outstanding Foreign Exchange Forward Contracts - Held that:- The ld. CIT(A) appreciated the contentions of the assessee and directed that this sum should be taxed only in the year in which the said forward contracts gets matured i.e. in A.Y.2003-04. The ld. CIT(A) also directed the ld. AO to grant deduction, being the loss arising on account of valuation of outstanding forward contracts as on 31/03/2001 as the same is to be allowed even as per analogy of the ld. AO. - Order of CIT(A) sustained. Transfer pricing adjustment - Correspondent Banking Activities - Held that:- when services are rendered free of charge to the AE by the assessee and similarly AE also provided reciprocal services free of charge to the assessee, there cannot be any reason for doubting the said transaction or make any transfer pricing adjustment thereon as both the assessee as well as the AEs are part of global conglomerate. The assessee had considerably benefitted out of earning income from Indian FIs and float income pursuant to correspondent banking activities and the said benefit directly flows to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) had categorically observed that HSBC India does not assume any risk in respect of continuing ECBs compared to the nature of service rendered by them.- No additions. - ITA No.3857/Mum/2006 And ITA No.4565/Mum/2009, ITA No.3401/Mum/2006 And ITA No.3996/Mum/2009 - - - Dated:- 27-11-2019 - Shri M. Balaganesh, AM And Shri Ravish Sood, JM For the Assessee : Shri Porus Kaka and Shri Divesh Chawla For the Revenue : Shri Anand Mohan ORDER PER M. BALAGANESH (A.M): ITA No.3857/Mum/2006 ITA No.3401/Mum/2006 (A.Y.2002-03) These cross appeals in ITA Nos. 3857/Mum/2006 and 3401/Mum/2006 for A.Y.2002-03 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-XXI, Mumbai in appeal No.CIT(A) XXI/Int.Tax/IT-70/05-06 dated 31/03/2006 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/03/2005 by the ld. Asst. Director of Income Tax (IT) 3(1), Mumbai (hereinafter referred to as ld. AO). ITA No.4565/Mum/2009 ITA No.3996/Mum/2009 (A.Y.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the action of the ld. AO by observing as under:- 7. I have carefully considered the appellant s submissions. I find that a speaking order is given by the CIT(A) in A.Y.1992-93 and A.Y.2001-02. In A.Y. 1992-93, it was held that the expenditure involved cannot be regarded as Head Office expenses as the employees were employed in India, initially the payment might have been made by the Head Office but the liability was that of the appellant and therefore, there is no reason to disallow the salaries paid to the expatriate employees. However, in A.Y. 2001-02, it has been held that there is merit in the AO's contention that the payments have been made overseas by the head office and there is no indication of any settlement of account, which would show that the liability incurred by the head office has been passed on the assessee bank and the expenses have been incurred outside India and are in the nature of head quarter expenses covered by section 44C of the Act. It was further observed that in the earlier years, the claim of the appellant had been consistently allowed but in the year under consideration, since the appellant has not been able to prove that the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Bombay High Court in vs. Emirates Commercial Bank Ltd. 262 ITR 55, it has to been seen whether the expenditure was exclusively incurred for the branch. In the present case, there was an initial claim of offshore salary of ₹ 15,70,62,023/-. However, by letter dt. 27.12.2004, the appellant stated before the AO that the claim for deduction for aggregate salary paid to expatriates outside India may be considered at ₹ 14,09,77,9917- and claim was not made of 50% of offshore salary of Mr. Ashok Bhatia Chief Technology Officer India [₹ 65,33,714/-] and offshore salary of Mr. Peter Valentine Senior Manager [₹ 95,50,348/-]. As regards Mr. Ashok Bhatia, it was stated before the TPO [para 5.3 of the order] that Mr. Ashok Bhatia has played an oversight role in Middle East and 50% of his total remuneration was stated to be for services rendered to AEs. As regards Mr. Peter Valentine, there is no explanation as to why his offshore salary should not be included in the claimed deduction. The complete salary [including offshore salary] is stated to be included in F no. 16 of the two officers. Therefore, the appellant's relia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. We have heard the parties on this issue and perused the materials placed before us including the case law relied upon by the parties. We find that the issue raised by the revenue in this appeal stands covered in favour of the assessee by the above said decisions. Therefore, following the principal of consistency, we dismiss Ground No.2 of revenue's appeal. 2.4.1. Respectfully following the same, ground No.1 raised by the assessee is allowed. 3. The ground No.2 raised by the assessee for A.Y.2002-03 is with regard to disallowance of expenses incurred for mobilization of deposits from non-resident Indian to the tune of ₹ 4,54,65,934/-. During the course of assessment proceedings, the assessee explained before the ld. AO the details of expenditure incurred on mobilization of NRI deposits. The assessee submitted that these expenses were incurred by their head office and since the deposits were retained in the books of Indian branch, the related expenses incurred thereon are also debited to the Indian branch. The assessee has specifically submitted that these expenses are in the nature of salaries, travelling, advertisemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot verified. Page 126 is a certificate dt. 18.10.2002 for examination of records maintained at the Hong Kong Office International Banking Centre - India Desk of HSBC Ltd. for the year ended 31.3.2002. The certificate bears some signature but the name of the signatory and even the identity of the 'Certified Public Accountants' who are shown to have signed the certificate is not given. Therefore, it cannot be said that the details of expenditure, along with certification of auditors, were duly furnished at the assessment stage. Therefore, following the CIT(A) order for A.Y. 2001-02 disallowing the claim of expenses on account of NRI deposit mobilisation on the ground that they are not subject to verification, the disallowance of the claim of ₹ 4,54,65,934/- in A.Y.2002-03 is confirmed. Ground uo.3 is dismissed. 3.1. Aggrieved the assessee is in appeal before us. 3.2. We have heard rival submissions and perused the material available on record. We find that this issue was subject matter of adjudication by this Tribunal in assessee s own case for A.Y.2000-01 in ITA No.2680/Mum/2004 dated 20/11/2015, among other years, wherein the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adras High Court in the case of Indian Overseas Bank reported in 183 ITR 200. 4.1. The assessee also pleaded before the ld. AO that since the revenue was consistently having a stand that loss arising out of unmatured foreign exchange contracts as valued at the year end was not a permissible deduction, the amount of loss which was disallowed in earlier year amounting to ₹ 15,16,14,000/- should be allowed as a deduction during the year under consideration as the contracts have been settled during the previous year relevant to A.Y.2002-03. The ld. AO did not agree to the contentions of the assessee and observed that the loss arising on account of unmatured foreign exchange contracts at the end of the year are only notional in nature and hence, cannot be allowed as a deduction. The ld. AO remained silent in his order with regard to the alternative claim of the assessee for allowing deduction of ₹ 15,16,14,000/- in respect of very same loss which was disallowed in the earlier year had to be granted as deduction during this year as the contracts had been settled during the year under consideration. 4.2. The assessee submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure no claim of double deduction by the assessee and also ensure that there is no double taxation on the part of the revenue. Accordingly, ground No.3 raised by the assessee is allowed and ground No.1 raised by the revenue is dismissed. Disallowance u/s.14A of the Act:- Ground No.4 of the assessee appeal for A.Y.2002-03. 5. During the year under consideration, the assessee disclosed the interest income of tax free bonds amounting to ₹ 18,19,16,621/- and dividend income of ₹ 2,99,43,000/-. The total tax free income of ₹ 21,18,59,621/- was disclosed and claimed as exempt in the return of income. The assessee did not disallow any expenditure for earning the aforesaid tax free income in accordance with the provisions of Section 14A of the Act and pleaded that no expenditure was related to earning of the said tax free income. The assessee also submitted the details of availability of own funds at its kitty to the tune of ₹ 870 Crores and 1790 Crores to drive home the point that it was flooded with interest free funds to make various investments in tax free securities and bonds. In other words, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd no reason to interfere. The appeal is dismissed. 5.3. Respectfully following the aforesaid decision of Hon ble Calcutta High Court, we direct the ld. AO to disallow 1% of total exempt income u/s.14A of the Act. Accordingly, the ground No.4 raised by the assessee is partly allowed. Payments made to Club:- Ground No.5 of assessee appeal Ground No.3 of Revenue appeal 6. The ld. AO observed that assessee had made payment of ₹ 84,83,457/- to clubs. The assessee was asked to explain the beneficiaries to this club facilities and justify the claim as deduction. The assessee vide reply dated 17/12/2004 submitted that the executives of the bank had used club facilities which directly help in bringing the business to the bank and made prospective clients and therefore, the expenditure incurred on clubs is wholly and exclusively for the purpose of business. The assessee also filed break-up of expenses comprising of membership fees, subscription, entrance fees and other payments made to clubs. The ld. AO observed that assessee had not furnished the break-up of these expenses and also brought no evidence to le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 3,91,61,437/-. 7.1. The brief facts of this issue are that the assessee made provision of ₹ 3,19,61,437/- towards liability on account of bonus points payable to credit card customer by the bank. The details of said provision were worked out as under:- Gross amount towards bonus points liability - ₹ 6,54,71,962/- Less points redeemed during the year (encashed by the cardholders) - ₹ 76,86,725/- Less reversed during the year - ₹ 1,86,23,800/- Provision made during the year under Consideration - ₹ 391,61,437/- 7.2. The assessee explained that the bonus points accrued to the credit card holder when such credit card holder makes purchases through the use of the card when the cardholder make such purchase, the bank earns commission income that is taxed. As the bonus points directly relate to the purchases made by the credit card holder in respect of which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) (Rs.) (Rs.) 2001-2002 6,54,71,962 (76,86,725) (1,86,23,800) 3,91,61,438 2002-2003 6,46,00,000 (2,86,06,953) Nil 3,59,93,047 7.3. The ld. CIT(A) upheld the action of the ld. AO by observing as under:- 35. I have carefully considered the appellant's submissions. In support of its contentions, the appellant has relied on the order of the CIT(A) for A.Y.2001-02 in its own case. It was held in para 14 of the appeal order for A.Y. 2001-02 that the CIT(A) agreed with the contention of the appellant that the bonus points accruing to the customers is a liability against the commission income earned from the credit cards business, which is brought to tax as income and since the appellant is following the mercantile system of accounting, Cut claim of the appellant is all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns he placed reliance on the following decisions : a) ACIT V/s M/s Shoppers Stop Ltd -ITA No.1835/Mum/2010 (AY-2003-04) dated 25.1.2012; b) Syndicate bank V/s DCIT (Bang ITAT) -(2013) 38 taxmann.com 25); c) Bharat Earth Movers V/s CIT -245 ITR 428 (SC); d) Calcutta Co. Ltd. vs. CIT (1959) 37 ITR 1 (SC); e) Rotork India Pvt. Ltd. Vs. CIT reported in 314 ITR 63 (SC); f) Taparia Tools Ltd v Joint CIT [2003] 260 ITR 102 (Bom),; g) Vinitee Corporation (P) Ltd. (2005) 146 Taxman 313 (Delhi); and h) CIT v. Beema Manufacturers P. Ltd. (2003) 130 Taxman 400 (Mad) ITA No.2519/Mum/2004 and other six appeals 87. We find that the ld.CIT(A) has considered this issue with detailed discussions, we also find that an identical issue had come up before the various forums/ Judicial authorities, and therein the Courts have decided this issue in favour of the assessee. Hence, this issue stands covered in favour of the assessee. Therefore, we do not find any infirmity in the order of ld.CIT(A). Accordingly, we confirmed his findings. Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after obtaining special internal approvals. 9.1. The ld. CIT(A) upheld the action of the ld. AO by observing as under:- 41. I have carefully considered the appellant's submissions. In the appellant's case for A.Y.2001-02, the CIT(A) considered the finding in the appellate order of Abu Dhabi Commercial Bank Ltd. for A.Y.98-99 supra in which it was inter alia held that when the bank gives a guarantee, its obligation extends to the entire period for which the guarantee is given and in exchange of this obligation, the bank received the commission and it is wrong to say that such commission accrues to the full extent the moment when the bank stands as a guarantor since the obligation is spread over a period of time, so should the guarantee commission. It was also observed in the case of Abu Dhabi Commercial Bank l.:d. that the issue is covered by the decision of the Hon'ble Calcutta High Court in ilio case of CIT vs. Bank of Tokyo Ltd. 71 Taxman 85 where it was held that the right to receive for unexpired period beyond the expiry date of the previous year remains in suspense and it is only upon certain conditions fulfilled viz. the guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the assessee. He submitted that the findings of the ld.CIT(A) are in consonance of the law and, he therefore prayed that the findings of the ld.CIT(A) be upheld. He also contended that an identical issue had come up before the various Courts and they have decided the issue in favour of assessee. Accordingly, he placed reliance on the following case law: a) BNP Paribas SA (Bombay HC) (2013) (32 Taxman.com 276); b) CIT V/s Bank of Tokyo Ltd (71 Taxman 85); c) Bank of Baharain and Kuwait (Mumbai ITAT SB) (2010) 41 SOT 290). 100. After hearing both the parties on the issue and on perusal of the records including the case relied upon by the parties, we find that the ld. CIT(A) has passed well reasoned order and directed the AO to delete the addition. For the sake of convenience, we also reproduce the relevant findings of the Hon'ble Calcutta High Court( viz CIT Vs. Bank of Tokyo Ltd.) as under : The Revenue contends that the right to receive the commission being a one-time right, its accrual shall coincide with the commencement of the service rendered by way of guaranteeing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted the disallowance. We find that this issue has already been decided in assessee s favour for A.Y.2001-02 among other years vide order dated 20/11/2015, wherein it was held as under:- 90. The ground No.4 taken by the revenue pertains to deletion of disallowance of ₹ 14,99,000/- incurred on library subsidy, contributions to staff cultural committee and recreation club. 91. We have already discussed similar ground of revenue's appeal and vide paragraphs 21 to 28 of this order for the assessment year 1999-2000, we have dismissed ground taken by revenue therein. Therefore, following the above view, here also we dismiss Ground No.4 taken by Revenue. 10.1. Respectfully following the same, the ground No.2 raised by the revenue is dismissed. Disallowance of Guest House Expenses: ₹ 60,42,262/- 11. The ld. AO observed that assessee furnished the break-up of the expenditure towards rent, salaries and other expenses like electricity, laundry, telephone etc., but did not file any details with regard to user of the goods used and how the expenditure was connected with the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s own case. 12.1. Aggrieved, the revenue is in appeal before us. 12.2. We have heard rival submissions. The ld. DR vehemently relied on the order of the ld. AO. We find that this issue has already been decided in assessee s own case for the A.Y.2001-02 in ITA No.4424/Mum/2005 dated 20/11/2015 among other assessment years wherein it was held as under:- 92. The next issue raised by the revenue in this appeal pertains to deletion of disallowance of ₹ 2,37,21,174/- in respect of entertainment expenses. 93. This ground being identical and no change in facts to that of Ground No.5 for the assessment year 1999-2000, we take similar view as taken therein vide para No.30 to 35 of this order. Accordingly, we dismiss Ground No.5 taken by Revenue. 12.2.1. Respectfully following the same, the ground No.5 raised by the revenue is dismissed. 13. The ground No.9 raised by the assessee with regard to transfer pricing issue is general in nature and does not require any specific adjudication for the A.Y.2002-03. Transfer pricing issues: 14. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bts syndication etc., marketing of derivative products for which, the benefit is derived by the overseas branches/ HO. If such services are rendered, please give the details of such services, the functional analysis and the amounts received for such services 14.2. The assessee vide reply dated 20/12/2004 submitted before the ld. TPO submitted as under:- The Correspondent Banking Division (INM IB') of HSBC India manages with Non-bank Financial Institutions ('FIs') like insurance companies, Management companies, and securities houses as well as banks in India. Indian Fis INM IB s efforts vis-a-vis Indian FIs includes marketing of loans, payments and cash ent facilities, guarantee and other products offered by HSBC India These if and when sold by HSBC India results in revenue streams like float income, guarantee commission, fee income as a result of payment and cash lent facilities etc. This revenue is booked by HSBC India and is also offered to income tax It may be noted and appreciated that such revenue arises directly as a result of all underlying risks assumed by HSBC India vis-a-vis the product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INM IB broadly provides the following services in relation to Indian banks: Marketing Nostro accounts and trade finance services offered by overseas HSBC offices. Marketing arranger's role of overseas HSBC offices in debt/equity capital raising. Customer Service: Responding to queries raised by banks by liasing with the appropriate overseas HSBC office. Conducting credit review. As mentioned above, INM IB also markets HSBC India products to Indian FIs . 14.3. The assessee vide letter dated 18/03/2005 submitted that the statement showing details of derivative products marketed by them were already furnished before the ld. TPO vide submission dated 28/01/2005 which included both the deals originated during the F.Y.2001-02 and also cancelled /unwound derivatives. 14.4. On without prejudice basis, the assessee submitted the following information in respect of correspondent banking activities before the ld. TPO as under:- Particulars Total Cost Est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod (PSM) is also ruled out. Accordingly, he adopted Transaction Net Margin Method (TNMM) as the Most Appropriate Method (MAM). The ld. TPO adopted the Profit Level Indicator as total cost plus mark up. The ld. TPO observed that for obtaining the mark up, it is necessary to identify the independent companies who have a functional and risk profile similar to HSBC India i.e. the assessee, relating to the transaction. He observed that such companies would be those rendering fee based services in the financial services industry. 14.7. Based on the information available in the database available in the public domain namely PROWESS, CAPITALINE, such independent companies were identified by the ld. TPO applied by identifying companies earning more than 75% of their income from fee based activities. The assessee in response thereto vide letter dated 21/03/2005 submitted before the ld. TPO as under:- We submit that no mark-up should be loaded on any attribution of costs towards the incidental marketing support activities undertaken by the bank in connection with correspondent banking activities and provision of support by employees of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of HSBC India, the benefit is derived by the associated enterprises. Due to marketing of these products, no direct benefit is derived by HSBC India. (b) The contention that the activities are incidental is also not acceptable because this is a specific activity, carried out for the benefit of foreign branches and for this purpose, special marketing skills are required and accordingly the activities requires to be rewarded separately. (c) The Reference to the OECD Guidelines that there is no need to charge mark-up in cases where the market price of the service is not greater than the costs is not of any help to the assessee in the present transaction, because it is not proved that how the market price would be less than the cost. If any independent entity renders the similar services for the specific benefit of any entity, it would ask for a fair compensation, which would be the costs incurred as well as an appropriate profit. (d) The contention of the bank that the mark-up should not be loaded on the Head Office Expenses is also not accepted because the bank has accepted trie Head Office Expenses as a cost attributable to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l diversity between the controlled and uncontrolled entities are acceptable. In this context, Para 3.27 of the OECD Guidelines reads as : Para 3.27 : One strength of the transactional net margin method is that net margins (e.g. return on assets, operating income to sales, and possibly other measures of net profit) are less affected by transactional differences than is the case with price, as used in the CUP Method. The net margins also may be more tolerant to some functional differences between the controlled and uncontrolled transactions than gross profit margins. Differences in the functions performed between enterprises are often reflected in variations in operating expenses. Consequently, enterprises may have a wide range of gross profit margins but still earn broadly similar levels of net profits. In this case, as the services rendered by bank are unique and the precise/clear-cut comparables are not available, a broader level of comparability is acceptable. It is for this reason that the TNMM is preferred over other methods since net margins are less affected by transactional differences and are also more tolerant to some functional diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. These products when sold by the assessee, result in earning of revenue like float income, guarantee commission, fee income as a result of payment and cash management facilities etc., The details of the said revenue earned from sale of products to the Indian FIs are as under:- Sr. No. Sector Amount (Rs. In Crores) AY 2002-03 I. Securities Houses 2.7759 2. NBFCs 0.9244 3. Fund Managers 0.624 4. Insurance 0.7229 TOTAL 4.4856 14.12.1. We find that the assessee had duly offered the aforesaid amount of ₹ 4.4856 Crores as its income in the return of income. We find considerable force in the arguments advanced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me (income from Indian FI and Float income) are considered, the profit margin stands at 189 percent. This shows that the assessee is adequately compensated for the activities carried out by INM IB division. Hence the allegation of the revenue that the assessee has not been adequately compensated has no merits. 14.12.3. We find lot of force in the case law relied upon by the ld. AR before us that when services are rendered free of charge to the AE by the assessee and similarly AE also provided reciprocal services free of charge to the assessee, there cannot be any reason for doubting the said transaction or make any transfer pricing adjustment thereon as both the assessee as well as the AEs are part of global conglomerate. The decision relied upon by the ld. AR in this regard is in the case of Aramex India Pvt. Ltd. vs. DCIT reported in 51 Taxman.com 573 (Mumbai Tribunal). 14.13. In view of the aforesaid observations in the peculiar facts and circumstances of the case herein and respectfully following the aforesaid decision of this Tribunal, we hold that the assessee had considerably benefitted out of earning income from Indian FIs and float income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f force in the aforesaid argument of the ld. AR, in any case, the nature of services are such that they are reciprocal in nature and hence, there cannot be any attribution of mark up on the same. Hence, we hold that no mark up should be loaded on the attribution of costs towards incidental marketing activities undertaken by the assessee in connection with the correspondent banking activities. 14.16. In view of the aforesaid observations, we are not inclined to adjudicate the other arguments advanced by the ld. AR that no search process has been identified by the ld. TPO and no AE has been identified in respect of the subject mentioned marketing support services etc and the comparables chosen thereon by the ld. TPO etc as the adjudication of the same would become academic in nature. 14.17. In view of elaborate observations given hereinabove, we hold that no transfer pricing adjustment on account of correspondent banking activity is warranted in the instant case. Accordingly, ground Nos.10.1 to 10.4 raised by the assessee are allowed. Services provided by employees of the bank to overseas AEs: 15. The assessee su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manager Service Quality Training 2,605,241 356,882 {based on estimated time spent) 269,446 626,328 R L Gopalkrishnan Asst Manager Internal Audit 2,060,904 340,274 (based on actual time spent) 597,181 937,455 Pramod Maveli Executive Internal Audit 879,337 156, 144 (based on actual time spent) 270,523 426,667 Total 22, 716, 515 15.4 The assessee submitted that these employees normally rendered the services from India only. In case of travel, the travel expenses, boarding and lodging e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign AEs. Hence, the same cannot be subject matter of consideration while making TP adjustment as it would lead to double disallowance. In any case, these employees render liasoning and coordination of services at group level as a mere incidental activity and the same need not be even considered as separate international transaction warranting any benchmarking thereon. As we have already held, that the main banking transactions carried out by the assessee have been accepted to be at ALP, the incidental activities cannot be separated and benchmarked independently. Hence, the transfer pricing adjustment made in this regard by the ld. TPO in respect of role of certain employees of the bank for the A.Y.2002-03 is directed to be deleted. Accordingly, the ground Nos. 11.1. to 11.4 raised by the assessee for the A.Y.2002-03 are allowed. 16. Ground No.12 raised by the assessee for A.Y.2002-03 is with regard to charging of interest u/s.234D of the Act which is consequential in nature. The ld. AO is hereby directed to re-compute the same based on the fact of actual refunds granted to the assessee. 17. The revenue has raised the solitary ground on the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, the overall cost of borrowing to the client etc., Accordingly, no additional fee has been charged to HSBC Mauritius in respect of ECB to L T. The ld. TPO asked the assessee to submit the details of income earned by the foreign branches in respect of such ECB deals and the details of fee sharing with HSBC India. Assessee submitted that in respect of Banner Pharmacaps India deal, the estimated indicative earnings overseas was USD 0.02 million and in respect of the other deal it was Australian Dollar 0.13 million. The assessee submitted that no fee is shared with HSBC India. In respect of continuing transactions, after disbursal of the ECBs, the Indian Branch undertake the normal monitoring of the accounts and follow up with the customers. For these services, the assessee is not receiving any compensation from the foreign branches who have advanced the ECBs to the customers of Indian Branches. 17.4. The ld. TPO observed that the arm s length price in respect of services rendered for continuing ECB transactions is required to be worked out because the overseas branch is helped by a local branch for the documentation, collecting fees, ensuring smooth and timely pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed enterprises, for comparison, can also be used in the cases of last resort where : (1) there is sufficient data available to demonstrate their reliability and (2) related party comparable data provides the most reliable available data upon which to determine or estimate an arm's length outcome. 17.7. The ld TPO observed that the information available in the controlled transactions can be used as a guide. In the cases, where the Indian branch has not received any compensation or the compensation received is less than arm's length, depending on the facts and circumstances of the case, either of the above basis could be adopted for computing the Arm's Length Price, however, if either net interest or fee is shared with Indian Branch, it may not be the sharing at arm's length, for the following reasons : (a) The fee as well as the interest charged in the ECB Transactions depends on the convenience of the two parties to the transactions. The client would agree to pay a higher fee with less interest rate or vice versa because the loan disburser is concerned with the value received in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e customers and that no compensation is received from the foreign branches. The appellant's contention appears to be justified since even the services enumerated at page 13 of the TPO order would show that the work is of normal monitoring and follow up for the 2 ECBs given by HSBC foreign branches in earlier years. Moreover, there were 2 ECBs given by HSBC Mauritius in F.Y.2001-02 in which the relationship/efforts of the corporate banking team of HSBC India wee involved for which debt syndication fee of ₹ 67,68,620/- as well as an amount of US $ 50000 was earned by HSBC India. The fee received was treated at arm's length price. The appellant is therefore, accounting for income in respect of ECBs given by HSBC foreign branches. In respect of ECBs given by HSBC foreign branches in earlier years, in the absence of risks assumed and taking into consideration the nature of the services provided, the appellant's contention that no adjustment is to be made in respect of the services is accepted. In view of this finding, the other contentions raised by the appellant are not being examined. The AO is directed to delete the adjustment of ₹ 10,80,225/-. Ground no. 19 i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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