TMI Blog2021 (5) TMI 1059X X X X Extracts X X X X X X X X Extracts X X X X ..... d to any other Branch of HO section 44C of the Act is not applicable, hence ground no.1 raised by the Revenue is dismissed. Disallowance of interest paid by the Indian branches to HO/overseas branches and taxing interest received by HO/overseas branches from Indian branches made - Scope of provisions of Circular No.740 dated 17.07.1996 of CBDT and provisions contained u/s 9 of the Act - HELD THAT:- This issue is covered by the order passed by the Hon ble Delhi High Court in taxpayer s own case for AYs 2007-08 2008-09 [ 2014 (10) TMI 150 - ITAT DELHI] wherein issue appears to be covered against the Revenue by the decision of the Calcutta High Court in ABN Amro Bank [ 2010 (12) TMI 340 - CALCUTTA HIGH COURT] Addition of accrued deferred bank guarantee commission to the taxpayer from its HO/overseas branches - HELD THAT:- Coordinate Bench of the Tribunal in taxpayer s own case for AY 2007-08 [ 2014 (10) TMI 150 - ITAT DELHI] decided the issue in favour of the taxpayer by following the decision rendered by Hon ble Calcutta High Court in taxpayer s own case for AY 1995-96[ 1993 (5) TMI 172 - CALCUTTA HIGH COURT] wherein held that full commission though payable at the out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld. TPO/DRP, the margin of combined approach has been accepted at arm s length, hence addition made by the TPO is not sustainable and as such is ordered to be deleted. - ITA No.283/Del./2016 CO No.126/Del/2016 (in ITA No.283/Del./2016) - - - Dated:- 27-5-2021 - SHRI R.K. PANDA, ACCOUNTANT MEMBER and SHRI KULDIP SINGH, JUDICIAL MEMBER For the Assessee : Shri Nishant Takkar, Advocate For the Revenue : Ms. Meera Srivastava, CIT DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER : The aforesaid appeal filed by the Revenue and cross objections filed by the taxpayer/assessee are being disposed off by way of composite order to avoid repetition of discussion. 2. Appellant, Deputy Commissioner of Income-tax, Circle 1(1)(2), International Taxation, New Delhi (hereinafter referred to as the Revenue ) by filing the present appeal sought to set aside the impugned order dated 18.12.2015 passed by the Assessing Officer (AO) in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C (13) of the Income-tax Act, 1961 (for short the Act ) qua the assessment year 2011-12 on the grounds inter alia that :- 1. The DRP e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case, by not accepting the secondary analysis undertaken by the Respondent to determine the arm's length price of the impugned transaction wherein all the international transactions of the Respondent were aggregated and the arm's length price was determined using Transactional Net Margin Method ( TNMM ) as the most appropriate method using Operating profits / Total Assets as the profit level indicator. 3. The Hon'ble DRP has erred, in law and on the facts of the case, by not rejecting the erroneous comparable uncontrolled price data, obtained by Ld. TPO / Ld. AO by issuance of 133(6) notice which was used for computing the arm's length price of the impugned transaction. 4. Briefly stated the facts necessary for adjudication of the controversy at hand are : The Bank of Tokyo Mitsubishi UFJ Ltd. (BTMU India), the taxpayer is a non-resident company incorporated in Japan, engaged in wholesale banking operations, mainly catering to the requirements of Japan based corporate and individual clients. The taxpayer operates in India under the licence from the Reserve Bank of India (RBI) and is governed by Banking Regulation Act, 1949. The taxpayer is not sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged by BTMU India from some of its local customers were compared with the counter guarantee commission rates received by BTMU from its overseas branches/AEs. 7. However, the TPO proceeded to disagree with TP analysis made by the taxpayer to benchmark its international transactions to adopt the average bank guarantee rate at Arm s Length Price (ALP) and proposed an addition of Rs.10,43,55,168/- on this account. 8. AO made addition on account of Rs.24,56,85,915/- by way of disallowance of salary paid to expat employees. AO also made disallowance of Rs.7,69,92,545/- on account of interest paid by Indian branches to HO/overseas branches. AO further made addition of Rs.7,69,92,545/- on account of taxing interest received by HO/overseas branches from Indian branches and also made addition of Rs.98,33,728 on account of treatment in respect of deferred bank guarantee commission. 9. The taxpayer carried the matter before the ld. DRP by way of filing the objections who has deleted the addition of Rs.10,43,55,168/- on account of transfer pricing adjustment qua ALP of corporate guarantee. Ld. DRP also held that provisions of section 115JB of the Act relating to computing of book pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 262 ITR 55 (Bom.) where the Bombay High Court approved the view taken by the ITAT. The ITAT agreed that the expenses have been incurred wholly and exclusively by the Indian branch and therefore no part of these expenses can be allocated to any other branch of the HO and that there was no dispute with regard to the non-applicability of Section 44C of the Act. 10. This Court has perused the order of the Bombay High Court in Emirates Commercial (supra) where on identical facts, the issue was decided in favour of the Assessee. This order of the Bombay High Court has been affirmed by the Supreme Court by order dated 26th August 2008 in Commissioner of Income Tax v. M/s Emirates Commercial Bank Ltd., which in turn referred to an order of the same date in Commissioner of Income Tax. v. Deutsche Bank AG (CA No. 1544 of 2006). 11. In that view of the matter, this Court declines to frame a question on this issue. 14. So, following the order passed by Hon ble High Court discussed in preceding paras, the ld. DRP has rightly deleted the addition made by the AO by holding that expenses have been incurred wholly and exclusively by the Indian Branch and as no part of these expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order, the Calcutta High Court noted the fact that the Special Leave Petition preferred by the Revenue against the judgment of the Calcutta High Court in ABN Amro Bank(supra) was dismissed by the Supreme Court on 3rd August 2012. 15. Accordingly, this Court declines to frame any question on this issue of interest paid to the HO as well as the interest received from the Indian branches. Deferred bank guarantee commission. 18. So, we are of the considered view that ld. DRP has passed the impugned order by following the decision rendered by Hon ble Delhi High Court and order passed by the Tribunal in taxpayer s own case in earlier years, we find no ground to interfere the findings returned by the ld. DRP, hence grounds no.2 3 raised by the Revenue are dismissed. GROUNDS NO.4 5 OF ITA NO.283/DEL/2016 (REVENUE S APPEAL) 19. The Revenue have also challenged the deletion of addition by the ld. DRP on account of accrued deferred bank guarantee commission to the taxpayer from its HO/overseas branches and has also challenged the findings returned by the ld. DRP in not considering that the commission received is like a fee for issuing the guarantee and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar circumstances, it has been held that full commission though payable at the outset did not crystallize into perfect right to receive so far as unexpired period was concerned because the payability or receivability from the view of the assessee bank was counter-balanced by the refundability diluting the right to receive into a contingent right as regards unexpired period of the guarantee. The assessee clarified that FEDAI Guidelines places an obligation on the assessee to refund the proportionate commission for the unexpired period. Therefore, respectfully following the decision of Hon'ble Kolkata High Court in assessee's own case, this ground is allowed. 23. This issue was agitated by the Revenue before the Hon ble Delhi High Court in the judgment (supra) but Hon ble High Court has confirmed the findings returned by the Tribunal on this issue by returning following findings :- 16. This issue appears to be covered in favour of the Assessee by the decision of the Calcutta High Court in CIT v. Bank of Tokyo Ltd. (1993) 71 Taxman 85 (Cal). 17. Accordingly, this Court declines to frame any question on this issue. 24. So, following the decision rendere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002. In all these decisions it has been held that since the accounts were not prepared as per the provisions of part II of schedule VI of Companies Act and the accounts were not laid before the Annual General Meeting in accordance with the provisions of section 210 of the Companies Act as per the requirements of sub-section (2) of section 115JB, therefore, the provisions of section 115JB were not applicable. Explanation 3 has been inserted by the Finance Act, 2012 w.e.f. 01/04/2013 as per which now the book profits can be computed on the basis of accounts prepared under the governing Act to such company. 73.1 Ld. Counsel pointed out that in the case of State Bank of Hyderabad (supra) it has been held that this amendment is prospective and, therefore, it is not applicable for the present assessment year. 74. Ld. CIT(DR) however, pointed out that Tribunal has not considered in detail the import of this amendment and has simply on the basis of date of insertion has observed that it is prospective. He has pointed out that in the case of State Bank of Hyderabad primarily the decision in the case of Maharashtra State Electricity Board has been followed and Explanation 3 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the power and infrastructure sector will remain exempt from the levy of MAT. This provision was brought in to bring within the tax-net the zero tax companies. In Finance Bill, 2000, the Hon'ble Finance Minister, inter alia, proposed that the MAT be levied at the revised rate of 7.5% of book profits as determined under the Companies Act instead of the existing effective rate of 10.5%. The Finance Bill, 2002 vide clause (49) amended section 115JB observing as under: Clause 49 seeks to amend section. 115JB of the. Incometax Act relating to special provision for payment of tax by certain companies. The existing provisions of the said section provide for levy of a minimum, tax on domestic companies of an amount equal to seven and one-half per cent., of the book profit, if the tax payable on the total income chargeable to tax as per the provisions of the Income-tax Act, 1961, is less than seven and one-half per cent of the book profit.. . Sub-clause (a) seeks to provide that where the tax payable on the total income chargeable to tax is less than seven and one-half per cent. of book profit, such book profit shall be deemed to be the total income of the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions as regards such banking companies. The change brought out by Section 115JB was therefore not retrospective. 21. The reasoning and the conclusion of the ITAT on this issue appears to suffer from no legal infirmity. Consequently, the Court declines to frame any question on this issue as well. 29. So, following the order passed by the coordinate Bench of the Tribunal and confirmed by Hon ble Delhi High Court, we are of the considered view that ld. DRP by following the order passed by the Tribunal has rightly decided this issue in favour of the taxpayer and as such, we find no scope to interfere into the findings on this issue. Consequently, ground no.7 is determined against the Revenue. GROUND NO.6 OF ITA NO.283/DEL/2016 (REVENUE S APPEAL) GROUNDS NO.1, 2 3 OF CO No.126/Del/2016 FILED BY THE TAXPAYER 30. The Revenue by raising ground no.6 challenged the deletion of addition of Rs,10,43,55,168/- by the ld. DRP proposed to be made by the ld. TPO qua the ALP of corporate guarantee. At the same time, the taxpayer by filing cross objection also challenged inter alia that the rejection of primary analysis made by the ld. DRP by applying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 255,573,472 32. The taxpayer in order to benchmark its international transactions qua counter guarantee commission i.e. Comparable Uncontrolled Price (CUP) as Most Appropriate Method (MAM) by comparing representative guarantee fee charged by BTMU India from some of its local customers with counter guarantee commission rate received by BTMU from its overseas branches/AE. However, ld. TPO while rejecting the TP study made by the taxpayer proceeded to adopt average bank guarantee rate as ALP of the transaction and proposed an addition of Rs.10,43,55,168/-. 33. However, ld. DRP by following its earlier year order for AY 2010-11 accepted the FAR analysis of BTMU India and AE of BTMU India made by the taxpayer and proceeded to delete the proposed TP addition made by the ld. TPO by returning following findings :- 33.0 Finding : DRP has duly considered submissions of the assessee. It has been noted that TPO has treated counter guarantee commission at the same footing as guarantee commission. However, from the above chart of FAR analysis, it is clear that in transaction of counter guarantee, BTMU India has very few functions to perform and few r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Radhasoami Satsang vs. CIT in Civil Appeal Nos.10574-10583 of 1983 and Hon ble Delhi High Court in Rayban Sun Optics India Ltd. vs. CIT in ITA 880/2016 CM Appl.45967/2016. So, when ld. DR has failed to point out any dissimilarity in the functional profile and facts circumstances of the case of the year under consideration vis- -vis preceding and succeeding years, this contention is not sustainable. 37. So far as second contention raised by the ld. DR for the Revenue that the taxpayer performs significant functions and bears significant risk is concerned, this contention is not sustainable when we examine the FAR analysis of BTMU India and AE of BTMU India made by the taxpayer with regard to the transaction under consideration which is extracted for ready perusal as under:- Nomenclature MUFG India AEs of MUFG India Third Party Banks Counter Guarantee Bank Guarantee Functions Performs Evaluation of background and credit worthiness of the borrower No Yes Yes Neg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issued by the taxpayer is invoked. 41. By applying the aforesaid yardsticks, ld. DRP in the Assessment Year 2010-11 in taxpayer s own case decided the issue in favour of the taxpayer, which has been accepted by the Revenue Department. 42. Following its own order for AY 2010-11, ld. DRP decided this issue in favour of the taxpayer having identical issue. So, in these circumstances, bank guarantee rates used by the ld. TPO to benchmark the international transactions cannot be used as CUP as has been held by the coordinate Bench of the Tribunal in case of Gharda Chemicals Ltd. vs. DCIT in ITA No.2242/Mum/2006 order dated 30.11.2009 by returning following findings :- 16. Albeit no such distinction between Internal and External CUP method is recognized in the Act or Rules but since the arguments of the rival parties and findings of the authorities below have revolved around these two, we will try to ascertain the difference between them. Basically the purpose of computing ALP on the basis of CUP method is to compare the adjusted price charged from or paid to the assessee for the international transactions with its AE vis- -vis that charged from or paid to the unrelated part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions of export by the assessee are to non-USA countries. The price on which a particular product is available in one country may largely vary from the price prevailing in other countries due to host of factors. The country which is producer of a particular commodity or its raw material may have lower sale price in comparison with the country which is short of such natural resources. Similarly the price may vary from one country to another depending upon climatic conditions and the demand and supply factors. Thus the price charged by an Indian party from UK or Australia may be at much variance with that charged from USA. In such a scenario no valid comparison can be made between the price charged by the assessee from other countries with that from USA, more particularly when we view the quantity exported to USA on wholesale basis with that to other countries in small lots on retail basis. We, therefore, hold that the Internal CUP method is not suitable in the present circumstances. 43. Coordinate Bench of the Tribunal in taxpayer s own case for AY 2009-10 (supra) has also held that the transaction under consideration cannot be compared with bank guarantee rates charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AR for the taxpayer contended that in case, local guarantees issued by the taxpayer cannot be considered as valid CUP on account of comparability factors, in that case bank guarantee rates used by the ld. TPO also required to be rejected for the same reasons and consequently, taxpayer come up with the secondary analysis already undertaken by the taxpayer to determine the ALP of the transaction under consideration wherein all the international transactions of the taxpayer were aggregated and the ALP was determined using TNMM as the MAM using OP/total assets as the PLI as the same has already been upheld by the Tribunal in taxpayer s own case in AYs 2009-10 2015-16 (supra). 50. However, on the other hand, ld. DR for the Revenue contended that this contention of the ld. AR for the taxpayer has already been examined by the TPO and has rightly been rejected and relied upon the order passed by the ld. TPO. 51. We have perused para 6 of the transfer pricing order wherein the ld. TPO has discussed the TP analysis made by the taxpayer to benchmark its international transactions including transaction of receipt of guarantee commissions by the taxpayer as a bundled transactions but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng analysis undertaken by applying TNMM method on combined approach should be accepted, as the margins of the assessee has been accepted and no adjustment has been made in the hands of the assessee. The only adjustment which was made in the hands of the assessee was on account of Receipt of guarantee commission. The case of the assessee before us is that as PE in India, it has limited role and was not bearing any risks. The assessee received part of guarantee commission in its capacity as facilitator only. When the persons needed guarantee in India to participate in a tender, then service of the Bank was utilized for issuing guarantee in favour of the beneficiary. The evaluation of the beneficiary for the creditworthiness of the customers was performed by the overseas branches, whereas the assessee had limited role in issuing letter of guarantee, it received 1% guarantee commission. In these facts, there is no merit in comparing the rate received by the assessee with the rate charged by different banks who are operational in India and providing financial guarantee to its customers, with all risk involved therein. In such facts and circumstances, the Assessing Officer/TPO erred in a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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