ACIT, CIRCLE- 27(1), NEW DELHI vs. UNIPARTS INDIA LTD., NEW DELHI
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Income Tax Appellate Tribunal, DELHI BENCH: ‘I’ NEW DELHI
Before: SHRI ANIL CHATURVEDI & SHRI SAKTIJIT DEY
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘I’ NEW DELHI
BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER & SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA No. 6056/Del/2017 Assessment Year: 2010-11
ACIT, Circle-27(1), Vs. Uniparts India Ltd., New Delhi Block 5, Gripwel House, C-6 & 7, Vasant Kunj, New Delhi PAN :AAACU0454D (Appellant) (Respondent)
Department by Shri Tarandeep Singh, Adv. Assessee by Ms. Mrinal Kumar Das, Sr. DR
Date of hearing 20.02.2023 Date of pronouncement 28.02.2023
ORDER PER SAKTIJIT DEY: JUDICIAL MEMBER: Captioned appeal by the Revenue arises out of order dated
23.01.2017 of learned Commissioner of Income-Tax (Appeals)-44,
New Delhi pertaining to assessment year 2010-11.
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The Registry has notified delay of 108 days in filing the present
appeal. The appellant has filed an application dated 21.09.2017
seeking condonation of delay.
After considering rival submissions, we are of the view that
delay in filing the appeal was due to reasonable cause. Accordingly,
we condone the delay and admit the appeal for adjudication on merits.
In ground nos.(i) and (ii), the Revenue has challenged deletion of
addition of Rs.1,87,18,942, being transfer pricing adjustment on
account of interest charged on loan advance to Overseas Associated
Enterprises (AEs).
Briefly, the facts relating to this issue are, the assessee is a
resident corporate entity and is engaged in manufacture and sale of
tractor implements, linkage parts, system and forging. As stated by the
Transfer Pricing Officer (TPO), assessee was a part of Gripwell
Group.
During the year under consideration, the assessee entered into
various international transactions with its AEs. However, except the
transaction relating to interest charged on loans advanced to AEs, the
TPO accepted all other transactions to be at arm’s length. In so far as
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charging of interest on loans advanced to AEs. The Assessing Officer
found that the assessee had advanced loans to two overseas
subsidiaries viz. Uniparts USA Ltd. and Uniparts Europe BV,
Netherlands. In respect of loans advanced to subsidiary in USA, the
assessee had charged interest @ 8%. Whereas, in respect of loan
advanced to Uniparts Europe BV, the assessee had charged interest
by applying the rate of Euribor plus 200 basis points (bps), which
works out to interest rate at 3.68%. Being of the view that rate of
interest charged on loans advanced to AEs are not at arm’s length, the
TPO issued a show cause notice to the assessee seeking explanation
why interest should not be charged at appropriate rate. Though, the
assessee justified its benchmarking of interest charged to the AEs,
however, the TPO was not convinced. Though, the TPO agreed that
the loans were advanced in currencies of respective countries of
residence of the AEs, however, he observed that the assessee would
not have charged interest at the same rate to unrelated parties.
Thereafter, referring to various judicial precedents and risk factor
involved in the advancement of loan, the TPO observed that the
assessee was unable to demonstrate that the burden it has taken on
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behalf of subsidiaries had resulted in any tangible benefit either to it or
to the group as a whole. Further, he observed, LIBOR is not applicable
where the funds have been lent from rupee denominated fund as it
would not be prudent for an enterprises to lend fund at a much cheaper
interest rate than what is available as interest on rupee denominated
loans.
Having held so, the TPO proceeded to apply the domestic Prime
Lending Rate (PLR) applied by Indian Banks on commercial
borrowings and determining the arm’s length rate of interest on the
loans advanced to the AEs at 14.74%. This resulted in a total
adjustment of Rs.1,95,31,473. The adjustment proposed by the TPO
was added to the income of the assessee by the Assessing Officer
while framing the assessment order. Assessee contested the aforesaid
addition before learned Commissioner (Appeals).
After considering the submissions of the assessee in the context
of facts and material on record as well as judicial precedents cited
before me, learned Commissioner (Appeals) held that domestic PLR
cannot be applied to benchmark the rate of interest charged on foreign
currency loans advanced to AEs located in foreign countries. While
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coming to such conclusion, learned Commissioner (Appeals)
specifically relied upon the decision of the Hon'ble jurisdictional High
Court in case of CIT vs. Cotton Natural (I) Pvt. Ltd. (2015) 55
Taxmann.com 523 (Del.).
Learned Departmental Representative submitted, though, the
TPO may not be justified in applying domestic PLR to determine the
arm’s length nature of interest on foreign currency loans, however, the
decision of learned Commissioner (Appeals) in deleting the
adjustment is unacceptable. He submitted, at the time of passing the
order under Section 92CA(3) of the Act, the TPO did not have the
benefit of the Hon'ble jurisdictional High Court decision in case of
CIT vs. M/s. Cotton Natural (I) Pvt. Ltd., (supra).
Drawing our attention to certain observations made in the
aforesaid judgment, learned Departmental Representative submitted,
while deleting the addition, learned Commissioner (Appeals) has not
taken note of certain guiding principles set out by the Hon'ble
jurisdictional High Court. Thus, he submitted, the issue may be
restored back to the TPO for fresh benchmarking.
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Strongly opposing the contentions of learned Departmental
Representative, learned counsel appearing for the assessee submitted
that the issue is squarely covered by the decision of the Hon'ble Delhi
High Court. Hence, there is no justifiable reason to restore the matter
back to the TPO.
We have considered rival submissions and perused material on
record.
In so far as factual aspect of the issue is concerned, there is no
dispute that the assessee has advanced foreign currency loans to two
related parties located in USA and Netherlands. It is also evident, the
assessee has charged interest to the concerned parties at fixed rates. In
so far as AE in USA is concerned, the assessee had charged interest @
8%. Whereas, in respect of the AE in Netherlands, interest is charged
by applying BURIBOR rate plus 200 basis points. It is relevant to
note, while deliberating on the issue, the TPO has accepted that
foreign currency loan has to be benchmarked using EURIBOR. As the
rate of interest is fixed and not floating, the rate of LIBOR will be the
rate on the day the loan was taken by the assessee on behalf of the
AEs. He has further observed that additional mark up of 4% shall be
7 ITA No.6056/Del./2017
added as the credit rates of the loan given by the assessee to its
subsidiaries has been considered as (BB). However, while ultimately
computing the adjustment, the TPO has applied domestic PLR applied
by Indian Banks on commercial loans.
This, in our view, is unsustainable. Now, it is fairly well settled
that the rate of interest on loans advanced by the assessee to AEs have
to be in accordance with the rate of interest prevailing in the country
of residence of the AEs wherein the loan was availed. This is the view
expressed by Hon'ble jurisdictional High Court in case of CIT vs.
Cotton Natural (I) Pvt. Ltd. (supra) and many other decisions.
Therefore, domestic PLR rate cannot be applied in respect of loans
advanced in foreign currency to AEs situated in USA and Europe. As
regards, the submission of learned Departmental Representative that
certain guiding principles laid down by the Hon'ble jurisdictional High
Court have not been followed, we are not convinced.
Considering the fact that the assessment year involved is 2010-
11 and more than 12 years have passed, we are disinclined to restore
the issue to the Assessing Officer at this stage. Thus, having
considered the overall facts and circumstances of the case in the light
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of judicial precedents cited before us, we do not find any infirmity in
the decision of learned Commissioner (Appeals). Grounds raised are
dismissed.
In ground no. 3, the Revenue has challenged deletion of
disallowance of interest expenditure amounting to Rs.1,41,63,945
under Section 36(1)(iii) of the Act.
Briefly, the facts are, in course of assessment proceedings, the
Assessing Officer noticed that the assessee had availed loan from bank
at interest rate of 14% to 16% per annum and has incurred interest
expenditure of Rs.11,70,29,496. Whereas, it has advanced loans to its
wholly owned subsidiaries at interest rate of 6% per annum.
Therefore, he called upon the assessee to explain why the interest paid
to banks on loans utilized for non-business purposes like advancing
loan to subsidiaries at a lesser rate, should not be disallowed. Though,
the assessee objected to the proposed disallowance, however, rejecting
the explanation of the assessee, the Assessing Officer disallowed an
amount of Rs.1,41,63,945 out of the interest expenditure. While,
considering assessee’s appeal on the issue, learned Commissioner
(Appeals) deleted the disallowance.
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We have considered rival submissions and perused material on
record.
It is observed, while considering identical nature of dispute in
assessee’s own case in assessment year 2009-10, the co-ordinate
Bench in ITA No.1216/Del/2014 dated 30.09.2021 has deleted similar
disallowance with the following observations:
“26. A perusal of the facts show that on receiving financial assistance from the assessee, revenue from sales of M/s UniLink Engineering Pvt Ltd increased from Rs. 94.73 lakhs from F.Y 2005–06 to Rs. 26.12 crores in F.Y 2008–09. We further find that own funds of the assessee as on 31.03.2007 were at Rs.33.35 crores which jumped to Rs. 127.62crores as on 31.03 2009 and tp Rs.139.17 crores as on 31.03.2009.
It is true that the loan was given in earlier F.Y and the assessee had sufficient own funds to give the loan. It is equally true that no disallowance was made in the earlier Assessment Year though the DRP 19 has observed that rest judicata is not applicable under Income Tax proceedings but, in our considered opinion, when the facts are same, and the law has not changed, then the rule of consistency ought to have been followed. Considering the facts of the case in totality, we do not find any merit in the addition of Rs. 72,23,773/- made by the Assessing Officer. We, accordingly, direct the Assessing Officer to delete the same. Ground No. 4 is, accordingly, allowed.”
Considering that there is no difference in factual position in the
impugned assessment year and the Assessing Officer has referred to
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similar disallowance made in assessment year 2009-10, we are
inclined to uphold the decision of learned Commissioner (Appeals).
Ground raised is dismissed.
In ground no.4, the Revenue has raised the issue of deletion of
disallowance of Rs.8,95,765, being delayed payment of ESIC under
Section 36(1)(va) of the Act.
Before us, learned counsel appearing for the assessee fairly
conceded that the issue has to be decided against the assessee in view
of the recent decision of the Hon'ble Supreme Court in case of
Checkmat Services (Pvt.) Ltd. Vs. CIT (2022) 143 Taxmann. 178
(SC).
Learned Departmental Representative agreed with the aforesaid
submission with the assessee.
Having considered rival submission, we find that learned
Commissioner (Appeals) has deleted the disallowance made under
Section 36(1)(va) of the Act on the ground that the payments were
made before the due date of filing of return of income under Section
139(1) of the Act. However, in case of Checkmat Services (P)Ltd. vs.
CIT (supra), Hon'ble Supreme Court has held that unless the payment
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towards employees contribution to PF and ESIC are paid within the
time limit prescribed under the relevant statutes, as provided under
explanation to section 36(1)(va) of the Act, no deduction can be
allowed to the assessee. Respectfully following the ratio laid down by
the Hon'ble Supreme Court, we uphold the disallowance made by the
Assessing Officer. The decision of learned Commissioner (Appeals)
stands reversed. This ground is allowed.
In ground nos. 5 & 6, the Revenue has challenged deletion of
disallowance made under Section 14A read with Rule 8D of the Act.
We have considered rival submissions and perused material on
record.
It is an agreed position before us that in the year under
consideration, the assessee has not earned any exempt income. That
being the factual position emerging on record, no disallowance under
Section 14A read with Rule 8D can be made in absence of any exempt
income earned during the year. In this regard, we refer to the decision
of the Hon'ble jurisdictional High Court in case of PCIT vs. Era
Infrastructure (India) Ltd. (2022) 141 Taxmann.com 289 (Del.).
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Accordingly, we uphold the decision of learned Commissioner
(Appeals) by dismissing the grounds.
In the result, the appeal is partly allowed.
Pronounced on 28.02.3023.
Sd/- Sd/- ( ANIL CHATURVEDI) (SAKTJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 28th February, 2023. Mohan Lal
