TMI Blog2018 (10) TMI 1845X X X X Extracts X X X X X X X X Extracts X X X X ..... justment on interest as loans and corporate guarantee fails therefore. Addition u/s 36(1)(va) read with section 2(24)(x) - delayed employees contribution to ESI/PF - HELD THAT:- CIT(A) holds that the assessee had paid the amount in issue before the due date of filing return not inviting any disallowance as per decision in CIT vs Vijay Shree Ltd. [ 2011 (9) TMI 30 - CALCUTTA HIGH COURT ] and CIT vs Coal India Ltd. [ 2015 (8) TMI 1451 - CALCUTTA HIGH COURT ] respectively. We affirm the CIT(A) s findings under challenge. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- Assessee has not derived any exempt income in the impugned assessment year. The CIT(A) has followed hon ble Madras high court s decision in Redington (India) Ltd. [ 2017 (1) TMI 318 - MADRAS HIGH COURT ] that the impugned disallowance provision does not apply in the absence of exempt income - Decided against revenue. - ITA Nos. 262 & 263/Kol/2018 - - - Dated:- 12-10-2018 - Shri S.S. Godara, Judicial Member and Shri, M. Balaganesh, Accountant Member By Appellant Shri Sanjoy Paul, Addl. CIT, Sr. DR. By Respondent Shri Ravi Tulsiyan, FCA ORDER S.S.Godara, These two Revenue s appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to the borrower's independent credit rating. From the financials of the appellant, the ld. TPO computed the average cost of funds at 14.5olo. After determining the cost of funds, the Ld. TPO further computed an appropriate spread to cover the risks involved for lending to such vulnerable low rated AEs. This spread was determined by the Ld. TPO at 550 750 bps for SKPOP RPMI respectively, The ld. TPO aggregated the cost of funds and credit spread and determined the ALP interest rate at 20% / 22% in respect of the loans advanced. Accordingly the ld.TPO proposed upward adjustment of ₹ 15,60,246l- with reference to the loans/advances given by the appellant to its AEs. 3. In the appellate proceedings, the Ld. AR of the appellant reiterated the submissions which were made before the Ld. TPO and contended that the advances were given to AEs in the course of trade and therefore it could not be equated with a 'loan' or a financing arrangement. Alternatively the ld, AR contended that the TPO erred in presuming that the advances were given out of appellant's borrowings which carried average interest rate of L4.5%. According to Ld. AR, the appellant had suffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e working of cost of funds was made was inherently inappropriate and incorrect. Moreover the methodology adopted and the working made was not in conformity with the methods prescribed in Rule 108. In the circumstances I uphold the appellant's objection that the manner of determination of ALP as made by the ld. TPO in his order u/s 92CA(3) could not be upheld. 6. The question involving manner methodology of benchmarking intercorporate loans advances is a vexed issue and has been debated by various High Courts Benches of the Income-tax Tribunal. From the judicial precedents which are available in the public domain, I find that the settled view is that the foreign currency denominated loans advanced to AEs should be benchmarked against the relevant currency denominated LIBOR rate. The relevant judicial precedents in this regard are as follows: Cotton Naturals (I) Pvt Ltd ITS-117-HC-2075(DEL)-TP] Tata Autocomp Systems Ltd. (TS-45-HC-2015(BOM)-TP) Varroc Engineering Pvt. Ltd vs. ACIT (ITAT Pune) (ITA No.2482/PN/2072) Bhansali Co.(T5-461-ITAT-201a(Mum)-TP) M/s Four Soft Ltd vs DCIT (lTA No.1495/HYD/2010) DCIT vs Tech Mahindra Ltd (ITA No. 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecially in a situation where the assessee could not have realized any money by giving the same to some other assessee during the course of business, and that such an assistance or accommodation does not have any bearing on the profits / losses or assets and as such would not fall within the ambit of any international transaction u/s 92B. It has been argued that a bare benefit does not tantamount to an international transaction, as such. It has been argued that the transactions have no bearing or impact upon the profits, income, loss or assets of the AE, and that even after the law was amended with retrospective effect the effect should also be such as to have a bearing on profits, incomes. Losses or assets of the enterprise. It has also been argued that the impact of the impugned Corporate Guarantee should be on a real basis and not on any contingent or hypothetical basis, and that the onus is upon the Ld. AO to demonstrate that that the transaction has a bearing on the profits, income, loss or assets of the enterprise, and that there has to be cogent material on record to indicate that intra AE international transaction has some impact on the profits, incomes, losses or assets. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the provision of guarantee and therefore the TP adjustment imputing an arm's length guarantee fee is not warranted, This judgement seems to be a departure from the OECD's approach in the sense that the shareholder incurring a cost would not normally be considered in determining whether a service has been provided or not. The fact that would need to be considered is whether the activity provides a respective group member with economic or commercial value to enhance its commercial position. This can be determined by considering whether an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it by an independent enterprise or would have performed the activity in-house for itself. Therefore, from the perspective of the recipient, if it were not something that he would have paid for, the activity should normally not be considered as an intra-group service under the arm's length principle. Given that Indian TP law differs from the OECD's approach in certain aspects with respect to the application of the arm's length principle, it would not be out of place to state that this judgment highlights one of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of loan and guarantee are not that of a lender or guarantor i.e. to earn a market share of interest or guarantee fee, rather, the expectation was that of a shareholder to protect its investment interest, help it to achieve acquisition of TegaBruce for furtherance of its own business and get returns in terms of appreciation of value and dividends,,,. therefore in the present case the guarantee is a shareholder activity hence no TP adjustment on account of corporate guarantee should be required. Accordingly, we direct the Ld. DRP/ TPO to delete the addition, In view of the decision of the Hon'ble jurisdictional ITAT, it has to be said that there is strength in the contention of the appellant-company that in the facts emanating in the case, there may not have been any real justification on the part of the Ld. AO to treat the corporate guarantee given by the appellant to the AE as an international transaction. 11. I have also carefully considered the Ld. A.R's submissions for the appellant-company in the matter rebutting and challenging the action of the Ld. AO/TPO. The appellant has been able to draw and demonstrate similarity in the factual and legal matrix in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 23,36,190/-. The said adjustment of ₹ 23,36,190/- is accordingly ordered to be deleted. Ground No. 2 of appeal therefore stands allowed. 3. We come to the Revenue s first grievance regarding interest income adjustment. Suffice to say, it has come on record that the lower authorities had taken domestic interest rates as the relevant benchmark for arriving at the impugned arm s length adjustment involving foreign currency denomination loans to the overseas associate enterprise(s). The CIT(A) as has directed to Assessing Officer / Transfer Pricing Officer to bench mark the impugned loan transaction at LIBOR rate than domestic interest rates keeping in mind the nature of international transaction in issue. A catena of case law (supra) has already concluded that such foreign currency denomination loans have to be benchmarked at LIBOR rate only. learned departmental representative fails to indicate any legal or factual exceptions thereto. We therefore uphold the CIT(A) findings under challenge. 4. Next comes corporate guarantees issue in both these assessment years. Learned CIT(A) has referred to this tribunal various decisions (supra) in concluding that a corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X
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