TMI Blog2020 (1) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is after the date of the previous year under consideration. Therefore authorities below are quite correct in holding that in the eyes of law corporate guarantee was in existence and could be validly invoked against the assessee. The above view is also corroborated by the fact that the balance sheet of the assessee as on 31/3/2013 mentioned the corporate guarantees on behalf of subsidiaries under the head contingent liabilities and commitments . Furthermore, even information to the RBI for the aforesaid withdrawal was communicated in the next financial year in the month of August. Adjustment to Interest on Loan given to AE - HELD THAT:- As decided in own case [ 2018 (11) TMI 864 - ITAT MUMBAI ] assessee has advanced loan pursuant to loan agreements / arrangements to its AE and was entitled to certain rate of interest. These loan transactions as entered into by the assessee with the AE squarely falls within the ambit of Section 92(1) / 92B as an international transactions as accepted by the assessee in its TP study and the statutory provisions mandates that the income from such transactions is to be computed on the principle of arm's length price irrespective of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction dated 1.9.2017 3. The issues arising out of the grounds of appeal are as under: Part I- Transfer Pricing Ground: 1. Adjustment of ₹ 88,80,000/- pertaining to providing of Corporate Guarantee (CG) To Associated Enterprise (AE) 2. Adjustment of ₹ 12,98,09,060/- pertaining to Interest on Loan given to AE Part II- Corporate grounds: 1. Disallowance of Interest under section 36(1)(iii) of the Act. 2. Disallowance under section 14A read with Rule 8D of ₹ 5,13,050/- and also section 115JB adjustment in this regard. 3. Mismatch in Form 26AS data 4. Short grant of TDS credit of ₹ 1,95,103/- 5. Penalty under section 271(1)(c) of the Act. 4. Brief facts of the case are that Laqshya Media Private Limited (LMPL) is a specialist out of home advertising company engaged into the business since the year 1997. The assessee entered into following international transaction during the financial year 2012-13 with its associated enterprises AEs :- Sr.N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Middle East Ltd, Dubai of AED 33 million and to National Bank of Dubai, Dubai for AED 20 million for due repayment of Term Loan availed by Right Angle Media (RAM), a step-down subsidiary of the LMPL ('RAM'), from the said Banks on the terms and conditions as mentioned in the facility letter dated 12th November, 2007 of HSBC Bank Middle East Ltd and facility letter dated 23rd September, 2007 of National Bank of Dubai. This CG, provided to AE, was reduced to AED 51 Million vide Amendment to Deed of Guarantee dated 4th January, 2010 and further reduced to AED 40 Million vide Amendment to Deed of Guarantee dated 29th April, 2010. The AE, in turn, provided CG to HSBC Bank Middle East Ltd, Dubai of AED 25 million and to Emirates National Bank of Dubai, Dubai for AED 15 million for the due repayment of Term Loan availed by RAM, the step-down subsidiary of the LMPL, from the said banks on the terms and conditions as mentioned in the facility letter dated 1st March 2011 of HSBC Bank Middle East Ltd. and facility letter dated 24th March, 2011 of Emirates National Bank of Dubai. 8. The transfer pricing officer thereafter noted the submissions of the assessee. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e form of letter/certificate from Bank to substantiate its claim of withdrawal of corporate guarantee w.e.f. 01/04/2012. In this regard the assessee submitted copy of letter addressed to HDFC Bank Ltd, Worli. The letter has dtd. 07/08/2013. The assessee was pointed out this fact that letter is dtd.07/08/2013, how can the back dated withdrawal from 01/04/2012 as claimed by assessee can be accepted. The assessee submitted copy of board resolution dtd. 12/06/2012. The assessee was required to produce evidence to prove the bank has accepted withdrawal of the corporate guarantee w.e.f 01/04/2012. The assessee could not produce documentary evidence or conformation form the bank of acceptance of withdrawal of corporate guarantee w.e.f. 01/04/2012. In the absence of evidence of acceptance of withdrawal of corporate guarantee w.e.f.01/04/2012 by the bank, Assessee's claim of its withdrawal w.e.f. 01/04/2012 cannot be accepted. Since the guarantee was valid till 01/07/2013 the corporate guarantee fee is chargeable for the entire financial year 2012-13 . 9. Thereafter, the Transfer Pricing officer rejected the assessee s claim that corporate guarantee is not an internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Laqshya Media international (Mauritius) has accounted for this revenue of USD 24,63,219 as interest income and also provided for 20.77.285 USD as interest expenses payable to Laqshva Media Pvt. Ltd. for F.Y. 2012-13 (period relevant to A.Y. 2013-14). Thus, Assessee's contention of not charging interest on loan advanced cannot be accepted the AE is earning interest (8)15% on loans advanced out of loan taken from assessee and claiming interest expenses payable to Laqshya Media Pvt Ltd, whereas Laqshva Media Pvt. Ltd, is claiming interest is waived which cannot be accepted in view of the above facts. 5.17.2 Further, it is notable that, the various case laws, which the assessee has relied on this issue, do not pertain to determination of ALP of transaction of loan to AE and hence are not applicable to the proceedings before the undersigned. These cases deal with taxability or otherwise of the amounts, which matter, is not within the domain of TPO and are not relevant for ALP determination. It is notable that the provisions of Chapter X are special provisions for avoidance of tax due to the overseas transactions with the AEs. Hence, the claim of the assessee fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest Rate as per the original agreement Interest receivable (Rs) 1 76,81,00,940 14% 10,75,34,132 2 15,57,09,915 13% 2,02,42,289 3 1,90,91,655 14% 20,32,638 Total 942902505 Total 12,98,09,060 5.18 The ALP interest on loan advanced by assessee to its AE is determined at ₹ 12,98,09,060/-. Accordingly, the above amount of ₹ 12,98,09,060/- is treated as adjustment against the total income of the assessee of the current year against the interest receivable from the outstanding loan of AE. Against the above Transfer Pricing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d since direct cup was not available with the TPO, he has adopted an indirect cup by obtaining the rates of guarantees given by the Indian banks. The DRP also referred the TPO has given due consideration to the jurisdictional High Court order in the case of Everest canto cylinder Ltd versus DCIT 378 ITR 57 wherein following was held In the matter of guarantee commission, the adjustment made by the TPO were based on instances restricted to the commercial banks providing guarantees and did not contemplate the issue of a Corporate Guarantee. No doubt these are contracts of guarantee, however, when they are Commercial banks that issue bank guarantees which are treated as the blood of commerce being easily encashable in the event of default, and if the bank guarantee had to be obtained from Commercial Banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing Corporate Guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which applied for issuance of a Corporate guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has claimed that its statutory auditors had removed the mention of corporate guarantees from its Final Accounts, the same is not correct. The Balance Sheet of the assessee as at 31/03/2013 mentions the corporate guarantees on behalf of subsidiaries under the head 'Contingent Liabilities and Commitments'. It noted that it is also relevant to note that the DRP for AY 2011-12 and 2012-13 have also dismissed similar arguments of the assessee on the issue of corporate guarantee. Hence, it concluded that the objection no.1 of the assessee is dismissed. 14. On the issue of assessee s objection relating to adjustment of ₹ 13,98,09,060/- made by the Transfer Pricing officer on account of interest chargeable on interest free loans given to AE s the Dispute Resolution Panel referred to the order of DRP for assessment year 2012-13. Finding itself in agreement with its earlier decision it rejected the objections raised by the assessee. Aggrieved with the transfer pricing adjustment assessee is in appeal before the Tribunal. 15. Adjustment pertaining to provision of corporate guarantee to AE Learned counsel of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate guarantee on 7/8/2013 which is after the date of the previous year under consideration. Therefore authorities below are quite correct in holding that in the eyes of law corporate guarantee was in existence and could be validly invoked against the assessee. The above view is also corroborated by the fact that the balance sheet of the assessee as on 31/3/2013 mentioned the corporate guarantees on behalf of subsidiaries under the head contingent liabilities and commitments . Furthermore, even information to the RBI for the aforesaid withdrawal was communicated in the next financial year in the month of August. 18. In the background of aforesaid discussion in our considered opinion, the view taken by the ITAT, as above, is fully applicable and we concur with the same as we find that facts are identical. We order accordingly. 19. Adjustment pertaining to interest on loan to AE Learned counsel of the assessee reiterated the submissions that no adjustment on account of interest on loan to AE is warranted. He made various submissions in this regard. However learned counsel fairly accepted that ITAT in assessee s own case own case f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to anyone but when such transactions are covered by the international transactions between the associated enterprise, Section 92 of the Act mandates that the income from such transactions is to be computed on the basis of arm's length price. The judicial precedents relied by the assessee, such as in the case of SA Builders Ltd. (supra), in support of the proposition that interest free advance to the subsidiary, in which assessee has deep interest, are justified on the grounds of commercial expediency are in the context of the question whether such a use of borrowed funds can be said to be for the purposes of business, and, accordingly, whether interest on borrowings for funds so used can be allowed as a deduction in computation of business income of the assessee. That is not the issue here, and these judicial precedents on the commercial expediency, therefore, have no relevance in computation of arm's length price of loan given to an associated enterprise. Similarly, learned counsel's contention that a notional income cannot be taxed, and reliance on Shoorji Vallabhdas Co. 's case (supra) in this regard, is wholly misplaced because that proposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Indian rates in terms of judgment of Hon'ble Delhi High Court rendered in Cotton naturals India Pvt. Ltd. [supra]. Since additional evidences have been placed before us for the first time which are germane to the adjudication of the issue and the fact as to the currency in which the loan was granted and the currency in which it was repayable is not quite certain, the issue requires re-appreciation by lower authorities. For the aforesaid limited purpose, the matter stand remitted back to the file of Ld. AO / TPO with a direction to the assessee to provide requisite details information to substantiate the claim. This ground stand partly allowed for statistical purposes. 4.8 Further, against the said order, Appellant had filed the Miscellaneous Application (MA) with the Hon'ble IT AT to make the certain rectification in the above order passed by the Hon'ble Tribunal. The Hon'ble Tribunal passed the order for the MA on 12th March 2019 (Refer page no 339 to 343 of paper-book) which is duly served to the assessee as well as to the department wherein the Hon'ble ITAT while giving directions to calculate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted. He further contended that facts are identical and assessee s interest free funds are more than the advances given to AE s. 23. Upon careful consideration we find that since facts are identical and DRP has also followed its earlier year order which has been reversed by the ITAT, respectfully following the above said precedent we direct that no disallowance in this regard is to be made. 24. Apropos disallowance under section 14A The assessing officer had made disallowance under section 14A read with rule 8D(2)(iii) amounting to ₹ 5,13,050. The same was also added back while computing book profit under section 115 JB. The DRP also confirmed the addition. Against this order assessee is in appeal before us. 25. We have heard both the parties and perused the records. Learned counsel of the assessee contended that since the assessee has not earned any exempt income disallowance under section 14A is not warranted. In this regard is placed reliance upon several case laws including the following: Principal CIT versus Ballarpur industries Ltd ITA No. 51 of 2016 (Bom) Chem Inve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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