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TMI Blog2023 (2) TMI 504X X X X Extracts X X X X X X X X Extracts X X X X ..... cing Officer ('TPO') /learned Assessing Officer ('AO') / Hon'ble Dispute Resolution Panel ('DRP') erred in disregarding the transfer pricing study report maintained by the Appellant as per Section 92D of the Act read with Rule 10D of the Income tax Rules, 1962 and the various submissions made by the Appellant. 2. Provision of Corporate Guarantee 2.1 On the facts and in circumstances of the case and in law, the learned AO and the learned TPO erred in concluding and the Hon'ble DRP erred in confirming the adjustment of Rs. 8,58,93,797/- relating to the international transaction of provision of Corporate Guarantee by the Appellant to its associated enterprises by determining its arm's length price at Rs. 8,58,93, 797/- instead of NIL. 2.2 On the facts and in circumstances of the case and in law, the learned AO / the learned TPO / Hon'ble DRP erred in rejecting the contention of the Appellant that Corporate Guarantee provided by the Appellant to its associated enterprise is a shareholder activity. 2.3 On the facts and in circumstances of the case and in law, the learned AO / the learned TPO / Hon'ble DRP erred in determining the arm's length price of the Corporate Guarantee pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learnedCIT(A) for AY 2005-06 deciding the same issue in favour of the Appellant subsequent to the order of learned CIT(A) for AY 2008-09. 6. Rent and Interest Free Deposits paid to Related Parties 6.1 On the facts and in the circumstances of the case and in law, the learned AO/the Hon'ble DRP have erred in disallowing the interest of Rs. 15,42,361/- calculated at the ad-hoc rate of 12% on the interest free security deposits given to related parties in relation to various properties taken on lease in the past years by merely following the order of learned CIT(A) for AY 2008-09 and ignoring the various arguments of the Appellant, including order of learned C1T(A) for AY 2005-06 deciding the same issue in favour of the Appellant subsequent to the order of learned CIT(A) for AY 2008- 09. 7. Depreciation on Intangible Assets 7.1 On the facts and in the circumstances of the case and in law, the Ld. AO / the Hon'ble DRP have erred in disallowing the depreciation claimed by the Appellant at the rate of 25% amounting to Rs.91,00,069/- on intangible assets of Rs. 3,64.00,278/- under section 40(a)(i) of the Act. 8. Solar Renewable Energy Incentive 8.1 On the facts and in the circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,660, in respect of which weighted deduction was available and thus, difference of Rs.1,18,65,729 in weighted deduction as stated above was to be adjusted for excess disallowance of Rs.59,32,930 and balance amount of Rs.59,32,799 was to be disallowed as per the draft order dated 30 December 2016. The Appellant prays that the additions / disallowances made by the learned AO and TPO and upheld by the learned DRP be deleted. The Appellant craves leave to add, alter, amend and/or withdraw any of the grounds of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law." 3. Learned senior counsel does not press for the assessee's first and foremost ground stated to be general in nature. Rejected accordingly. 4. The assessee's ground nos.2 to 2.2 inter-alia challenge correctness of the learned lower authorities action making arms length price "ALP" adjustment of Rs.8,58,93,797/- relating international transaction of corporate guarantee given in favour of the overseas associate enterprises "AE's" in issue. 5. Mr.Pardiwala first of all proposes a pure legal question that such a corporate guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilpa Shetty Vs. ACIT [2018] 172 ITD 404 (Mum) in paragraphs 14 onwards that Chapter-X could not be invoked wherein no income chargeable to tax has arisen in assessee's case. Learned senior counsel further submitted that contrary to various other deeming fictions like section 50C, section 50D which pre-suppose even accrued or arisen or "assessable" consideration or section 115O etc envisaging "any addition" to already declared income, this anti avoidance Chapter would not apply in the given facts since the assessee had not charged any price at all for these corporate guarantees. And that such a course of action would amount to improvement in the provisions of the Act not sustainable in law as per Elphinstone Spinning Mills Company case 40 ITR 142 (SC). Learned Senior Counsel's last plea is that without prejudice to all the foregoing arguments, the impugned corporate guarantee adjustment @2% deserves to be reduced to 0.5% only in light of CIT Vs. Everest Kanto Cylinders Ltd., [2015] 328 ITR 57 (Bom). 9. The Revenue has placed strong reliance on lower authorities action making impugned adjustment. 10. We have given our thoughtful consideration to foregoing rival contentions and find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased its risk profile. The banks have refused to lend to the AE due to its weak financial health and, therefore, the direct borrowing by the assessee for back-to-back lending to its AE has severe costs for the assessee. Therefore, the TPO applied margin of 2% on the borrowings and added a sum of Rs.9,95,000/-. Looking into the facts of the case, we find that the A.E was not in a position to obtain the loan on its own because of it weak financial position and therefore such back to back arrangement was made. However in the process the assessee is exposed to considerable risk and therefore we are of the opinion that assessee needs to be compensated for the arrangement. Though in this case , the Assessee borrowed the money from UBS AG bank and on back-to-back basis entered into inter-company loan arrangement with Jain Irrigation Inc, USA i.e. AE. However the fact remains that loan is advanced to the A.E by the assessee. We have also taken note of the decisions of Hon. Mumbai High Court in the case of CIT vs Tata Autocomp Systems Ltd [TS-45-HC- 2015 (Bom)] and also considered the decision of Hon. Delhi High Court in the case of CIT vs Cotton Naturals (I) Pvt Ltd. [TS-117- HC-2015 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering this fact, the spread is taken at 5%, which will cover various risks related to tenure, amount, collateral and creditworthiness of the borrower and also service mark-up. The A.O. is, therefore, directed to apply LIBOR rate plus 5% as ALP for interest on loan borrowed by AE. The LIBOR rate to be applied in case the loan has been granted at a fixed rate for the entire tenure of loan is the LIBOR rate of the year in which loan was given. However, if the loan has been granted at floating/flexible rate of interest, the LIBOR rate to be applied is the LIBOR rate for the year under consideration. The A.O/TPO is to take action accordingly. This ground is adjudicated accordingly." 12. Learned senior counsel took us through the assessee's paper book at page 86 wherein the latter had claimed to have availed loans from third parties @4.5 to 5%; which in turn, stood advanced to the AE's @ 5 to 5.5%. Learned counsel's case is that these third parties are internal comparables in assessee's case in the very segment since involving "back to back" element qua loans availed and advances to AEs. The fact however remains this "back to back aspect" has nowhere been considered in detail either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as against that to non AE's weighing 116125 kgs only. It had further claimed to have offered discounts in the range of 20 to 30% of in general and 24 to 26 % in particular; based on volumes, and claimed before the learned lower authorities that the same are market related trends keeping in mind the huge overseas market tapped through AE's in large volumes. Learned senior counsel also referred to Rule 10B(1)(a)(ii) that such an adjustment is indeed permissible to eliminate the material facts of differences in order to controlled transaction and international transaction in issue. He further refers to OECD's transfer pricing guidelines ICAI guidance note to submit that the learned lower authorities have erred in law and on facts in comparing different product descriptions whilst adopting "CUP" method. Mr.Pardiwala contends that the assessee's stand all along is that there is no formal discount policy and that if the transactions net margin method "TNMM" is adopted, these transactions will be very much at arm's length only. He further referred to the assessee's AEs computation adopting such higher rates would indeed render them as loss making entities only.Mr.Pardiwala lastly contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us which gives any discretion to interfere with the impugned adjustment determined in light of "CUP" method already held as direct most appropriate method "MAM" in nature. We make it clear that this tribunal's decision Tecnimont ICB Pvt. Ltd. Vs. ACIT [2012] 138 itd 23 (Mumbai Trib) has settled the law that the price arrived at between two AE's themselves could hardly from an uncontrolled price for the purpose of determining ALP since not involving uncontrolled transactions. We follow the very reasoning herein as well to hold that the assessee could not claim its impugned volume based discounts to the AE's open market trends only since they form an uncontrolled transaction only. The assessee's last arguments based on UN's TP manual as well as ICAI guidelines and loss figures to AE's hardly form any material to reverse the impugned adjustment which has been computed after adopting "CUP" method only in accordance with Chapter-X of the Act which is in the nature of an anti avoidance provision (supra). We further wish to quote sec 92(3) of the Act wherein the legislature has made it clear that these Chapter-X's provision would not apply in the specified circumstances only whose scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming educational cess of Rs.36,16,123/- as an allowable deduction in light of the latest amendment in section 40(ii) and Explanation 3 therein inserted by Finance Act 2022 with retrospective effect from 01.04.2005. Rejected accordingly. 23. The assessee's 10th substantive ground challenges correctness of the learned lower authorities action treating its incentive receivables of Rs.10,70,209/- as per the Rajasthan Investment Promotion Scheme 2010 as a revenue receipt. The same admittedly found as in the nature of sales tax incentive only. We note in this factual backdrop that case law PCIT Vs. Nitin Spinners Ltd. [2021] 130 taxmann.com 402 (SC) has already upheld honourable Rajasthan high court's decision treating similar subsidy of sales tax as per the above scheme for the year 2003, as capital receipt in nature only. We thus adopt the very reasoning mutatis-mutandis to accept the assessee's instant 10th substantive ground. Ordered accordingly. 24. The assessee's 11th substantive ground challenges addition of Rs.5,18,50,000/- made by the learned lower authorities on account of difference between the stock figures submitted to bank authorities for hypothecation vis-à-vis th ..... 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