TMI Blog2020 (10) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... iod to the Associated Enterprises, they do not become interlinked. There has to be a binding element behind all the transactions to make them one and connected. Such data was also not available before the learned Transfer Pricing Officer or learned Dispute Resolution Panel. If this fact is established by the assessee then the issue is squarely covered in favour of the assessee on this point by the decision of the coordinate bench . Direct the AO to compute the ALP considering the transactions of export to associated enterprise on aggregate basis after assessee establishes before him that all these export transactions of the associated enterprise are interlinked. To this extent, this issue is sent back to the file of the learned AO/TPO with a direction to the assessee to substantiate the argument that the transaction of export of goods to associated enterprise are interlinked. Benefit of tolerance range of +/- 5% in the price charged from the AE vis a vis ALP - HELD THAT:- As relying on THE DEVELOPMENT BANK OF SINGAPORE [ 2013 (8) TMI 175 - ITAT MUMBAI] we direct the assessee to furnish necessary computation and the TPO is directed to examine the same and decide this issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceed exempt income - we draw support from the decision of Joint Investment Pvt Ltd [ 2015 (3) TMI 155 - DELHI HIGH COURT]. We direct the Assessing Officer to restrict the disallowance to ₹ 2,37,000/-. This ground is partly allowed. Set off of prior period expenses from prior period income - HELD THAT:- If the Assessing Officer was of the strong belief that the prior period expenses cannot be allowed in the year under consideration, then the AO should have realized that he is taxing prior period income earned during the year under consideration. We do not find any reason why the prior period expenses should not be netted off against the prior period income, which in our opinion is most logical way of treating the same. We draw support from the decision of Exxon Mobil Lubricants (P) Ltd. [ 2010 (9) TMI 36 - DELHI HIGH COURT] , wherein observed that expenses pertaining to prior period were allowable in the relevant year in which the same were crystallized. On facts of the case, we direct the Assessing Officer to allow set off of prior period expenses with prior period income. - Decided in favour of assessee. - ITA No. 6517/DEL/2016, ITA No. 6518/DEL/2016, ITA No. 5095 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 21.10.2016 pertaining to A.Y. 2009-10. 9. At the very outset, the ld. DR pointed out that inadvertently, this appeal was filed and the same may be treated as infructuous because a separate appeal has been filed by the Revenue in ITA No. 6130/DEL/2016. 10. On such concession, this appeal is dismissed as having become infructuous. 11. In the result, the appeal of the revenue is dismissed. ITA No. 6517/DEL/2016 [ Assessee s appeal] ITA No. 6130/DEL/2016 [Revenue s appeal] 12. The above cross appeals by the assessee and Revenue are preferred against the order of the CIT(A) - 37, New Delhi dated 21.10.2016 pertaining to A.Y. 2009-10. 13. First we will take up assessee s appeal in ITA No. 6517/DEL/2016. 14. First ground relates to TP adjustment of ₹ 26,10,077/- made in Arm s Length Price [ALP] of export of goods. 15. Representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules and have also perused the judicial decisions relied upon by both the sides. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... steel coils contains metal components such as nickel and iron, and the price of such metals varies on day to day basis, an appropriate comparison would be average of monthly prices of each variety of goods. (Page 73- 74 of the paper book). 18. Accordingly, in transfer pricing document, the appellant had benchmarked the international transactions of export of goods of various grades of steel by comparing the average monthly prices of goods sold to associated enterprise with average monthly prices of goods sold to uncontrolled enterprises of same grades, applying CUP method. Comparison of price of goods on monthly average prices is enclosed at pages 73-74 of the paper book. 19. The TPO, in the impugned order, disregarded the comparison of average price of goods exported by the assessee to its AEs and sought to carry out a detailed comparison on day to day basis considering date of order acceptance as the basis for the purpose of benchmarking the export of stainless steel products made to associated enterprise. Detailed comparison of the price of goods on the basis of date of acceptance of order is enclosed at pages 245 of the paper book. 20. The TPO, out of the total tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33 times the base price. It was therefore stated that the price of the product sold on one specific date cannot be compared with the price of goods sold on any preceding or subsequent date and therefore it was stated that monthly average prices should be taken. For this proposition para number 3.9 of the revised OECD guidelines on transfer pricing was also relied upon along with the decision of the honourable Delhi High Court in case of Sony Ericsson Mobile Communications India private limited versus CIT 374 ITR 118. The assessee has also relied upon several other decisions, which are already reproduced by us earlier. The learned AR vehemently relied upon the decision of the coordinate bench in case of ACIT versus Essar Steel Limited in ITA number 3727/ MUM/ 2011 where the assessee has compared the average price of eight transactions of export of goods made to associated enterprise applying CUP method was upheld. We have carefully considered the argument of the learned authorised representative and the decision of the coordinate bench in CIT versus Essar Steels Ltd (Supra). The facts in that particular cases were that the appellant had considered all the transaction with its assoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that the Tribunal held that the benefit of range of +/-5% is available not only to a situation where more than one price is determined as ALP by the most appropriate method but also where only one price is determined as ALP. 28. We find that the Tribunal, in assessee s own case, for A.Ys 2007- 08 and 2008-09 [supra] has allowed this claim of the assessee holding as under: 45. The sixth argument of the assessee is with respect to, without prejudice, that the difference in the arm s length price of goods exported by the appellant to its associated enterprise fall within the range of 5% of the transacted price as provided under the second proviso to section 92C (2) Development Bank of Singapore [155 TTJ 265] wherein the tribunal held that the benefit of range of 5% is available not only to a situation where more than one price is determined as arm s length price by the most appropriate method but also where only one price is determined as arm s length price. The identical issue has been considered by the coordinate bench in appellant s own case for assessment year 2006-07 in ITA number 4111 and 4248/del/2013 wherein para number 23 30 this issue has been considered. In p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions relied upon by both the sides. 36. This adjustment can be bifurcated into two parts. Firstly, the adjustment relates to interest on loan received from AE amounting to ₹ 1,45,49,640/- and secondly, the issue of corporate guarantee amounting to ₹ 6,17,65,824/-. 37. During the financial year 2005-06, the appellant received interest of ₹ 56,68,570 on loan amounting to USD 25,00,000 granted to PT Jindal Stainless, Indonesia. Interest is charged on the loan at the rate of 3 moths LIBOR plus 200 basis point. 38. In case of appellant, comparable transaction is available where appellant JSL has availed loan from financial institutions, viz., State Bank of India, at the rate of 3 months LIBOR + 170 basis point and from ICICI at 3 months LIBOR + 140 basis point. JSL had provided the loan to PT Jindal Stainless, Indonesia at higher rate, i.e., 3 months LIBOR + 200 basis points. Copy of loan agreement entered with SBI and ICIC Bank is placed at pages 100-102 of the paper book. 39. Also, the associated enterprise, viz., PT Jindal Stainless, Indonesia has obtained external commercial borrowings from unrelated parties for meeting its working capital requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. Therefore, economic purpose and substance of the debt claim or debt for which granting of credit calls for the lending rate would be determinative. The commercial expediency and related benefits of close connections with the above transaction, of course, would have a marginal significance and effect. The lending rates shown by the bankers as adopted by the learned Transfer Pricing Officer will not have any factoring of that consideration. Furthermore, the credit rating would also be an issue when the banks are lending to a foreign party. The learned assessing officer has also stated that adjustment for securities also required to be made and the bankers extending loan in foreign currency would be insisting on sufficient security which looking at the financial health of the subsidiary is not possible and therefore interest rates are required to be imputed which will take care of this aspect also. In the present case, the borrower is the subsidiary of the lender company and therefore we do not find it necessary to include the same in the interest cost. Therefore, the interest rate adopted by the learned Transfer Pricing Officer is further required to be reduced by this factor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for assessment year 2008 09 is partly allowed. 43. Respectfully following the decision of the co-ordinate bench [supra], we hold accordingly. 44. In so far as the adjustment on account of corporate guarantee is concerned, we find that this issue was also considered and decided by the co-ordinate bench in A.Ys 2007-08 and 2008-09 [supra]. The relevant findings of the order read as under: 67. The second contention raised before us is that benchmarking by the assessee should be accepted. The assessee has charged guarantee commission from AE @ 1.5 %. The ld TPO has bench marked it after obtaining the quotation from various banks, which are 2.68 %. He further added 2 % as mark up because of security and margin adjustments. The assesse substantiated the Alp stating that ING Vasya bank has given a quote of 1.5 % further similar is stated to be the quote of Indusind bank. The TPO has also taken the quotes of Axis Bank, Canara Bank, PNB, and ICICI bank, bank of Baroda, HDFC bank, and SBI. He arrived at Arithmetic mean of 2.68 %. In the present case the ld TPO has benchmarked the transaction by obtaining the quote from bankers and Hon Bombay High court in case of [2015-TII-16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to ₹ 2,37,000/-. This ground is partly allowed. 50. In the result, the appeal of the Revenue is partly allowed. ITA No. 6518/DEL/2016 [ Assessee s appeal] ITA No. 6539/DEL/2016 [Revenue s appeal] 51. The above cross appeals by the assessee and Revenue are preferred against the order of the CIT(A) - 37, New Delhi dated 21.10.2016 pertaining to A.Y. 2010-11. 52. First we will take up assessee s appeal. 53. First grievance relates to TP adjustment of ₹ 16,65,766/- on account of alleged difference in ALP of international transaction on export of goods. 54. In addition to the challenge to this TP adjustment, the assessee has also claimed benefit of +/- 5% range as provided under the proviso to section 92C(2) of the Act. 55. An identical issue has been considered by us hereinabove in ITA No. 6517/DEL/2016 [supra]. For our detailed discussion therein, we hold accordingly. 56. Second grievance related to rejection of set off of prior period expenses of ₹ 46.39 lakhs from prior period income. 57. Facts on record show that during the year under consideration, adjusted expenses related to earlier years amounting to ₹ 46.39 lakhs with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the result, the appeal of the assessee is allowed in part for statistical purposes. ITA No. 6539/DEL/2016 [Revenue s appeal] 66. First grievance relates to deletion of addition of ₹ 1,38,48,378/- on account of difference in interest charged on loan. 67. Similar issue has been considered and decided by us in ITA No. 6130/DEL/2016. For our detailed discussion therein, this ground is dismissed. 68. Second grievance relates to deletion of disallowance of ₹ 2,27,65,934/- made u/s 14A of the Act r.w.r 8D. 69. Facts on record show that the assessee has earned dividend income of ₹ 1,77,000/-. Thought this dividend was included by the assessee in its revised return of income, but the assessing officer, allowed exemption while framing the assessment order. However, invoking the provisions of section 14A of the Act r.w.r 8D, the Assessing Officer made disallowance of ₹ 2,27,65,934/- which was deleted by the ld. CIT(A). 70. Without going into the legal jargon in respect of relevant provisions of the Act, we are of the considered opinion that the disallowance should not exceed exempt income of ₹ 1,77,000/-. Accordingly, we direct the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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