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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
आदेश/ORDER PER VIKAS AWASTHY, JM: These three appeals by the assessee assessee are directed against the orders of Commissioner of Income Tax (Appeals)-57 Mumbai [in short ‘the CIT(A)’] for assessment years 2012-13, 2014-15 and 2016-17, respectively. All the three orders are of even date i.e. 10/08/2022. Since, the grounds raised
in all the three appeals and the facts germane to the issues assailed in the grounds are identical, these appeals are taken up together for adjudication and are decided by this common order.
2. For the sake of convenience, these appeals are decided in seriatim of assessment years. –A.Y. 2012-13:
3. The assessee has assailed the order of CIT(A) by raising following grounds: “On the facts and in the circumstances of the case and in law
The Learned CIT[A] has erred in confirming the TPO stand towards adjustments made on interest on borrowings made during the year from Associated Enterprises resulting in addition to the Appellant income amounting to a sum of Rs. 34,28,113/-: Tax effect relating to each Ground of appeal is Rs.14,40,630/-
The Learned CIT(A) has erred in confirming the TPO stand towards the adjustments made on interest on placements made during the year with the Associated Enterprises resulting in an addition to the Appellant income amounting to Rs.8,39,195/ -, : Tax effect relating to each Ground of appeal is Rs.3,52,663/-
The Learned CIT(A) has erred in confirming the addition to guarantee commission @ 10% on all guarantees issued by the Appellant to the Associated enterprises thereby resulting in addition amounting to Rs. 9,41,932/-: Tax effect relating to each Ground of appeal is Rs.3,95,838/-“
Shri Mehul Talera appearing on behalf of the assessee submitted at the outset that the issues raised in grounds of appeal have already been considered by the Tribunal in assessee’s own case for assessment year 2010-11 and 2011-12 in decided vide common order dated 24/08/2022. 4.1 In respect of ground No. 1 & 2, the ld. Authorized Representative for the assessee submits that during the period relevant to the assessment year under appeal, there were international transactions on account of interest paid on inter-bank borrowings made by the assessee with its Singapore and London branch in foreign currency. The assessee benchmarked interest rates with USD repo rates. The TPO rejected assessee’s arm’s length price and applied LIBOR rates to benchmark the transaction. The ld. Authorized Representative for the assessee pointed that TPO in its order has pointed that the transaction is benchmarked based on LIBOR as was done by TPO in earlier years i.e. assessment year 2010-11 and 2011-12. The Tribunal has reversed the findings of TPO for assessment year 2010-11 and 2011-12.
4.2 Similarly, in respect of inter bank placements the assessee benchmarked interest rate with USD repo rates. The TPO replaced USD repo rates with LIBOR rates. The ld. Authorized Representative for the assessee pointed that Tribunal in for assessment years 2010-11 and 2011-12 (supra) has dealt with this issue and has restored the issue back to the file of TPO for donevo benchmarking applying USD depo rates.
4.3 In respect of ground No.3 of appeal, the ld. Authorized Representative for the assessee submits that in the first instance there is not risk because counter guarantee has been given by overseas bank. Secondly, the adjustment made by TPO on account of guarantee commission at 1% and 1.8% is very much on the higher side. The CIT(A) erred in directing the Assessing Officer to re-compute commission by making addition of 10% increase in the rate of commission proposed by TPO. The ld. Authorized Representative for the assessee pointed that in Assessment Year 2010-11 and 2011-12 the Tribunal has restored the issue back to the file of TPO for denovo benchmarking under similar set of facts.
Per contra, Shri Soumendu Kumar Dashrepresenting the Department vehemently defended the impugned order and prayed for dismissing the appeal of the assessee. However, the ld. Departmental Representative fairly stated that the issue raised by the assessee in present appeal is similar to the one considered by the Tribunal in assessee's own case for Assessment Year 2010-11.
We have heard the submissions made by rival sides and have examined orders of the authorities below. It is an undisputed that the facts in impugned assessment year that has led to the adjustment in respect of interest rate and guarantee commission are similar to the facts considered by the Tribunal in assessee's own case for Assessment Years 2010-11 and 2011-12 in 2786/Mum/2017 (supra). We find that in the impugned assessment year the grounds of appeal raised by the assessee are verbatim to the grounds raised in Assessment Year 2010-11, except for the amount. In so far as ground No.1 & 2, the Co-ordinate Bench has restored the issue back to the file of TPO by observing as under:
“25. Having considered the submissions of both the sides and perused the material available on record, we find that in the present case the assessee used USD depo rates for the purpose of granting of loans/advances to associated enterprise as well as receiving of loans/advances from associated enterprise. As per the assessee, these rates keep on fluctuating throughout the day and are also negotiated amongst the parties, therefore, same leads to variation in borrowing/lending rates. However, on the contrary, the TPO vide order passed under section 92CA(3) of the Act noted that the assessee has benchmarked the interest rates with LIBOR rate. Therefore, from the perusal of the record it is evident that the TPO has not correctly appreciated the benchmarking undertaken by the assessee. Further, there are no adverse findings against USD depo rates used by the assessee for the purpose of granting/receiving of loans/advances from the associated enterprise. Accordingly, we deem it appropriate to remand this issue to the file of TPO for de novo benchmarking of international transaction pertaining to borrowing/lending by applying the USD depo rates, after necessary verification/examination of the details. We further direct that if upon examination it is found that the interest rate paid or received by the assessee is within the high and low of US depo rates, during the day of payment/receipt, then the international transaction of borrowing/lending be considered to be at arm’s length. As a result, grounds no. 1 and 2 raised in assessee’s appeal are allowed for statistical purpose.” (Emphasized by us) Since, the facts in appeal are parimateria, we deem it appropriate to restore ground No.1 & 2 of the appeal to TPO for denovo benchmarking in similar terms. Thus, ground No.1 & 2 of appeal are allowed for statistical purpose.
As regards ground No.3 of appeal, we find that in Assessment Year 2010- 11 in appeal by the Revenue in the Tribunal has restored the issue back to the file of TPO for denovo benchmarking with following observations:
“19. However, in the present case, apart from the claim of the assessee that guarantees have been issued to the clients of the overseas branches, in respect of which counter/inter-bank indemnity was executed by the overseas branches, the assessee in the factual paper book has filed the details of commission earned from the bank guarantee issued on behalf of the overseas branches. We find that there is no detail/ document with regard to the counter guarantee/indemnity executed by the overseas branch. Also there is nothing available on record in support of assessee’s claim that money has been charged to the overseas branch and overseas branch recover these amounts from the third-party clients and paid them to the assessee. There are also no details regarding whether the aforesaid process of charging and payment by the overseas branch is prior to or post the discharge of bank guarantee in favour of the beneficiary in India, in case of default. Thus, no details have been furnished to support the claim that no risk was borne by the Indian branch. Further, though in Form No. 3 CEB assessee has claimed to determine the arm’s length price of international transaction of issuing bank guarantee against the counter guarantee issued by the associated enterprise by applying CUP method, however, there are no details available on record as to how such benchmarking has been carried out by the assessee. On the other hand, we find that the TPO, by considering the rate charged by Bank of Baroda for issuance of guarantee against 100% counter guarantee by reputed international banks, has made the transfer pricing adjustment by considering it to be an appropriate CUP. However, there is no further analysis as to how the said transaction is an appropriate CUP to the transaction undertaken by the assessee’s Indian branch considering the FAR in both the transactions and whether any adjustment for differences as per Rule 10B(1)(a) of the Income Tax Rules is possible. We find that the learned CIT(A) vide impugned order on an ad hoc basis directed computation of commission for guarantee by making addition of 10% increase in the rate of commission charged by the assessee to arrive at the arm’s length rate. Thus, in view of the above, we deem it appropriate to remand this issue to the file of TPO for de novo benchmarking of impugned international transaction of issuing bank guarantee against counter guarantee issued by the associated enterprise. The assessee is directed to produce all the documents before the TPO in support of its claim. Further, the TPO shall be at liberty to call for any details or documents for proper benchmarking of the impugned international transaction. In the remand proceedings, the assessee shall have the liberty to file any alternative benchmarking in respect of the aforesaid impugned transaction. As a result, grounds no. 5 to 9 raised in Revenue’s appeal are allowed for statistical purpose.” It is relevant to mention here that in Assessment Year 2010-11 the assessee as well as the Revenue were in appeal against the findings of CIT(A) with respect to guarantee commission. The assessee had raised this issue in Assessment Year 2010-11 as ground No.3 of appeal and the corresponding grounds raised by the Revenue in its appeal were as ground no.5 to 9 of the appeal. The findings given by Co-ordinate Bench in para -19(supra), mutatis mutandis would apply to ground No.3 of present appeal. Since, facts in the impugned assessment year are identical, ground No.3 of appeal is decided in similar terms. Thus, ground No.3 of appeal is allowed for statistical purpose.
In the result, appeal by the assessee is allowed for statistical purpose. (A.Y.2014-15)& (A.Y.2016-17)
In both these appeals, the assessee has assailed the findings of CIT(A) by raising grounds identical to the grounds raised in appeal for Assessment Year 2012-13, except for the amounts. Therefore, the findings given while adjudicating appeal of the assessee for Assessment Year 2012-13 would mutatis mutandis apply to the appeal for Assessment Year 2014-15 and 2016- 17.
In the result, for parity of reasons both these appeals are allowed for statistical purpose.
To sum up, appeals of the assessee in ITA No.2659/Mum/2022 & ITA No.2960/Mum/2022 are allowed for statistical purpose.