LITE-ON MOBILE INDIA PRIVATE LIMITED,KANCHEEPURAM vs. DCIT CORPORATE CIRCLE 4(1), CHENNAI

आयकर अपील�य अ�धकरण, ‘डी’ �यायपीठ, चे�नई IN THE INCOME TAX APPELLATE TRIBUNAL , ‘D’ BENCH, CHENNAI �ी धु�वु� आर.एल रे�डी, �या�यक सद!य एवं �ी जी.मंजुनाथ, लेखा सद!य के सम' BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A.Nos.3194 & 478/Chny/2017 (�नधा�रणवष� / Assessment Years: (2013-14 & 2012-13) M/s. Lite-on Mobile India Pvt.Ltd. Vs The Deputy Commissioner of Nokia Telecom Special Economic Zone, Income Tax, Plot No.1A, SIPCOT Industrial Park, Corporate Circle-4(1) Phase-III Chennai-Bangalore Highway, Chennai-600 034. Sriperumbudur, Kancheepuram Dist. PIN- 602 105. PAN: AADCP 9246K (अपीलाथ�/Appellant) (��यथ�/Respondent)

: Mr. Ashik Shah, C.A अपीलाथ�क�ओरसे/ Appellant by : Mr. B.Jayaraghavan, CIT ��यथ�क�ओरसे/Respondent by 16.09.2021 : सुनवाईक�तार�ख/Date of hearing : 03.11.2021 घोषणाक�तार�ख /Date of Pronouncement आदेश / O R D E R PER G.MANJUNATHA, AM:

These two appeals filed by the assessee are directed

against separate, but identical orders of Dispute Resolution

Panel-2, Bengaluru dated 11.09.2017 and 04.11.2016 and

pertain to assessment years 2013-14 and 2012-13. Since, the

facts are identical and issues are common, for the sake of

convenience, these appeals were heard together and are

being disposed off, by this consolidated order.

ITA No.478/Chny/2017 (A.Y.2012-13):

ITA Nos. 3194 & 478/Chny/2017

“1. The orders of the learned Assessing Officer (“Ld. AO”), the Transfer Pricing Officer (“Ld. TPO”) and the Honourable Dispute Resolution Panel (“Ld. DRP”), to the extent prejudicial to the interests of the Appellant, are passed in violation of the principles of equity and natural justice, contrary to law, without appreciating the facts and circumstances of the case.

• by questioning the commercial wisdom of the assessee without merely restricting himself to the determination of the Arm’s Length Price;

• by concluding that there were no evidences filed towards the receipt of services, completely disregarding the information / documents / clarifications provided to substantiate that the services were in fact received.despite accepting the aggregation approach of benchmarking adopted by the Appellant in its TPdocumentation;

• by adopting a transaction — by — transaction approach with respect to the transaction of payment of management fee alone though there was no rejection of the Transfer Pricing (“TP”) documentation of the Appellant as required under section 92C(3) of the Act;

• without appreciating that the management services transaction undertaken by the Appellant was closely interlinked with its primary operations, thus necessitating aggregation approach for the purposes of TP in accordance with section 92C of the Act read with Rule10B of the Income- tax Rules, 1962 (“the Rules”) and the relevant OECD guidelines;

• without adopting one of the mandatory methods prescribed for determination of ALP under section 92C of the Act read with Rule 10B of the Rules;

3 ITA Nos. 3194 & 478/Chny/2017

• without considering several judicial precedents which have held that the Ld. TPO cannot determine the ALP of a said transaction to be at NIL. Without prejudice to the above grounds, the Ld. DRP, the Ld. TPO and the Ld. AO erred in making a downward adjustment amounting to 1NR 1,72,49,410/-, which includes the grossed up amount of TDS, as against the net amount of INR 15,52,45,113.”

Pvt.Ltd. is wholly owned subsidiary of Perlos Oyj, Finland, is

engaged in the business of manufacture and supply of moulded

components for telecommunication industry. The assessee

does moulding, painting, punching and assembly for

manufacture of plastic covers of mobile phones. The assessee

imports raw materials like display window, key pads from its

Associated Enterprises. The assessee does not possess

technology for manufacture of aforesaid materials in India. The

assessee had entered into an agreement with its AE on

12.12.2011 for availing various managerial services for which it

has paid management fees. The assessee had also entered

into various other international transactions with its AEs. The

assessee has aggregated all transactions with its AEs and has

adopted Transactional Net Margin Method (TNMM) to bench

mark all international transactions, except transaction

4 ITA Nos. 3194 & 478/Chny/2017

pertaining to payment of interest on ECB (External Commercial

Borrowings) which was benchmarked under Comparable

Uncontrolled Price method (CUP) and concluded that

international transactions with its AEs are at arms’ length

price.

assessment year 2012-13 on 30.11.2012 admitting total income

of Rs.42,53,25,645/-. The assessee had also filed revised return on 27.03.2014 admitting total income of

Rs.32,31,23,250/-. The case was taken up for scrutiny and

during the course of assessment proceedings, a reference was

made to the TPO to determine arm’s length price of

international transactions of the assessee with its AEs. During

transfer pricing proceedings, the TPO has accepted TP study

conducted by the assessee by adopting Transactional Net

Margin Method in respect of all international transactions.

However, in respect of procurement of management services,

determined Nil arm’s length price by holding that the assessee

did not bring any evidence on record to suggest that it was in need for services for which it has paid to its AEs. The TPO had

5 ITA Nos. 3194 & 478/Chny/2017

also observed that the assessee did not bring any evidence to

prove the AE has rendered services for which it was paid.

Therefore, he has determined arm’s length price of

management fees paid to its AE at Rs. Nil.

his order dated 25.01.2016 u/s.92CA(3) of the Act, the

Assessing Officer has passed draft assessment order

u/s.144C(1) of the Income Tax Act, 1961 on 30.03.2016 and proposed transfer pricing adjustment of Rs.17,24,94,523/- in

respect of management fees paid to its AEs. The assessee has

challenged draft assessment order passed by the Assessing

Officer before the DRP-2, Bengaluru and filed objections for

making adjustment for management fees paid to its AEs and

argued that when the assessee has demonstrated and justified

payment of management fees with necessary evidences,

including agreement with its AEs, invoices raised by AEs for

rendering services and also other evidences including e-mail

correspondence between the assessee and its AEs, the TPO

has erred in determining Nil arm’s length price for management

6 ITA Nos. 3194 & 478/Chny/2017

fees on the ground that the assessee has not demonstrated

with evidences necessity of availing services from its AEs.

u/s.144C(5) of the Income Tax Act, 1961, rejected arguments

taken by the assessee and confirmed additions made by the

Assessing Officer by holding that on the basis of evidences filed

by the assessee, including agreement between parties dated

12.12.2011, it is difficult to imagine that such services as

indicated could have been discussed verbally by two parties

have been availed. The ld. DRP has discussed issue at length

in light of agreement between parties and other evidences filed

by the assessee to come to conclusion that the assessee had

not availed any services from its AE to justify payment of

management fees. The ld. DRP further observed that since

payment for management fee has been paid without getting any

actual services, the TPO/ AO was right in disallowing total

amount paid by the assessee to its AE for management

services. The relevant findings of the Ld. DRP are as under:-

“3.8 On perusal of the above clauses of the agreement, following conclusion can be drawn: The agreement is dated 12 December 2011, but made effective w.e.f 01.0l.20lI. The assessee has claimed that the services

ITA Nos. 3194 & 478/Chny/2017

were rendered wef 01.0I. 20II on the basis of verbal agreement with the service provider, however the assessee failed to substantiate this claim. The assessee was asked by this Panel to provide cops of any email or other document giving reference to such verbal agreement and the bare minimum condition/services/rates decided verbally, however assessee expressed its inability to do so. These facts themselves reflect that the agreement being produced before the TPO or this Panel is just meant to create some record to justify the payments as having been made for certain services, although the services sere never ever rendered. The two pages appendix I to the agreement gives detailed description of the categories of services. Ii is difficult to imagine that such services as indicated should have been discussed verbally by the two parties and such agreement continued fir almost one year. before the above referred agreement was signed.

A careful examination of the agreement dated 12 December 2011 itself shows that no two parties operating at arm’s length would enter into such an agreement. The agreement does not have any clause to protect the beneficiary from deficiency in services provided by the service provider. So. even if there is deficiency in service, the assessee still has to make payments to the service provider at the agreed rate and there isn’t any scope of imposing penalty on the service provider. ‘Appendix Ill gives the allocation keys for determining fees for various services. The allocation is based mainly on % of external sales against group total sales’. Thus, in relation to most of the services, there isn’t any link between the services actually rendered and fees paid. Even if no such service is rendered by the service provider, the assessee has to pay the

8 ITA Nos. 3194 & 478/Chny/2017

fee as the service provider will send invoice based on the cost worked out on basis of allocation key plus its mark up. No two parties operating at arm’s length would enter into such an agreement, where they have to pay even if no services are rendered to it. • Clause 2.7 of’ the agreement provides that the cost of the HQ Management Services would be substantiated by documents evidencing trips carried out, meeting held arid, more general!’., work performed for the benefit of’ the Beneficiary and involving LOM personnel and that those documents would he provided to the beneficiary. However, despite being given opportunity by the TPO, no such documents were produced by the assessee before him. So even if the agreement is considered to be genuine, the assessee has never tried to verify the correctness of the cost allocation done by the service provider. In an arm’s length case a person would verify the costs having been incurred by the service provider, if the payments are agreed to be on cost plus basis. However, in the present case the assessee has accepted the invoices at face value although it had right to get all those documents. Considering above, there is no reason to differ with the findings of TPO that no services have actually been rendered by the AE to the assessec and so the ALP of the international transaction has to be treated as nil. Further, since the payment for management fee has been made without getting an actual services, the amount should also base been disallowed by the assessing officer by considering the same as not incurred for business purposes. However, such addition would only be on protective basis as the entire expenditure gets disallowed on account of transfer pricing adjustment. The AO is directed to act accordingly.

9 ITA Nos. 3194 & 478/Chny/2017

3.9. One of the objections of the assessee is that it had paid tax at source of’ Rs 1,72,49,410/- on behalf of the service provider and the same should not be considered as part of the international transaction as the actual amount remitted to the AL was Rs 15,52,45,ll3. The submissions of the assessee have duly been considered. however, there isn’t any merit in the same. As per clause 2.5 of the agreement the beneficiary is required to bear and pay withholding taxes and all other applicable taxes attracted by such services in India. Since the assessee was obliged to deduct tax at source on the above said payments, so the actual cost of the services to it is Rs 17,24,94.523/-, of which it has deposited Rs 1,72,49,410/- as tax deducted at source and the balance amount has been remitted to the AE. Since the tax deducted at source is a payment made on behalf of the AE so it was a liability which the assessee has met. Tax deducted is income of the person from whose payment the tax has been deducted . Any credit for such TDS can be claimed by the AE, if it is eligible to do so. Considering above, the objection of the assessee is not accepted.” 7. The learned A.R for the assessee submitted that the ld.

DRP has erred in sustaining additions made by the

TPO/Assessing Officer towards TP adjustments on

management fees paid to its AE without appreciating fact that

the TPO/AO had never disputed fact that the assessee has

justified payment of management fees with necessary

evidences, but has disputed payment only on the ground that

the assessee has not demonstrated with evidence necessity of

10 ITA Nos. 3194 & 478/Chny/2017

availing such services. The learned A.R further submitted that

it is well settled principles of law by the decisions of various

courts, including decision of the Hon’ble Delhi High Court in the

case of M/s.Magneti Marelli Powertrain India Pvt. Ltd., vs. DCIT

389 ITR 469, where the Hon’ble High Court made it very clear

that the TPO cannot question necessity of incurring of

particular expenditure and further he cannot question cost

benefit ratio of any particular expenditure incurred by the

assessee. It is for the assessee to decide whether particular

expenditure is required to be incurred or not. But what is to be

seen is whether said expenditure is supported by necessary

evidence or not. In this case, the TPO has not doubted

genuineness of payment, however disputed payment only on

the ground that such payment was made for services, which are

not required to be obtained from its AE. The AR further

submitted that the TPO has accepted international transactions

of the assessee with its AE are at arm’s length price and has

not made any adjustment in TP proceedings. However, the

TPO disputed one element of international transactions and has

made Nil adjustment by holding that the assessee has not

11 ITA Nos. 3194 & 478/Chny/2017

demonstrated receiving of services from its AE, even though

the assessee has filed various evidences including agreement

between parties, invoices raised by AE and certain e-mail

correspondences between two parties. In this regard, he relied

upon following judicial precedents:-

1.DCIT Vs.Magneti Marelli Powertrain India P.Ltd. SLP No.15244/2017 2. Magneti Marelli Powertrain India P.Ltd. vs.DCIT 389 ITR 469 3. Bonfiglioli Transmissions P.Ltd.vs.DCIT in ITA No.2977/Chny/2017 dt.14.05.2018 4. Siemens Gamesa Renewable Power P.Ltd. Vs. DCIT (2018)92 Taxmann.com 330 5. M/s. Rotork Controls India P.Ltd. Vs.DCIT ITA No.2581/Chny/2017 dt. 14.11.2018 6. Schneider Electric India Pvt.Ltd. Vs.DCIT in ITA No 209/Ahd/2015 dt.31.05.2017 7. Dimension Data India Pvt.Ltd.Vs.DCIT in ITA No.2280/Mum/2016 dt.16.08.2017 8. Dresser Rand India P.Ltd. Vs.Addl CIT (2011) 13 taxmann.com 82 (Mum)

order of the ld. DRP submitted that the assessee is a contract manufacturer engaged in manufacturing moulded components

12 ITA Nos. 3194 & 478/Chny/2017

for mobile phones with technology support from its AE for which

it has paid royalty. The assessee had also made periodical

payment of management fees on the basis of agreement

between parties without any supporting evidences including

proof of rendering of services by its AE. The assessee has paid

periodical payments on monthly basis without any justification

for making payment to its AE. The TPO as well as ld.DRP has

brought out clear facts to the effect that the assessee is shifting

profit to its AE in the guise of payment of management fees

without any justification for making such payment. Therefore,

there is no merit in arguments taken by the assessee that the

TPO has made adjustment to management fees only on the

basis of necessity of availing such services.

available on record and gone through orders of the authorities

below. The assessee is in the business of contract

manufacturing of moulded components for mobile phones had

entered into managerial services agreement with its AE for

rendering various services. As per agreement between parties

dated 12.12.2011, which is made applicable from 01.01.2011,

13 ITA Nos. 3194 & 478/Chny/2017

the assessee has listed out various services to be provided by

its AE. A careful examination of agreement dated 12.12.2011

shows that agreement is general one, which specifies various

need based services to be provided by its AEs to its group

company without any specific services that required by the

assessee. We further noted from agreement between parties

that agreement does not have any clause to protect beneficiary

from deficiency in services provided by service provider. From

the above, what we understand is agreement between parties is

only refers to various services to be provided by its AEs, but

not specific document of rendering actual services to the

assessee. Further, Appendix III to agreement gives allocation

keys for determining fees for various services. The allocation

is based mainly on percentage of external sales against group

total sales. Therefore, from the above, what we understand is

charges are fixed in relation to most of the services on the

basis of sales without any reference to what services that are

required by AE and their technical specification. Further, clause

2.7 of agreement provides that cost of HO management

services would be substantiated by documents evidencing trips

14 ITA Nos. 3194 & 478/Chny/2017

carried out, meeting held and more generally, work performed

for benefit of beneficiary and involving LOM personnel and

those documents would be provided to beneficiary. In this

case, the assessee, except furnishing agreement between

parties, invoices raised by AE and few e-mail correspondence,

no other documents have been filed to prove any services in

fact, was rendered by its AE. Therefore, in our considered view,

even if agreement is considered to be genuine, the assessee

has never tried to verify correctness of cost allocation done by

service provider. Further, the assessee has failed to

substantiate payment of such huge managerial fees month on

month without any supporting evidences like technical

specification of services rendered by its AE, personnel

deployed for said purposes and other evidences including

correspondence between parties. Although, the assessee refers

to number of e-mail correspondence between few employees

of the assessee and its AE, but on perusal of e-mail samples

filed by the assessee, what we could notice is these e-mails are

general in nature and further with reference to daily production

of products manufactured by the assessee in respect of sales

15 ITA Nos. 3194 & 478/Chny/2017

to different regions. Further, none of e-mail correspondence

filed by the assessee depicts any evidence of rendering any

kind of managerial or technical services to justify claim of the

assessee that it has received managerial services from its AE.

Therefore, we are of the considered view, that the assessee

has made periodical payment to its AE in the guise of

managerial fee without any justification for such payment and

further without any evidence on record to suggest that services

were actually rendered.

assessee is contesting findings of the TPO in respect of cost

benefit analysis of expenditure incurred by the assessee. No

doubt, the TPO has made a specific observation of necessity of

availing such services by the assessee. But, fact remains that

disallowances made by the TPO is on cumulative ground,

including necessity of services and want of evidence to justify

payment of management fees. It is well settled principle of law

by the decisions of various courts, including decision of the

Hon’ble Delhi High Court in the case of CIT vs Ekl Appliances

Ltd., 345 ITR 241, that the Assessing Officer cannot question

16 ITA Nos. 3194 & 478/Chny/2017

wisdom of businessman to incur a particular expenditure. But,

fact remains that the AO/TPO is having all powers to examine

whether particular expenditure incurred is genuine in nature

and further it is supported by necessary evidence. In this case,

on the basis of facts brought out by the authorities below

clearly indicate that the assessee has failed to file any

evidence to justify payment of management fees. In fact, the

assessee has failed to file any evidence except few e-mail

correspondence and agreement between parties. Further, no

other credible evidences were filed to justify payment of

management fees.

its international transactions with its AE by adopting TNMM as

most appropriate method and the Assessing Officer has

accepted TP study conducted by the assessee without any

adjustment, we find that whether particular expenditure is

incurred or not has to be tested with reference to evidences

placed on record. The operating margin of the assessee and

method adopted for testing arm’s length price does not prove

fact of rendering services and payment of management fees.

17 ITA Nos. 3194 & 478/Chny/2017

Therefore, in our considered view, payment of management

fees has to be examined, qua, evidences without going into

aspect of operating margin of assessee and TP study

conducted for that purpose. No doubt, the Hon’ble Delhi High

Court in the case of DCIT vs. Magneti Marelli Powertrain India

P. Ltd. (supra) has held that once the Assessing Officer has

tested aggregate international transactions by adopting a

particular method, then he cannot select few transactions and

apply different method to test arm’s length price of said

transactions. No doubt, once aggregate transactions of the

assessee with its AEs has been tested by applying TNMM as

most appropriate method, then the Assessing Officer/TPO

cannot pick few transactions and apply different method to

determine arm’s length price. We are fully in agreement with

said proposition. In the present case, the question before us is

whether payment made by the assessee to its AE for

managerial services is in fact, incurred wholly and exclusively

for the purpose of business and further said expenditure is

supported by necessary evidence or not. On perusal of facts

available on record and on the basis of facts brought out by

18 ITA Nos. 3194 & 478/Chny/2017

authorities below, we are of the considered view that the

assessee has failed to bring on record any evidences to justify

payment of management fees. Therefore, we are of the

considered view that case laws relied upon by the assessee on

the issue of necessity of availing services and question of cost

benefit analysis of said expenditure has no application to

present issue on hand.

circumstances of the case, we are of the considered view that

there is no error in reasons given by ld.TPO/DRP in making TP

adjustments for payment of managerial services fee to its AE.

Therefore, we are inclined to uphold findings of the learned

DRP and reject grounds taken by the assessee.

year 2012-13 is dismissed.

ITA No.3194/Chny/2017 (A.Y.2013-14):

ITA Nos. 3194 & 478/Chny/2017

equity and natural justice, contrary to without appreciating the facts and circumstances of the case.

Transfer Pricing 2. The Ld. DRP, Ld. AO and the Ld. TPO erred in re-characterising the Appellant as a cor manufacturer executing work orders as per the directions of the AEs, thereby concluding the requirement for availing management services did not arise.

By questioning the commercial wisdom of the Appellant without merely restricting him the determination of the Arm’s Length Price;

• By concluding that there were no evidences filed towards receipt of services completely disregarding the information / documents / clarifications provided to substantiate that the services were in fact received.

• Despite accepting the aggregation approach of benchmarking adopted by the Appellant in its TP documentation; • By adopting a transaction — by — transaction approach with respect to the transaction of payment of management fee alone though there was no rejection of the Transfer Pricing (“TP”)documentation of the Appellant as required under section 92C(3) of the Act;

• Without appreciating that the management services transaction undertaken by the Appellant was closely interlinked with its primary operations, thus necessitating aggregation approach for the purposes of TP in accordance with section 92C of the Act read with Rule l0B of the Income tax Rules, 1962 (“the Rules”) and the relevant OECD guidelines;

• Without adopting one of the mandatory methods prescribed for determination of ALP under section 92C of the Act read with Rule 10B of the Rules;

• Without considering several judicial precedents which have held that the Ld. TPO cannot determine the ALP of a said transaction to be at NIL.

20 ITA Nos. 3194 & 478/Chny/2017

amount of TDS representing INR 77,21,033. Whereas the adjustment, if at all, should be restricted to INR 9,16,83,022 as the grossed up portion of TDS represents a cost borne by the Appellant and not an international transaction with its Associated Enterprise. Corporate Tax 5. The Ld. DRP and the Ld. AO erred in disallowing the grossed up portion of Taxes Deducted at Source (“TDS”) on external commercial borrowings (“ECB”) amounting to INR 78,15,435 which was borne by the Appellant on behalf of Lite—On Finland and Lite- On Mobile Pte Ltd, Singapore (“Lite-On Singapore”) by: • Erroneously applying section 4oa(n) of the Act for the purpose of disallowing the amounts in question, when the applicability of the subject provision for the issue did not arise; • Not appreciating that, such grossed up portions of TDS, represent discharge of liability incurred which the assessee had undertaken to pay as part of the terms and conditions of the ECB contract; and • Not appreciating Court and Tribunal rulings which have allowed grossed up portions of TDS borne on behalf of the payee on account of contractual obligations.” 15. The facts and issues involved in this appeal are identical

to facts and issues, which we had considered in ITA

No.478/Chny/2017 for assessment year 2012-13.

ground no.2 to 4 of assessee’s appeal is TP adjustment made

by the TPO and confirmed by the Ld.DRP in respect of

managerial fees paid by the assessee to its AE. An identical

issue has been considered by us in preceding paragraphs in

ITA No.478/Chny/2017 for assessment year 2012-13. The

21 ITA Nos. 3194 & 478/Chny/2017

reasons given by us in preceding paragraphs shall mutatis

mutandis shall apply to this appeal as well. Therefore, for

similar reasons, we are inclined to uphold findings of the ld.DRP

and reject ground taken by the assessee.

ground no.5 of assessee appeal is disallowance of grossed up

portion of TDS on payment of interest on external commercial

borrowings amounting to Rs.78,15,435/-. The assessee has

availed ECB loan from related parties and provided interest of

Rs. 4,93,04,021/-. The assessee has grossed up interest

payment for TDS portion amounting to Rs.78,15,435/-.The

TPO has disallowed grossing up of TDS amounting to

Rs.78,15,435/- on the ground that TDS deducted on payment

made to AE was liability of AE which the assessee has met and

thus, same cannot be allowed as deduction u/s.40A(2) of the

Income Tax Act, 1961. It was explanation of the assessee

before the Assessing Officer that as per agreement between

the assessee and AE, beneficiary is required to bear and pay

withholding taxes and all other applicable taxes attracted on

services rendered in India. Therefore, the assessee has

22 ITA Nos. 3194 & 478/Chny/2017

grossed up TDS remitted on payment made to AE and thus,

same is in the nature of expenditure incurred and hence, needs

to be allowed as deduction u/s.37 of the Income Tax Act, 1961.

learned DRP has erred in sustaining additions made by the

TPO towards disallowance of grossed up portion of TDS of

Rs.78,15,435/- without appreciating fact that as per contractual

arrangement between parties, the assessee is liable to deposit

TDS applicable on said payment and thus, same partakes

nature of expenditure which needs to be allowed as deduction.

order of the learned DRP submitted that what was paid by the

assessee is liability of AE, but not payment for services

rendered by the AE. Therefore, the learned TPO/DRP has

rightly disallowed TDS deducted and remitted on behalf of AE

and grossed up in interest provided on ECB loan and thus, their

orders should be upheld.

available on record and gone through orders of the authorities

23 ITA Nos. 3194 & 478/Chny/2017

below. We have also carefully considered agreement between

the parties dated 28.09.2006. As per said agreement, any tax

liability including income tax, if any, on interest accrued to the

lender under the agreement would be borne by lender. The

agreement further states that borrower will compute appropriate

amount of taxes required to be withheld and deposit same to

credit of Indian Govt. treasury. The borrower will provide lender

with a certificate evidencing deposit of such taxes. Therefore,

from the conditions of agreement between parties, it is very

clear that tax liability, if any, on interest paid to lender is

responsibility of lender. However, the assessee should deduct

applicable tax deducted at source as per law, remit the same to

Govt. treasury and furnish proof to lender. In this case, the

assessee has deducted TDS on interest payment. But, instead

of reducing it from payment made to the AE, has grossed up

TDS portion to interest paid to AE and claimed as deduction. In

our view, procedure followed by the assessee for grossing up of

interest is contrary to agreement between the parties and also

contrary to provisions of law. Therefore, we are of the

considered view that there is no error in the reasons given by

24 ITA Nos. 3194 & 478/Chny/2017

the learned TPO/DRP in disallowing grossed up portion of TDS

deducted on interest paid to AE on External Commercial

Borrowings. Hence, we are inclined to uphold findings of the

learned DRP and reject ground taken by the assessee.

year 2013-14 is dismissed.

dismissed. Order pronounced in the open court on 3rd November, 2021

Sd/- Sd/- (जी. मंजुनाथ) (धु�वु� आर.एल रे�डी) (Duvvuru RL Reddy) (G.Manjunatha) "या�यक सद%य /Judicial Member लेखा सद%य / Accountant Member चे"नई/Chennai, (दनांक/Dated 3rd November, 2021 DS आदेश क� ��त*ल+प अ,े+षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु-त (अपील)/CIT(A) 4. आयकर आयु-त/CIT 5. +वभागीय ��त�न1ध/DR 6. गाड� फाईल/GF.