TECHNOCRAFT INDUSTRIES (INDIA) LTD,MUMBAI vs. ASST CIT 11(3)(1), MUMBAI

Learned Commissioner (Appeals) noticing that while deciding identical issue in assessee’s own case for the assessment year 2007– 08, the Tribunal has upheld the rate of 2.08% as the arm's length guarantee fee, followed the same and directed the Transfer Pricing Officer to determine the arm's length price of guarantee fee by applying the rate of 2.08% per annum.

Shri Vijay Mehta, learned Counsel for the assessee submitted, though, in the assessment year 2007–08 the Tribunal had fixed the rate of guarantee fee @ 2.08% p.a., however, in subsequent

The learned Departmental Representative relied upon the observations of learned Commissioner (Appeals).

We have considered rival submissions and perused the material on record. Undisputedly, the assessee has charged guarantee fee @ 0.90% per annum on the financial guarantee provided to the AE on loan availed. While the Transfer Pricing Officer determined the arm's length price of the guarantee fee by applying the rate of 3% per annum, learned Commissioner (Appeals) reduced it to 2.08% per annum relying upon the decision of the Tribunal for the assessment year 2007–08. No doubt, while deciding assessee’s appeal in assessment year 2007–08, in ITA no.7519/Mum./2011, dated 8th January 2014, the Tribunal has held that guarantee fee @ 2.08% per annum is at arm's length. However, while deciding identical issue in 5 Technocraft Industries India Ltd. assessee’s own case for the assessment year 2009–10, in ITA no.6686/Mum./2014, dated 31st July 2018, the Tribunal has accepted assessee’s claim that guarantee fee charged @ 0.90% per annum is at arm's length. The same view was reiterated by the Tribunal while deciding identical issue in assessee’s appeal for the assessment year 2010–11, vide ITA no. 7565/Mum./2014, dated 27th December 2018. It is also relevant to observe, in similar nature of cases different benches of the Tribunal, including Mumbai Benches, have held that guarantee fee charged @ 0.50% is reasonable. In fact, the decision taken by the Tribunal that guarantee fee charged at 0.5% is at arm's length has been accepted not only by the Hon'ble Jurisdictional High Court but also by the Hon'ble Supreme Court, as would be evident from the decision in CIT v/s Glenmark Pharmaceuticals Ltd. in Civil Appeal no.12632/2017. In view of the aforesaid, we direct the Assessing Officer to accept the arm's length price of the guarantee fee @ 0.90% per annum as shown by the assessee. This ground is allowed.

In ground no.2, the assessee has challenged the addition made on account of adjustment made to the arm's length price of interest on loans advanced to the AEs.

Brief facts are, in the course of proceedings before him, the Transfer Pricing Officer found that the assessee had advanced loans to 6 Technocraft Industries India Ltd. three of its overseas AEs. On further verification, he found that assessee had advanced loans to Technocraft Hungary KFT and Impact Capholdings without charging any interest. Whereas, it has advanced loan to Anhui Reliable Steel Technologies, China, by charging interest @ 8% per annum. After issuing show cause notice to the assessee to explain as to why arm's length rate of interest on the loan advanced to the AEs should not be determined, the Transfer Pricing Officer ultimately proceeded to determine the arm's length rate of interest @ 10% per annum which worked out to ` 47,66,080. Since the assessee had already charged interest @ ` 32,90,617, the resultant shortfall of ` 14,75,463, was treated as adjustment to the arm's length price of interest. Accordingly, the Assessing Officer made the addition while framing the assessment order. While deciding assessee’s appeal on the issue, learned Commissioner (Appeals) held that since the loans were advanced in foreign currency to the AEs located in different countries, the benchmarking of interest on loan has to be done as per the rates prevailing in those countries. Further, learned Commissioner (Appeals) observed, average one year LIBOR rate of interest during the year was less than 1%. Thus, he observed, the interest rate of 8% charged by the assessee on loan advanced to the AE should be considered to be at arm's length. Therefore, he directed the Assessing Officer to adopt the interest rate of 8% while determining the arm's length price of interest on loans advanced to the AEs.

The learned Counsel for the assessee submitted, interest free loans advanced to the two AEs were short term loans, hence, the assessee had not charged any interest. However, he submitted, in respect of such loans interest cannot be charged @ 8% as LIBOR rate is applicable. He submitted, while deciding identical issue in assessee’s own case for the assessment years 2009–10 and 2010–11, the Tribunal has directed the Assessing Officer to compute interest on loan by applying LIBOR rate. Thus, he submitted, similar directions may be given in the impugned assessment year as well.

The learned Departmental Representative submitted, since the assessee itself had charged interest @ 8% in respect of loan advanced to one of the AEs, the same rate should also be applied in respect of the interest free loans advanced to other two AEs. Without prejudice to the above, the learned Authorised Representative submitted, at least interest should be charged @ LIBOR plus some basis points, as is consistently being held by the Tribunal in many other cases.

We have considered rival submissions and perused the material on record. Insofar as the interest charged @ 8% on the loan advanced to Anhui Reliable Steel Technologies, China, there is no surviving dispute as learned Commissioner (Appeals) has accepted the arm's length interest rate of 8%. Admittedly, the Department has not filed

In the result, assessee’s appeal is partly allowed.

The solitary issue arising for consideration in this appeal relates to allowance of assessee’s claim of additional depreciation.

Brief facts are, while verifying the revised return of income filed by the assessee in the course of assessment proceeding, the Assessing Officer noticed that the assessee has claimed additional depreciation. Thus, he called upon the assessee to furnish the necessary details / documents to justify its claim. In response, it was submitted by the assessee that in the preceding assessment year, the assessee had purchased certain new plant and machinery for use in its business on which it was eligible to claim additional depreciation @ 20%. However, since the new plant and machinery was put to use for a period of less than 180 days in the preceding assessment year i.e., assessment year 2010–11, additional depreciation was restricted to 50% of the amount allowable to the assessee @ 20%. In other words, additional depreciation was allowed @ 10% instead of 20%. Thus, it was 10 Technocraft Industries India Ltd. submitted, the balance amount of additional depreciation which was not allowed in assessment year 2010–11 was claimed in the impugned assessment year. The Assessing Officer, however, did not accept the claim of the assessee. He observed, the amended provisions allowing such benefit to the assessee since would be applicable from the assessment year 2016–17 onwards, the assessee cannot claim the benefit in the impugned assessment year. Accordingly, he disallowed the claim of additional depreciation. The assessee challenged the aforesaid disallowance before the first appellate authority.

After considering the submissions of the assessee and following the decision of the Tribunal, Kolkata Bench, in Birla Corporation Ltd. v/s DCIT, ITA no.683/Kol./2011, learned Commissioner (Appeals) allowed assessee’s claim of additional depreciation.

The learned Departmental Representative relied upon the observations of the Assessing Officer.

The learned Counsel for the assessee relied upon the decision of learned Commissioner (Appeals). Further, he also relied upon the decision of the Hon’ble Madras High Court in CIT v/s Shri T.P. Textiles Pvt. Ltd., [2017] 394 ITR 483 (Mad.).

We have considered rival submissions and perused the material on record. Undisputedly, in the assessment year 2010–11 the 11 Technocraft Industries India Ltd. assessee had purchased some plant and machinery on which additional depreciation under section 32(1)(iia) of the Act was allowable @ 20%. However, since the assets were put to use for a period of less than 180 days, depreciation was allowed @ 50% of the rate fixed i.e., @ 10%. The balance 10% of the additional depreciation was claimed by the assessee in the impugned assessment year. The issue before us is, whether balance portion of additional deprecation pertaining to the preceding assessment year can be allowed in the impugned assessment year. We find answer to the aforesaid issue in the decisions cited by the learned Counsel for the assessee. The Tribunal, Mumbai Bench, in M/s. Wellknown Polyesters Ltd. v/s JCIT, ITA no.7015/Mum./2012, dated 17th September 2014, held that if the entire amount of additional depreciation could not be allowed in the assessment year, wherein, the plant and machineries were put to use for less than 180 days, the balance portion of depreciation can be allowed in the subsequent assessment year. The same view has been expressed by the Hon’ble Karnataka High Court in CIT v/s Rittal India Pvt. Ltd., dated 4th January 2016 and by the Hon'ble Madras High Court in CIT v/s T.P. Textiles Pvt. Ltd. [2017] 394 ITR 483 (Mad.). Respectfully following the ratio laid down in the aforesaid decisions, we uphold the order of the learned Commissioner (Appeals) on this issue. Grounds are dismissed.

To sum up, assessee’s appeal is partly allowed and Revenue’s appeal is dismissed. Order pronounced in the open Court on