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Income Tax Appellate Tribunal, DELHI BENCH: ‘I-1’ NEW DELHI
Before: SHRI R. K. PANDA & MS SUCHITRA KAMBLE
ORDER PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the Assessment Order dated 27/01/2016 passed by the Assessing Officer u/s 143 (3) read with Section 144C of the Income Tax Act, 1961, for Assessment Year 2011-12.
The grounds of appeal are as under:- “On the facts and circumstances of the case & in law, the Learned Assessing Officer (‘Ld. AO’)/ Learned Transfer Pricing Officer (‘Ld. TPO’) (in pursuance to the directions of the Learned Dispute Resolution Panel (‘Ld. DRP’)), erred in not accepting the returned income of the Appellant amounting to Rs. 2,91,09,98,332/- and enhancing the same by Rs. 9,03,71,268/-. On the facts and circumstances of the case & in law, the Ld. AO/DRP grossly erred in confirming the addition of Rs. 9,03,71,268/- to the income of the Appellant proposed by the Ld. TPO by holding that its international transaction pertaining to receipt of corporate guarantee fee from its Associated Enterprise (‘AE’) do not satisfy the arm’s length principle envisaged under the Act and in doing so, the Ld. AO/DRP grossly erred in upholding the Ld. TPO’s action of:
2.1. disregarding the fact that the provision of corporate guarantee to the AE was intended to facilitate an acquisition by the Appellant, and consequently the guarantee was in the nature of shareholder services; 2.2. disregarding the fact that in the absence of the corporate guarantee provided, the Appellant being the holding company would have provided the funds to the subsidiary by increasing the share capital, and thus the guarantee provided should be treated as quasi- equity in nature for which arm’s length compensation is not required; 2.3. disregarding the detailed and proper comparability analysis submitted by the Appellant following the ‘interest saved’ approach; 2.4. imputing the corporate guarantee commission @ 2.695% plus an ad-hoc mark-up of 200 basis points, on the basis of data allegedly obtained from various banks under section 133(6) of the Act without appreciating the fact that the same did not constitute a valid Comparable Uncontrolled Price (‘CUP’); 2.5. disregarding the Appellant’s contention that bank guarantee cannot be considered comparable to corporate guarantee and adjustments are required to nullify the differences between the two; 2.6. making an ad-hoc adjustment of 200 basis points to the average rate of the commission charged by the domestic banks for which data was obtained from various banks u/s 133(6) of the Act, without any basis;
2.7. collecting information on bank guarantee rates from various banks by exercising power granted to the Ld. TPO under section 133(6) of the Act that was not available to the Appellant in the public domain and in doing so;
2.7.1 violating the fundamental principles of natural justice by relying on the information sourced under section 133(6) of the Act;
2.7.2 not sharing the information/ reply received by the Ld. TPO under section 133(6) of the Act and not giving opportunity of being heard to the Appellant before using such information to make an adjustment.
That on the facts of the case, the Ld. AO erred in not allowing full credit of taxes paid (including the excess amount of Dividend Distribution Tax) by the assessee in accordance with provisions of the Act while raising tax demand of Rs. 3,27,18,850 in the demand notice sent along with impugned assessment.
That on the facts of the case, the Ld. A.O erred in raising the tax demand of Rs. 3,27,18,850/- in the demand notice sent along with impugned assessment order without allowing he set-off/refund due on excess amount of Dividend Distribution Tax amounting to Rs.26,19,562/- paid by the assessee during the year.
5. The Ld. A.O has grossly erred by proposing to compute interest u/s 234A, 234B, 234C and 234D of the Act;
6. The Ld. A.O has grossly erred in initiating penalty u/s 271(1)(c) of the Act mechanically and without recording any satisfaction for its initiation.
The above grounds are without prejudice to each other.”
3. The assessee Company was incorporated in 1986 under the Companies Act, 1956. It was formed as a joint venture between Motherson Group, India and Sumitomo Wiring Systems Ltd, Japan. The assessee is engaged in manufacturing of automotive electrical distribution system. The assessee is publicly traded company and the shares are listed in Mumbai, Ahmedabad, Delhi and the National Stock Exchange. During the relevant Assessment Year, the assessee under took following international transactions with associated enterprises (AEs) on which it has paid transfer pricing adjustment. S. No. Head Value Method used for Determining the price 1 Purchase of Goods Rs.1,14,19,38,905/- TNMM 2 Sale of Goods Rs.81,06,60,137 TNMM 3 Purchase of fixed Rs.13,92,39,925/- TNMM assets 4 Payment of Royalty Rs.13,65,49,697/- TNMM
and Technical Fee 5 Services Received Rs.7,09,12,683/- TNMM 6 Services Rendered Rs.24,45,995/- TNMM 7 Reimbursement of Rs.1,25,88,434/- TNMM expenses paid 8 Receipt of Guarantee Rs.40,20,973/- CUP fee 9 Receipt of Interest Rs.3,39,224/- CUP on Loan 10 Reimbursement of Rs.2,08,51,157/- CUP expenses received TOTAL 2,33,95,47,130/-
The case was referred to the Transfer Pricing Officer and the Transfer Pricing Officer vide order dated 15/1/2015 increased Rs. 9,50,06,189/- of the total income of the assessee and made the adjustment accordingly. The Assessing Officer vide order dated 27/1/2016 has made disallowance of Rs.9,03,71,268/- on account of TP adjustment by following the directions given by the DRP vide directions dated 27/11/2015.
Being aggrieved by the assessment order, the assessee filed appeal before us.
The Ld. AR submitted that the Transfer Pricing Officer and the DRP in subsequent Assessment Years being principally accepted the concept of interest saved approach as proposed by the assessee. The Ld. AR further submitted that in Assessment Year 2012-13, the DRP vide order dated 22nd September, 2016 upheld the use of interest save approach. The TPO while giving effect to the order of the DRP applied the interest save approach in similar manner as being used by the assessee in the letter dated 24/12/2014. Similar approach was followed by DRP and TPO for Assessment Year 2013-14. In Assessment Year 2014-15, the TPO applied the same interest save approach while issuing the TP order u/s 92CA(3) of the Act. Thus, the Ld. AR submitted that the approach adopted by the TPO and upheld by the DRP is defective and is contrary to the judicial precedents. The Ld. AR requested to set aside the matter to the file of the TPO/A.O with a direction to use similar approach to determine the Arms’ Length Price as being applied in the recently concluded assessment proceedings.
The Ld. DR relied upon the order of the TPO/DRP.
We have heard both the parties and perused the material available on record. It can be seen that the approach adopted by the TPO and the DRP is not inconsonance with the concept of interest saved approach as proposed by the assessee and the same has been accepted by the Revenue in subsequent years. Therefore, it will be appropriate to remand back this issue to the file of the TPO/A.O. for taking cognizance of all the relevant material available on record. Thus, Ground No. 2 is partly allowed for statistical purposes.
As regards Ground Nos. 3 & 4, the Ld. AR submitted that the Assessing Officer erred in not allowing full credit of taxes paid including the excess amount of dividend distribution tax as per the provisions of the Act while raising the tax demand of Rs. 3,27,18,815/- in the demand notice sent with impugned assessment order. The Ld. AR relied upon the order of the Tribunal in case of ITC Ltd. vs. CIT (ITA No. 301/KOL/2015, 684/KOL/2015 and 1027/KOL/2013 order dated 03.02.2015)
The Ld. DR relied upon the order of the TPO/A.O.
We have heard both the parties and perused the material available on record. From the quantification it appears that the set off refund due on excess amount of dividend distribution tax amounting to Rs. 26,19,562/- mentioned by the assessee during the year was not at all considered by the DRP as well as TPO. Therefore, it will be appropriate to remand back this issue to the file of the TPO/A.O. Thus, Ground No. 3 & 4 are partly allowed for statistical purpose.
Ground No. 5 & 6 are consequential, hence, dismissed.
In result, appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the Open Court on 01st July, 2019.