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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI N.K.PRADHAN
अपीलाथ� �वारा/ Appellant by : Ms. Usha Kadam ��तवाद� �वारा/Respondent by : Shri Uodal Raj Singh सुनवाई क� �त�थ/ Date of hearing : 22/07/2020 घोषणा क� �त�थ/ Date of pronouncement : 27/07/2020 आदेश/ ORDER PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the assessment order dated 31/10/2017 passed under section 143(3) r.w.s. 144C (13) of the Income Tax Act, 1961 (in short ‘the Act’) for the assessment year 2013-14.
The assessee has raised 12 grounds of appeal. Ms. Usha Kadam, appearing on behalf of the assessee submitted at the outset that she would not be pressing ground No.1 to 3 of the appeal.
2.1. In grounds of appeal no.4, 5 & 6 the assessee has assailed Transfer Pricing (TP) adjustment made in respect of interest on loans given to it’s Associated Enterprise (AE). The ld. Authorized Representative of the assessee submitted that the assessee had advanced loans aggregating to USD 29,00,000 (equivalent to INR 12,66,18,520/-) to overseas AE. The Transfer Prising Officer (TPO) to benchmark Arm’s Length Price (ALP) of the loan transactions applied LIBOR + 3% interest and made TP adjustment of Rs.77,22,054/-. The ld. Authorized Representative of the assessee submitted that on similar loan transactions in assessment years 2010-11 and 2011-12, the TPO made identical TP adjustment. The assessee carried the issue in appeal before the Tribunal in & 687/Mum/2016, respectively. The Tribunal vide order dated 06/12/2019 common for both the assessment years held that LIBOR rate is to be applied without any mark-up. To further buttress her contentions, the ld. Authorized Representative of the assessee placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT Vs. TATA Autocomp Systems Ltd. reported as 56 taxmann.com 206.
2.2. The ld.Authorized Representative of the assessee submitted that in ground No.7 to 11 of the appeal, the assessee has assailed disallowance of Rs.23,08,735/- made under section 14A r.w.r. 8D. The ld. Authorized Representative of the assessee submitted that during previous year relevant to the assessment year under appeal, the assessee has earned exempt dividend income of Rs.2,01,121/-. The disallowance under section 14A should be restricted to the exempt income earned.
Per contra, Shri Uodal Raj Singh, representing the Department vehemently defended the impugned assessment order. However, the ld. Departmental Representative admitted that the TP adjustment in respect of interest on loans to AE was made in assessment year 2010-11 and 2011-12, as well. The Tribunal has adjudicated this issue in assessee’s appeals for the aforesaid assessment years.
We have heard the submissions made by rival sides and have perused the orders of authorities below. There are two issues in appeal for our consideration i.e.: i. TP adjustment w.r.t. interest on loans advanced to AE; and ii. Disallowance u/s 14A r.w.r. 8D.
The ld. Authorized Representative of the assessee stated at the Bar that she is not pressing grounds of appeal no. 1 to 3, these grounds are dismissed as not pressed, accordingly.
In grounds of appeal No.4 to 6, the assessee has assailed TP adjustment of Rs.77,22,054/- on account of interest on loans advanced to AE. The assesse has purportedly advanced interest free loans to its AE. The TPO in order to benchmark the loan transaction at arm’s length applied LIBOR +3% rate of interest. The contention of the assesse is that only LIBOR rate should be applied without any mark-up. We find that the Hon'ble Bombay High Court in the case of CIT vs TATA Autocomp Systems Ltd. (supra) has upheld the order of Tribunal in determining ALP of loans advanced to overseas AE at EURIBOR/LIBOR rates without any mark-up. We further observe that in the immediately preceding assessment years, the TPO had made similar adjustments qua interest on loans advanced to AE. The Co-ordinate Bench directed the TPO to apply LIBOR rates to benchmark Arm’s Length Price (ALP) of International Loan Transaction. Thus, in the light of the afore mentioned judgement of the Hon’ble Jurisdictional High Court and the order of Tribunal in assessee’s own case, we direct the TPO to apply LIBOR rate to benchmark the transactions of loan advanced to AE during the relevant period. The grounds of appeal No.4 to 6 are partly allowed, accordingly.
The grounds of appeal No.7 to 11 are on disallowance made under section 14A r.w.s. 8D. The assessee during the period relevant to assessment year under appeal has earned dividend income of Rs.2,01,121/-. The Assessing Officer has made disallowance of Rs.23,08,734/- under section 14A r.w.s. 8D(2)(iii). The Hon'ble Apex High Court in the case of PCIT vs. State Bank of Patiala reported as 99 taxmann.com 286 has approved that disallowance under section 14A of the Act is to be restricted to exempt income earned. Thus, in the light of above, we direct the Assessing Officer to restrict disallowance under section 14A r.w.r. 8D to the extent of exempt income earned by the assesse during the relevant period. The grounds of appeal No.7 to 11 are partly allowed.
8. The Ground No.12 of the appeal is general, hence, requires no adjudication.
In the result, appeal of the assessee is partly allowed.
Order pronounced on Monday the 27th day of July, 2020.
Sd./- Sd./-
(N.K.PRADHAN) (VIKAS AWASTHY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER मुंबई/ Mumbai, �दनांक/Dated 27/07/2020 Vm, Sr. PS (O/S)