TMI Blog2023 (4) TMI 884X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of TDS on payment paid on account of advertisement to St. Xavier s Alumni Association - HELD THAT:- As in the appellant s own case for assessment year 2008-09 to 2010-11 his predecessor [CIT(A)] has deleted the impugned disallowance observing that the payee i.e. St. Xavier s Alumni Association was recognised by the department as a charitable institution and its income was exempt and therefore, there was no escapement of income and the assessee was not obliged to deduct TDS, since the income of the said institution/payee was not taxable. Decided against revenue. Disallowance u/s 40A(9) for payments made to the employees recreation club - AO disallowed the said expenditure observing that the said club was a distinct entity and contribution made by the assessee to the said club was not allowable as business expenditure - CIT-A deleted the addition as relying on own case as held that recreation club was integral part of the assessee itself, where, the contribution was collected from employees and this was matched by the assessee for providing recreational facilities as a measure of employee welfare and since the payments were not made to any third party association or tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration for loans where currency is to be bought and rate of interest to be charged from AE should have factored risk elements like exchange rate fluctuation, entity risk etc. 5. That on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowances u/s 40(a)(ia) for non Deduction of TDS on account of advertisements. 6. That on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowances u/s 40A(9) for payments made to the employees recreation club. 7. The appellant craves for leave to add, alter/or amend any of the grounds of appeal before or at the time of hearing. 3. Ground Nos.1 to 4 - The Revenue vide Ground Nos.1 to 4 has contested the action of the CIT(A) in deleting the addition made by the Assessing Officer on account of transfer pricing adjustments of interest charged by the assessee on loans given to its associate enterprise/subsidiary. 4. The assessee during the year has given loan to its associate enterprise i.e. M/s Novenor SAS France. The assessee charged the interest @ 1.5%. The assessee thereafter applied comparable uncontrolled price (CUP) method for benchmar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer pricing order, I find that the Ld. TPO was not in agreement with the TP study of the appellant. From the show cause notice ('SCN') and the transfer pricing order passed by the Ld. TPO, it is noted that according to the Ld. TPO the loans should have been benchmarked at the cost of funds in the hands of the appellant and a mark-up on account of appropriate credit spread, having regard to the credit rating of the AE. The Ld. TPO determined the cost of funds of the appellant at 11.47%. The Ld. TPO included further credit spread of 300 bps to arrive at the arm's length interest rate of 14.47%. 3. From the submissions put forth by the Ld. ARs of the appellant, it is noted that the appellant has substantiated the application of external CUP and determination of ALP of loan, having regard to EURO LIBOR and the credit rating of the AE benchmarked against the EURO bond yield curve. The appellant further submitted that the Ld. TPO was unable to point out any defect or infirmity in the TP Study or the benchmarking exercise carried out by it. On the contrary, the Ld. AR of the appellant pointed out several defects fallacies in the observations methodology put ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the ALP was sketchy and unscientific. 6. The Ld. TPO had determined the base rate with reference to the cost of the funds of the appellant i.e. in Indian currency. On the other hand it is Ld. AR's contention that the base rate should be the relevant currency denominated LIBOR rate viz., Euro LIBOR in the instant case. In this regard, I find that the jurisdictional Hon'ble ITAT, Kolkata in the case of Tega Industries Ltd Vs DCIT (76 taxmann.com 24) on identical facts circumstances had held that it is the relevant currency LIBOR rate and not the cost of funds in the hands of the lender which is required to be adopted as the base rate for benchmarking foreign currency denominated loans. Respectfully following the ratio laid down in the aforesaid judgment, the Ld. TPO's action of adopting the base rate to be appellant's cost of funds is hereby rejected. 7. As regards the ascertainment of credit spread, it is noted that the Ld. TPO's manner of determining the credit rating of the borrower as 'CCC' and thereafter the credit spread at 300 bps was inherently flawed and erroneous. The Ld. TPO has apparently ignored the background, profile and sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngth interest of Rs.37,53,144/- as determined by the appellant was justified and is upheld. 9. I also find merit in the Ld. AR's alternate contention that it isby now a well-settled view foreign currency denominated loans advanced to AEs should benchmarked against the relevant currency denominated LIBOR rate. Some of the relevant judicial precedents in this regard are as follows: Cotton Naturals (I) Pvt Ltd [TS-117-HC-2015(DEL)-TP] Tata Autocomp Systems Ltd. (TS-45-HC-2015(BOM)-TP) Varroc Engineering Pvt. Ltd vs. ACIT (ITAT Pune) (ITA No.2482/PN/2012) Bhansali Co. (TS-461-ITAT-2014(Murr:)-TP) M/s Four Soft Ltd vs DCIT (ITA No.1495/HYD/2010) DCIT vs Tech Mahindra Ltd (ITA No. 1176/Mum/2010) Mahindra Mahindra Limited vs DCIT (ITA No.7999/Mum/2011) Hinduja Global Solutions Ltd. vs. Addl. CIT, (ITA No. 254/Mum/2013) Aurinopro Solutions Ltd. vs. Addl. Commissioner of Income Tax (ITA No.7872/Mum/2011) VVF Limited vs. DCIT (2010-TIOL-55-ITAT-MUM) M/s Aithent Technologies Pvt. Ltd. v/s ITO (2010-TII-134-ITAT-DELTP) Respectfully following the judgments of the Hon'ble High Courts Incometax Appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r u/s 40(a)(ia) of the Act for non-deduction of TDS on payment of Rs.2,94,000/- paid to St. Xavier s Alumni Association. 8. The Assessing Officer held that the aforesaid payment on account of advertisement was made without deduction of TDS. He therefore made the impugned disallowance, however, the ld. CIT(A) deleted the disallowance so made by the Assessing Officer observing that in the appellant s own case for assessment year 2008-09 to 2010-11, his predecessor [CIT(A)] has deleted the impugned disallowance observing that the payee i.e. St. Xavier s Alumni Association was recognised by the department as a charitable institution and its income was exempt and therefore, there was no escapement of income and the assessee was not obliged to deduct TDS, since the income of the said institution/payee was not taxable. 9. We find that the Department has not contested this issue in the earlier years. The ld. DR has not brought any distinguishable facts for this year. In view of this, this ground of the Revenue s appeal is hereby dismissed. 10. Ground No.6 Vide Ground No.6, the Revenue is aggrieved by the action of the CIT(A) in deleting the disallowance made u/s 40A(9) for payme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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