TMI Blog2021 (4) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... -11 on which interest rate of LIBOR + 2.9% p.a was fixed. Loan of USD 40 million was disbursed by the assessee to its AE in the financial year 201-11. Further, during the year in question i.e period relevant to A.Y 2012-13 a further loan of USD 31.5 million was disbursed to the AE. TPO in the immediately preceding year i.e period relevant to A.Y 2011-12 had made a TP adjustment in respect of the loan of USD 40 million that was disbursed during the said preceding year and had determined the ALP of the interest charged by the assessee on the said loan at 6.17% p.a. DRP had vide its order for A.Y 2011-12 held that the interest charged by the assessee on the loan advanced to its AE was at arm s length. Now when DRP in the case of the assessee for A.Y 2011-12 had held that the interest charged by the assessee on the loan advanced to its AE at LIBOR + 2.9% was at arm s length, therefore, there would be no justification in holding the same as not being at arm s length during the year in question i.e A.Y 2012-13. Also, the DRP in the assessee s case for A.Y 2010-11 had held that the interest rate of LIBOR + 300 basis points that was charged by the assessee on a loan of USD 4 million ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we herein direct the A.O/TPO to vacate the transfer pricing adjustment of ₹ 62,23,256/- made towards notional interest. The Grounds of appeal nos. 12 to 14 are allowed Addition u/s 14A r.w.r. 8D - assessee had suo motto offered a disallowance u/s 14A - HELD THAT:- As the fact situation in the case of the assessee before us remains the same as was there before the Tribunal in the assessee s case for A.Y 2008-09 A.Y 2009-10, therefore, for the sake of consistency and in all fairness we herein on the same terms set-aside the matter to the file of the A.O for the purpose of readjudicating the issue afresh in light of the judgment of the Hon ble Apex Court in the case of Maxopp Investment Ltd . [ 2018 (3) TMI 805 - SUPREME COURT] . Computation of interest u/s 234C - interest for deferment of advance tax is to be levied on the basis of the tax due on the returned income - HELD THAT:- We concur with the claim of the ld. A.R that the interest under Sec. 234C is to be computed on the tax due on the returned income i.e the tax chargeable on the total income declared in the return of income furnished by the assessee for the year in question, as reduced by the amounts conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Panel (DRP) erred in holding that the transaction of giving financial guarantee by the Appellant on behalf of its Associated Enterprises (AEs) was an international transaction under Section 92B of the Act. (2). The AO / TPO / DRP erred in determining the Arm's Length Price of the financial guarantees given by the Appellant on behalf of its AEs @ 2% per annum. (3). The AO / TPO / DRP erred in making a transfer pricing adjustment of ₹ 28,69,70,745/-on account of guarantee commission. (4). The AO /TPO / DRP failed to appreciate that giving of financial guarantees by the Appellant on behalf of its subsidiaries was a shareholder activity for which no charge is required. (5). The AO / TPO / DRP erred in law and in facts in rejecting the benchmarking analysis undertaken by the Appellant in respect of guarantee commission in its transfer pricing documentation. (6). Without prejudice to Ground Nos. 1 to 5, the Assessing Officer / Transfer Pricing Officer erred in computing the arm's length price of the financial guarantees given by the Appellant in an arbitrary manner. (7). Without prejudice to Ground Nos. 1 to 6, the Appellant submits it should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds of Appeal before or at the time of hearing of the Appeal, as they may be advised from time to time. 2. Briefly stated, the assessee company which is engaged in the business of owning, operating and charter hiring of supply vessels, tugs, barges, rigs and all types of vessels related to offshore services and undertaking activities related to drilling including deep water drilling and shipping related activities had e-filed its return of income for A.Y 2012-13 on 28.11.2012, declaring a total income of ₹ 102,21,04,981/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. Observing that the assessee during the year in question had entered into international transactions with its associated enterprises (for short AEs ) exceeding the prescribed limit of ₹ 15 crore, the A.O, thus made a reference to the Transfer Pricing Officer (for short TPO ) for determining the Arm s Length Price (for short ALP ) of the said transactions. TPO vide his order passed under Sec. 92CA(3), dated 29.01.2016 made an upward adjustme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed the respective objections as were raised before it. 6. After receiving the order passed by the DRP under Sec. 144C(5), dated 29.12.2016, the A.O taking cognizance of the fact that pursuant to rejection of all the objections that were raised by the assessee before the DRP the draft assessment order passed by him had remained undisturbed, therein assessed the income of the assessee company vide his order passed under Sec. 143(3) r.w.s 144C(13), dated 06.01.2017 at ₹ 132,70,76,760/-. 7. Aggrieved, the assessee has assailed the assessment framed by the A.O under Sec. 143(3) r.w.s 144C(13), dated 06.01.2017 in appeal before us. The Ld. Authorised Representative (for short A.R ) for the assessee at the very outset of the hearing of the appeal took us through the respective issues which were being assailed in the present appeal. Ld. A.R had challenged the TP adjustment of ₹ 28,69,70,745/- that was made by the A.O/TPO as regards the corporate guarantee that was given by the assessee to foreign banks on behalf of its AEs. Elaborating on the facts therein involved, it was submitted by the ld. A.R that financial guarantees given by the assessee company to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks. Accordingly, the TPO backed by his aforesaid conviction, in substance, without adopting any specified method for benchmarking the transaction of providing of guarantee by the assessee to its foreign AEs had on an ad hoc basis took the ALP of the guarantee fees at 2% p.a and determined the same at ₹ 36,66,16,120/-. As the assessee had made a suo motto adjustment of ₹ 7,96,45,375/- i.e @0.43% thus, the TPO made an upward adjustment of ₹ 28,69,70,745/- [₹ 36,66,16,120/- (-) ₹ 7,96,45,375/-]. Ld. A.R assailed the determination of the ALP of the financial guarantee that was provided by the assessee to the banks in order to facilitate raising of loans by its AEs. It was submitted by the ld. A.R that the TPO had grossly erred in law in rejecting the Internal CUP that was adopted by the assessee for benchmarking the transaction of providing of financial guarantee by the assessee to the foreign banks for facilitating raising of loans by its foreign AEs. It was further submitted by the ld. A.R that the TPO had erred in law by taking the ALP of the transaction of providing financial guarantees to the banks on an ad hoc basis at 2% p.a i.e without adopting any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable on record, as well as considered the judicial pronouncements that have been pressed into service by the assessee s counsel to drive home his claim. As is discernible from the orders of the lower authorities, corporate guarantees were given by the assessee company to the foreign banks in order to facilitate raising of loans by its AEs viz, Greatship Global Energy Services Pte. Ltd; and Greatship Offshore Services Pte. Ltd., both Singapore based concerns; from DnB Nor Bank, Singapore; Bank Of Nova Scotia, Singapore; and ABN Amro Bank. Although the assessee had not charged any guarantee fees as per its books of accounts, however, in Form 3CEB it had taken the ALP of guarantee fees at 0.43% of the amount of loan and had computed the ALP of the corporate guarantee given to the banks on behalf of its AEs, viz. GGOS and GGES at ₹ 2,57,96,937/- and ₹ 5,38,48,438/-, respectively. Accordingly, the assessee had made a suo-motto adjustment of ₹ 7,96,45,375/- w.r.t the transaction of providing corporate guarantee to the banks in order to facilitate raising of loans by its AEs. As noticed by us hereinabove, the assessee had benchmarked the transaction of providing guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the foreign banks for facilitating raising of loans by its AEs. Observing, that the guarantee fees rates charged by the banks to Indian companies varied from 1.10% to 3%, the TPO had adopted the same as a yard stick and had concluded that the range of corporate guarantee fee for foreign based transactions would conservatively be in the range of 1.5% to 3.5%. As such, in the backdrop of his aforesaid observations that the TPO had estimated the corporate guarantee fee at 2% of the actual borrowed capital. In our considered view the very basis adopted by the TPO for determining the ALP of the corporate guarantee i.e guarantee fees rates charged by the banks to Indian companies is inconsistent with the ratio laid down by the Hon ble High Court of Bombay in the case of CIT Vs. Everest Kanto Cylinders Ltd. (2015) 378 ITR 57 (Bom) . In its aforesaid order, it was held by the Hon ble High Court that the considerations which apply for issuance of corporate guarantee were distinct and separate from that of guarantee provided by the banks and, therefore, the two transactions were incomparable. In fact, involving identical facts the Tribunal in the assessee s own case for A.Y 2008- 09, ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early inconsistent with the ratio laid down by the Hon ble Bombay High Court in the case of Everest Kanto Cylinder Ltd. (supra). Notably, in the case of Everest Kanto Cylinder Ltd. (supra), the dispute was relating to the adjustment made by the TPO in the matter of Guarantee commission earned for providing a Corporate Guarantee to the Bank in connection with the borrowings made by the AE of the assessee therein. The TPO determined the arm s length price of such transaction based on the instance of commercial banks providing Guarantee on behalf of their clients. The Hon ble High Court held that the considerations which apply for issuance of Corporate Guarantee were distinct and separate from that of Guarantee provided by the banks and, therefore, the two transactions were incomparable. In our considered opinion, similar parity of reasoning is applicable in the present case too because the considerations which weigh for raising of bonds, that too in Indian market, are quite distinct and incomparable with the instance of providing of Corporate Guarantee to a bank abroad in connection with raising of loan from such bank by the AE of assessee outside India. Therefore, in our considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk guarantee, as they are easily encashable in the event of default as in comparison to corporate guarantee provided by an assessee company to a bank for facilitating raising of loan by its AE. Accordingly, we are of the considered view that insofar the adequacy of the ALP of the corporate guarantee fees determined by the assessee at 0.43% is concerned, the same in the backdrop of the aforesaid facts cannot be called in question. Apart from that, we find that it was also the claim of the assessee before the lower authorities that Kotak Mahindra Bank (as per its sanction letter) had expressed its willingness to give guarantee on behalf of the AEs at a commission rate of 0.40% p.a/0.50% p.a. In the backdrop of the aforesaid fact, we find substantial force in the claim of the ld. A.R that the aforesaid credit sanction letter too would constitute a CUP for benchmarking the transaction of providing of corporate guarantee by the assessee to the banks for facilitating raising of loans by its AEs. Be that as it may, the adequacy of the ALP of corporate guarantee fee at 0.43% can also safely be gathered by drawing support from the following judicial pronouncements as had been relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of our aforesaid observations. 11. We shall now deal with the grievance of the assessee that the A.O/TPO/DRP had erred in holding that the interest charged by the assessee at the rate of LIBOR + 2.9% per annum in respect of loan of USD 71.5 million advanced to its AE, viz. Greatship Global Holdings Ltd., Mauritius was not at arm s length. Briefly stated, the assessee had advanced interest bearing loans to its various AE s, as under : (A). Greatship Global Holdings Ltd : Date of disbursement Date Principal amount Rate LIBOR + 2.9% Period ended No. of days Interest (USD) Ex. Rate Interest (Rs.) 22.02.2011 01.04.2011 01.10.2011 22.02.2012 4,00,00,000 4,00,00,000 4,00,00,000 0.0369275 0.0369275 0.0396605 30.09.2011 21.02.2012 31.03.2012 183 144 39 7,38,550 5,81,154 1,69,465 45.88 49.21 49.21 3,40,68,228 2,85,98,593 83,39 03.11.2011 03.11.2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ean of the interest rate that was charged by the banks in respect of the foreign currency loans availed by it. Such arithmetic mean of the interest rates charged by the banks in respect of the foreign currency loans availed by the assessee worked out at LIBOR + 1.829%. As the assessee had advanced the loans to its AEs at LIBOR + 2.9% and LIBOR + 3% thus the interest charged on the said respective loans was held by the assessee to be at arm s length. However, the Internal CUP adopted by the assessee for benchmarking the interest charged on the loans advanced to its AEs did not find favour with the TPO. It was observed by the TPO that all the foreign currency loans which had been used as comparable by the assessee were fully secured upto 130% of the value of loan alongwith mortgage of the ship. It was further observed by the TPO that the mortgage, legal, documentation, insurance and other charges as regards the loans availed by the assessee were paid by it. Also, it was observed by the TPO that not only penal interest was provided for in case of default of interest by the assessee, but the borrower was also obligated to comply with certain other requirements like maintaining of cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company had full control over the said AE and consequently also on the repayment of loan and interest thereon; (iv). that the benchmarking carried out by the assessee of the interest charged on the loan advanced to its AE, viz. GGHL was accepted by the DRP in A.Y 2011-12; and (v). that the comparables selected by the TPO being financially inferior in terms of their balance sheets were thus incomparable. On the basis of the assessee s objection that the loan to the aforesaid AE, viz. GGHL, Mauritius was advanced in the financial year 2010-11 and not in financial year 2011-12 the TPO carried out fresh search on www.bloomberg.com and on the basis of comparables for the financial year 2010-11 determined the ALP of the interest charged on loans at LIBOR + 3.32%. Accordingly, the TPO reworked out the ALP of the interest on the loans advanced by the assessee to its aforesaid AE, viz. GGHL, Mauritius at ₹ 9,87,60,852/- and made a consequential TP adjustment of ₹ 97,39,903/-. Objection filed by the assessee as regards the TP adjustment w.r.t interest on loan advanced to its AE, viz. GGHL, Mauritius, did not find favour with the DRP. It was observed by the panel that the Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparables selected by the TPO for benchmarking the interest charged on the loan advanced to its AE, viz. GGHL, Mauritius unlike the assessee were all non-indian companies. It was submitted by the ld. A.R that the DRP in the assessee s own case for the immediately preceding year i.e A.Y 2011-12 had held the interest charged by the assessee on the loan advanced to its AE, viz. GGHL, Mauritius at LIBOR + 2.9% p.a at arm s length. Elaborating on his aforesaid contention, it was submitted by the ld. A.R that the board of directors of the assessee company had sanctioned a loan of USD 75 million in the immediately preceding year i.e financial year 2010-11 on which the interest rate of LIBOR + 2.9% p.a was fixed. Out of the aforesaid loan an amount of USD 40 million was disbursed by the assessee to its AE in the year of sanction itself. Further, during the year in question i.e financial year 2011-12 a further loan of 31.5 million was disbursed by the assessee to its AE. It was submitted by the ld. A.R that the TPO in the immediately preceding year i.e the period relevant to A.Y 2011-12 had made a transfer pricing adjustment in respect of the loan of USD 40 million that was advanced to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO had erred in applying the external CUP when the Internal CUP was therein available. 13. Per contra, the ld. D.R relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the Internal CUP i.e arithmetic mean of the interest paid by the assessee on its foreign currency loans was not found to be a good comparable for benchmarking the interest charged by the assessee on the loan advanced to its AE thus, the TPO had rightly applied the external CUP for determining the ALP of the same. 14. We have in the backdrop of the contentions advanced by the authorised representatives for both the parties and perusing the orders of the lower authorities in context thereto, deliberated at length on the issue pertaining to benchmarking of the interest charged by the assessee on the loan advanced by it to its AE, viz. GGHL, Mauritius. Succinctly stated, the assessee had charged interest of ₹ 8,90,20,949/- from its AE, viz. Greatship Global Holdings Ltd. (for short GGHL ) at the rate of LIBOR plus 2.9% mark-up. As noticed by us hereinabove, the loan to GGHL was sanctioned in the immediately preceding year i.e F.Y 2010-11 and was disbursed in parts in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 15. Before us, it is the contention of the ld. A.R that as the DRP in the assessee s own case for the immediately preceding year i.e A.Y 2011-12 had held the interest charged by the assessee at LIBOR + 2.9% p.a on the loan in question as at arm s length, therefore, in the absence of any shift in facts during the year in question there was no justification on the part of the TPO/DRP to have held the same as not being at arm s length. We have deliberated at length on the issue in question i.e transfer pricing adjustment carried out by the TPO/DRP as regards the interest charged by the assessee on the loan advanced to its AE, viz. GGHL, Mauritius. In our considered view, the benchmarking of the interest charged by the assessee on the loan advanced to its AE, viz. GGHL by applying internal CUP i.e arithmetic mean of the interest rates that were charged by the banks as regards the foreign currency loans availed by the assessee could not have been rejected by the TPO/DRP. Our aforesaid view is fortified by the order passed by the Tribunal while disposing off the cross-appeals in the case of the holding company of the assessee, viz. The Great Eastern Shipping Company Limited, ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd had determined the ALP of the interest charged by the assessee on the said loan at 6.17% p.a. However, the DRP had vide its order for A.Y 2011-12 held that the interest charged by the assessee on the loan advanced to its AE was at arm s length. In our considered view, now when DRP in the case of the assessee for A.Y 2011-12 had held that the interest charged by the assessee on the loan advanced to its AE at LIBOR + 2.9% was at arm s length, therefore, there would be no justification in holding the same as not being at arm s length during the year in question i.e A.Y 2012-13. Also, the DRP in the assessee s case for A.Y 2010-11 had held that the interest rate of LIBOR + 300 basis points that was charged by the assessee on a loan of USD 4 million given to its AE, viz. GGES (and repaid) as being at arm s length. In the backdrop of the aforesaid facts, we find that the DRP had consistently been holding the interest rate of LIBOR + 2.9% / 3% charged by the assessee on the loans advanced to its AEs as at arm s length. On the basis of our aforesaid observations, we uphold the Internal CUP applied by the assessee for benchmarking the interest charged on the loans advanced to its A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to SGD 3,84,78,857 to SGD 4,10,44,114]. As the assessee had paid only 10% of the cost of the vessel, therefore, it was entitled to recover USD 30,00,000 to USD 32,00,000. However, the assesses actually recovered USD 38,81,105 i.e excess of USD 6,81,105 [USD 38,81,105 (minus) USD 32,00,000 ] over the value of the vessel i.e approximately 21% more than the market price. In the backdrop of the aforesaid facts, it was the claim of the assessee that the international transaction of transfer of the under construction vessel was at arm s length. However, the TPO observed that though the assessee had made the aforesaid investment 3 years back but it had recovered only the cost of its investment from the AE. Observing, that the assessee had not acted in a manner it would had otherwise as per its prudence acted in case the transaction would have been with a third party, the TPO, was of the view that the transaction in question was akin to keeping the funds idle for three years and loosing the opportunity cost . Backed by his aforesaid observation, the TPO computed the ALP of the transaction by computing the price of a loan given to the aforesaid AE, viz. GGOS, Singapore for a period of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e did not find favour with the DRP. After referring to the Ship building Contract between Drydocks World Singapore Pte. Ltd. and the assessee company, the DRP, observed, that as the payment made by the assessee to the shipbuilders was in the nature of an advance only thus, in the event of rescission of the contract the shipbuilders were only required to pay interest on the amount of such advance at the rates specified therein. Backed by its aforesaid observation, the DRP was of the view that in order to arrive at the arm s length price of the transfer of the under construction vessel by the assessee to its AE by way of a tripartite novation agreement, the TPO was correct in treating the monies spent on the contract as a loan and therein computing the interest thereon. Accordingly, the DRP upheld the determination of the ALP of the notional interest of ₹ 62,23,256/- which as per the TPO the assessee ought to have charged on the aforesaid impugned loan that was advanced to its AE, viz. viz. GGOS, Singapore. After receiving the order passed by the DRP under Sec. 144C(5), dated 29.12.2016 the A.O vide his order passed under Sec. 143(3) r.w.s 144C(13), dated 06.01.2017 inter ali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... op of the aforesaid facts the TPO/DRP had rightly worked out the ALP of the notional interest of ₹ 62,23,256/- which the assessee ought to have charged from its AE, viz. GGOS, Singapore for providing an advance to purchase the under construction vessel.. 20. We have heard the authorized representatives for both the parties in context of the aforesaid issue in question i.e determining of the ALP of the notional interest that the assessee ought to have charged from its AE, viz. GGOS, Singapore. Undisputedly, it is not the case of the revenue that the form of the transaction of sale of vessel was different from its substance. In fact the authenticity of the transaction of transfer of vessel by the assessee company to its AE, viz. GGOS, Singapore had at no stage been doubted by the revenue. In our considered view, as claimed by the ld. A.R, and rightly so, it is not open to the revenue authorities to re-characterize the transaction unless it was found to be a sham or bogus transaction. Such recharacterization of a transaction can be done by the revenue authorities only when the transactions are found to be substantially at variance with the stated form. Our aforesaid view is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . An example of this circumstance would be a sale under a long-term contract, for a lump sum payment, of unlimited entitlement to the intellectual property rights arising as a result of future research for the term of the contract (as previously indicated in paragraph 1.10). While in this case it may be proper to respect the transaction as a transfer of commercial property, it would nevertheless be appropriate for a tax administration to conform the terms of that transfer in their entirety (and not simply by reference to pricing) to those that might reasonably have been expected had the transfer of property been the subject of a transaction involving independent enterprises. Thus, in the case described above it might be appropriate for the tax administration, for example, to adjust the conditions of the agreement in a commercially rational manner as a continuing research agreement. 1.38 In both sets of circumstances described above, the character of the transaction may derive from the relationship between the parties rather than be determined by normal commercial conditions as may have been structured by the taxpayer to avoid or minimize tax. In such cases, the totality of its t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, viz. (i) article downloaded from the website www.gcaptain.com, an online maritime magazine which captured the downturn faced by the ship builders globally during the year in question; and (ii). valuation report from a reputed independent valuer/ship broker, viz. Offshore Shipbrokers, London, wherein the vessel under consideration was valued at lower than its cost of construction. Be that as it may, we find that it is a matter of fact borne from the records that the assessee had transferred the vessel to its AE, viz. GGOS, Singapore at a price of USD 38,81,105 which is more by USD 8,81,105 to USD 6,81,105 compared to its market price at the relevant point of time. Although the TPO had made a TP adjustment by adding a mark-up of 3.21% on the cost as a notional gain, however, he had erred in failing to appreciate that as the assessee had recovered 29.37% to 21.28% more than the market price thus, no such TP adjustment was called for in the hands of the assessee. As regards the observation of the TPO that the assessee had lost the Opportunity cost by not investing the amount and earning a decent interest on the same, we are afraid the same does not find favour with us. In our cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount of ₹ 22,63,129/- under Sec. 14A of the Act, the A.O, therefore, made a further disallowance of ₹ 20,37,871/-[₹ 43,01,000/- (-) ₹ 22,63,129/-]. 22. Aggrieved, the assessee assailed the disallowance u/s 14A proposed by the A.O vide his draft assessment order passed under Sec. 144C(1) r.w.s 143(3), dated 11.03.2016 before the DRP. It was observed by the DRP that the assessee had taken only the expenses of the treasurary department for computing the disallowance under Sec.14A. Observing that the top management was involved in making the investment decisions, and also the fact that no part of the administrative overheads had been attributed by the assessee towards earning of the exempt dividend income, the DRP was of the view that the suo-motto disallowance computed by the assessee under Sec. 14A was not correct. Accordingly, the DRP finding no infirmity in the view taken by the A.O who had worked out the disallowance under Sec. 14A as per the procedure contemplated in Rule 8D of the Income-tax Rules, 1962, upheld the same. After receiving the order passed by the DRP under Sec. 144C(5), dated 29.12.2016, the A.O vide his order passed under Sec. 143( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1703/Mum/2014, dated 21.06.2019 for A.Y 2008- 09 and A.Y 2009-10 had set-aside the matter to the file of the A.O for the purpose of re-adjudicating the disallowance afresh in the light of the law laid down by the Hon ble Apex Court in the case of Maxopp Investment Ltd. Vs. CIT (2018) 402 ITR 640 (SC) . 24. Per contra, the ld. D.R relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the A.O had worked out the disallowance as per the mandate of Sec. 14A r.w Rule 8D, therefore, no infirmity did emerge therefrom. 25. We have heard the authorised representatives for both the parties in context of the aforesaid issue pertaining to the sustainability of disallowance computed by the A.O under Sec. 14A r.w Rule 8D. As observed by us hereinabove, the assessee had suo motto offered a disallowance u/s 14A of ₹ 22,63,129/-. Basis of computing the aforesaid disallowance by the assessee was appropriation of the treasury expenses on a pro-rata basis i.e percentage of exempt income to the total income from its investments, which, however, was rejected by the A.O. It is the claim of the ld. A.R that as the A.O while rejecting the suo-motto disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... templated in Sec. 14A r.w Rule 8D, that on appeal the Tribunal vide its consolidated order passed in ITA No. 7673/Mum/2012 and ITA No. 1703/Mum/2014, dated 21.06.2019 had set-aside the matter to the file of the A.O for the purpose of re-adjudicating the disallowance afresh in light of the law laid down by the Hon ble Apex Court in the case of Maxopp Investment Ltd. Vs. CIT (2018) 402 ITR 640 (SC) . As the fact situation in the case of the assessee before us remains the same as was there before the Tribunal in the assessee s case for A.Y 2008-09 A.Y 2009-10, therefore, for the sake of consistency and in all fairness we herein on the same terms set-aside the matter to the file of the A.O for the purpose of readjudicating the issue afresh in light of the judgment of the Hon ble Apex Court in the case of Maxopp Investment Ltd. Vs. CIT (2018) 402 ITR 640 (SC) . Needless to say, the A.O shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate its claim that the suo-motto disallowance under Sec. 14A so offered by it in its return of income is in order. The Grounds of appeal N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay simple interest at the rate of one per cent, on the amount of the shortfall from the tax due on the returned income: Provided that if the advance tax paid by the assessee on the current income, on or before the 15th day of June or the 15th day of September, is not less than twelve per cent, or, as the case may be, thirty-six per cent, of the tax due on the returned income, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates;] (b) an eligible assessee in respect of the eligible business referred to in section 44AD, who is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by the assessee on its current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent, on the amount of the shortfall from the tax due on the returned income:] Provided that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of underestimate or failure to estimate- (a) the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 90A on account of tax paid in a specified territory outside India referred to in that section; (iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and (v) any tax credit allowed to be set off in accordance with the provisions of section 115JAA. (2) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989, and subsequent assessment years.] On a perusal of the aforesaid statutory provision, we find that the same therein contemplates levy of interest for deferment of advance tax by the assessee. For the purpose of quantification of the interest therein provided, the aforesaid statutory provision clearly envisages levy of such interest on the tax due on the returned income . In order to dispel all doubts, the Explanation to Sec. 234C(1) therein defines the term tax due on the returned income as used in the said section, as under: Explanation.- In this section, tax due on the returned income means the tax chargeable on the total income declared in the return of income furnished by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passing the order under section 92CA(3) in gross violation of principle of natural justice. (2) The TPO erred in not confronting the Appellant with the information / material collated by him under section 133(6) of the Income-tax Act and upon which he has relied upon to make an adjustment in respect of financial guarantee commission. (3) The Assessing Officer (AO) / Transfer Pricing Officer (TPO) / Dispute Resolution Panel (DRP) erred in holding that the transaction of giving financial guarantee by the Appellant on behalf of its Associated Enterprises (AEs) was an international transaction under Section 92B of the Act. (4) The AO / TPO / DRP erred in determining the Arm's Length Price of the financial guarantees given by the Appellant on behalf of its AEs @ 1.25% per annum. (5). The AO / TPO / DRP erred in making a transfer pricing adjustment of ₹ 17,59,03,276/- on account of guarantee commission. (6). The AO / TPO / DRP failed to appreciate that giving of financial guarantees by the Appellant on behalf of its subsidiaries was a shareholder activity for which no charge is required. (7). The AO / TPO / DRP erred in law and in facts in rejecting the ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Sec. 143(2) of the Act. 32. Observing that the assessee during the year in question had carried out international transactions exceeding the prescribed limit of ₹ 15 crore, the A.O made a reference to the TPO under Sec. 92CA(1) of the Act for determining the ALP of the said transactions. TPO vide his order passed under Sec. 92CA(3), dated 31.10.2017 made an upward adjustment of ₹ 36,85,04,867/- which included adjustments on account of viz. (a) interest on loan to AE: ₹ 32,85,759/-; and (b) guarantee commission: ₹ 36,51,19,108/-. 33. The A.O after receiving the order passed by the TPO under Sec. 92CA(3), dated 31.10.2016 therein vide his draft assessment order passed under Sec. 143(3) r.w.s 144C(5), dated 23.11.2017 proposed to make a TP addition under Sec. 92CA(3) of ₹ 36,85,04,867/-. Apart from that, it was observed by the A.O that the assessee company which during the year in question was in receipt of exempt dividend income of ₹ 1,05,08,214/- had by applying a self-devised formula of its own i.e percentage of exempt income to total income from investments suo-motto worked out the disallowance under Sec.14A at ₹ 10,68,219/-. Obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . for facilitating raising of loans by its AEs, viz. GGOS, Singapore and GGES, Singapore. It was submitted by the ld. A.R that though the assessee had not charged any guarantee fees as per its books of accounts, however, in Form 3CEB the assessee taking the ALP of guarantee fees at 0.49% of the loan amount had therein computed the ALP of the financial guarantee given to the banks on behalf of its AEs at ₹ 11,25,35,496/-. It was submitted by the ld. A.R that the assessee had benchmarked the guarantee fees on the basis of an Internal CUP i.e as per the average of the guarantee fees that was paid by the assessee to Yes Bank and Kotak Mahindra Bank for standing guarantee on its behalf in case of third parties. However, the Internal CUP applied by the assessee for benchmarking the transaction of providing guarantee fees was rejected by the TPO inter alia for the reason that the credit rating of the assessee was significantly different from its AEs. In turn, the TPO backed by his said conviction therein on the basis of the financial guarantee charged by various financial institutions determined the ALP of the financial guarantee given by the assessee to the banks to facilitate rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st charged by the assessee at the rate of LIBOR + 2.9% per annum in respect of the loan of USD 71.5 million given to its AE, viz. Greatship Global Holdings Ltd., Mauritius, was not at arm s length. Briefly stated, the assessee had sanctioned a loan of USD 75 million to its AE, viz. Greatship Global Holdings Ltd., Mauritius in the immediately preceding financial year 2010-11 and partly in financial year 2011-12. The assessee had actually given a loan of USD 71.5 million (as against sanctioned amount of USD 75 million). The AE had repaid USD 58.5 million during the financial year 2012-13 and therefore the outstanding loan as on 31.03.2014 was USD 13 million. The assessee company had charged interest at the rate of LIBOR + 2.9% p.a. on the loan advanced to its foreign AE, viz. GGHL, Mauritius. The assessee had arrived at the ALP of the interest rate by taking the arithmetic mean of the interest rate paid by the assessee to various banks on its foreign currency loans, viz. LIBOR + 1.829% p.a. However, the Internal CUP adopted by the assessee for benchmarking the interest charged on the loans advanced to its AEs did not find favour with the TPO and was rejected by him. Thereafter, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y contemplated in Rule 8D of the Income tax Rules, 1962, the A.O reworked out the disallowance under Sec. 14A r.w. Rule 8D at ₹ 25,28,937/-. Accordingly, the A.O considering the suo moto disallowance that was already offered by the assessee in its return of income, therein made a further disallowance of ₹ 14,60,718/- [₹ 25,28,937/- (-) ₹ 10,68,219/-]. We have given a thoughtful consideration to the aforesaid issue pertaining to sustainability of the disallowance worked out by the A.O under Sec. 14A r.w Rule 8D at ₹ 25,28,937/-, which as observed by us hereinabove had been assailed by the assessee on the ground that the A.O while dislodging the suo-motto disallowance that was offered by the assessee under Sec. 14A in its return of income for the year in question had principally erred in not recording an objective satisfaction that the disallowance offered by the assessee was not correct. As a similar claim had been raised by the assessee in its appeal for the immediately preceding year i.e A.Y 2012-13 before us thus, in terms of our reasoning and observations therein recorded, we on the same terms restore the issue to the file of the A.O for fresh adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
