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Income Tax Appellate Tribunal, MUMBAI BENCH “K”, MUMBAI
Before: SHRI B R BASKARAN & SHRI AMIT SHUKLA
ORDER अिमत शु�ला : �या. स.: PER AMIT SHUKLA, JM: The aforesaid cross appeals have been filed by the assessee as well as by the revenue against the impugned order dated 27.01.2014, passed under section 143(3) r.w.s. 144C(13) in pursuance of direction given by the Dispute Resolution Panel (DRP) vide order dated 13.12.2013, under section 144C(5) for the assessment year 2009-10. We will first take-up assessee’s appeal
2 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 being vide which following grounds have been raised: “The appellant objects to the order dated 27th January 2014 passed under section 143 (3) r.w.s. 144C (13) of the Income Tax Act, 1961 (Act) by the Ld. Assistant Commissioner of Income Tax, Range
11. (1), Mumbai [Assessing Officer (AO)] in pursuance of the direction issued under section 144C (5) of the Act by the Ld. Dispute Resolution Panel - II, Mumbai (DRP) on the following amongst other grounds :-
“1. The transfer pricing proceedings initiated by the AO under Section 92CA (1) of the Act are without any jurisdiction and ought to be quashed.
2. On the basis of the facts and in the circumstances of the case and in law the learned AO in pursuance of the direction given by the learned DRP erred in assessing the income of the Appellant at Rs.59,66,67,420/-.
3. The Ld. DRP erred in not directing the AO to delete the transfer pricing adjustments proposed by the Transfer Pricing Officer (TPO), as he failed to follow the provisions of section 92 A (3) of the Act, hence, the transfer pricing adjustments are bad in law and the appellant's international transactions should be accepted at arm's length as per section 92 of the Act.
4. On the basis of the facts and in the circumstances of the case and in law, the id. AO in pursuance of the direction given by the ld. DRP erred in confirming the transfer pricing adjustment of Rs.27,05,83,190/- as proposed by the TPO on account of determination of ALP of International Licence revenue receivable by the appellant in terms of the provisions of agreement with Associated Enterprise (AE).
5. On the basis of the facts and in the circumstances of the case and in law, the Id. AO in pursuance of the direction given by the ld. DRP erred in confirming the transfer pricing adjustment of Rs.8,02,05,696/- as proposed by the TPO towards determination of ALP over the assignment of international licence revenue.
6. On the basis of the facts and in the circumstances of the case and in law, the learned AO in pursuance of the direction given by the learned DRP erred in confirming the transfer pricing adjustment of Rs.4,30,240/- as proposed by the TPO towards notional interest on the loans and advances given to AEs.
7. On the basis of the facts and in the circumstances of the case and in law, the learned AO in pursuance of the direction given by the ld. DRP erred in confirming the transfer pricing adjustment of Rs. 1,01,27,900/- as proposed by the TPO towards notional Guarantee Commission charges for the guarantee extended to its AEs.
3 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 8. On the basis of the facts and in the circumstances of the case and in law, the ld. AO in pursuance of the direction given by the learned DRP erred in confirming disallowance u/s 40 (a)(ia) of Rs.6,92,49,161/- on account of non deduction of TDS on alleged agency commission payable to advertising agency.
9. On the basis of the facts and in the circumstances of the case and in law, the learned AO in pursuance of the direction given by the ld DRP erred in making the addition of Rs.2,23,51,600/- under section 14A of the Act, r.w. rule 8D.
10. On the basis of the facts and in the circumstances of the case and in law, the Id. AO in pursuance of the direction given by the Id. DRP erred in making the addition of Rs.12,33,521/- being estimated at 10% of the total expenditure incurred on food, equipment hire etc., by the appellant. The whole of the expenditure is incurred for the purpose of the business of the appellant”.
At the outset, Ld. Sr. Counsel, Dr. K Shivram submitted that ground no. 1, 3 and 10 are general in nature, hence, the same are not pressed. The assessee has also filed a separate letter dated 29.10.2015 stating that, these grounds are not pressed. Accordingly, these grounds are dismissed as not pressed.
Regarding ground no. 4, which is on account of adjustment of Rs. 27,05,83,190/- on account of Arm’s Length Price determination of International Licence revenue receivable from AE, Ld. Senior Counsel, submitted that, after the order of the DRP dated 31.12.2013, the DRP has passed a corrigendum vide order dated 12.03.2014, whereby the DRP has deleted the addition relying upon the ITAT order for the AY 2008-09 in assessee’s own case. Therefore, this ground has become infructuous. Accordingly, ground no. 4 is dismissed as infructuous.
Similarly, regarding ground no. 5 relating to adjustment of Rs.802,05,696/- towards determination of ALP through assignment of international licence revenue, the Ld. Senior Counsel pointed out the DRP in its corrigendum order dated 12.03.2014 has deleted the said addition after following the ITAT order for the AY 2008-09. Therefore, this ground has become
4 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 infructuous. Accordingly, ground no. 5 is also treated as dismissed as infructuous.
In Ground no. 6, the assessee has challenged the transfer pricing adjustment of Rs. 4,30,240/- on account of notional interest on the loans and advances given to the AEs.
Brief facts are that, the assessee has granted interest free loan to its 3 AEs, namely; (i) Nimbus Media Pte. Ltd., Singapore (ii) Nimbus Communication Ltd. BV Islands (iii) Nimbus Sports International Pte. Ltd., Singapore The AO required the assessee to show cause, as to why interest should not be charged on these amounts (as the assessee has not charged any interest on such outstanding loans / receivables) based on interest paid on its own borrowings. In response, the assessee vide letter dated 10.01.2013 21.04.2013 submitted as under:- “6.3 xxx (i) The assessee had granted an advance of Rs. 3,61,009/- (opening balance) to its AE M/s Nimbus Media Pte. Ltd, on which no interest was charged. (ii) The assessee had granted a loan of Rs. 35,51,154/- (opening balance) to its AE M/s Nimbus Communications British Virgin Islands, on which no interest was charged. (iii) The assessee has not charged interest on amount receivable from its AE M/s Nimbus Sports International Pte. Ltd., Singapore. 6.4 With regard to the advances to the AEs, it was contended that they were given in the ordinary course of business, and the nature of business does not warrant any arm’s length analysis. With regard to the debit balance it was submitted that the Hon’ble ITAT Mumbai in the assessee’s case for AY 2004-05 has held that charging of interest on a loan is different from charging interest on bills raised for services rendered and has deleted the adjustment”.
5 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 However, Ld. TPO after detail analysis held that in a third party situation, such a loan would not have been given without charging interest and the transaction is otherwise also covered under the purview of international transaction as defined in section 92B, therefore, it needs to be bench marked and ALP has to be determined. After taking into account all the factors, he held that the effective rate of interest would be 14.5% and since it is an unsecured loans, therefore, 3% should be added extra; and accordingly, he computed the ALP interest to Rs. 208,57,971/- @ 17.5%. The DRP however directed to restrict the adjustment after calculating the interest based on SBI PLR rate of 12.2%.
We find that this issue had come for consideration before the Tribunal in the AY 2007-08 & 2008-09. The Tribunal had taken note of the fact that assessee had also received loans / advances on which assessee did not pay interest. For verification the matter was set aside to the AO. The relevant observation reads as under: “25. We have heard the rival contentions, perused the findings of the authorities below as well as the material available on record. In so far as the issue of charging of notional interest on loans and advances are concerned, it is seen that this issue had come up for consideration in assessee’s own case for the assessment year 2007–08, however, this ground as taken in ground no.3(a), (b) and (c), in that year has not been pressed. In this year, the learned Counsel has taken a plea that the assessee has also received various advances on which no interest is payable. This plea has not been taken either before the TPO or the before DRP, therefore, we are of the considered opinion that insofar as the adjustment on account of notional interest on loans and advances given to 2 A.Es namely Nimbus India Pte. Ltd., Singapore and Nimbus Communication British Virgin Island, the matter needs to be verified and examined by the TPO and should be decided afresh in accordance with law after giving due and effective opportunity of hearing to the assessee to explain its case. Following the same reasoning, we also set aside the matter to the file of the AO with a direction to decide this issue on similar lines. Accordingly ground no. 6 is allowed for statistical purposes.
6 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 8. In ground no. 7, the assessee has challenged the transfer pricing adjustment of Rs. 1,01,27,900/- towards notional Guarantee Commission chargeable for the guarantee extended to its AEs. It has been admitted by both the parties that this issue is partly covered in favour of the assessee by the order of the Tribunal for the assessment year 2008-09, wherein the Tribunal has held that notional commission chargeable as on ALP should be taken at 0.5%, instead of 1.5% directed by the DRP.
The TPO in his order noted that, the assessee has extended the corporate guarantee without charging any commission on the term loans given by the bank to the AEs; in the following manner :- (i) US$ 3 million to ICICI Bank, UK for a term loan given by the Bank in the relevant year for financial facility to M/s. Nimbus Communications Worldwide Ltd., Mauritius; (ii) US$ 20,22,472 to ICICI bank, UK for a term loan given by the Bank in the relevant year for financial facility to M/s. Nimbus Sports International Pte Ltd., Singapore;
(iii) US$ 8.9 million as corporate guarantee on behalf of its AE, NSI, in connection with its Media Rights Agreement with its Media Rights Agreement with BCCI. This is to meet all rights and obligations of the AE in ease it cannot fulfil its duties. The assessee exposes itself to certain risks for which it has not received any compensation. An independent third party would not expose itself to such risk without adequate compensation; or on the other hand would have taken some sort of guarantee given by the third party for the guarantee given by it, and such counter guarantee was not obtained in this case. (iv) US$ 10 million worth of loan notes were issued by its AE, NSI, to third parties. The same were underwritten by the assessee. The assessee exposes itself to certain risks for which it has not received any compensation. An independent third party would not expose itself to such risk without adequate compensation”.
He further noted that since under the Arm’s Length condition, an independent enterprise would have charged fee for such services of lending corporate guarantee and accordingly, he held that guarantee commission should be taken at 1.75% plus risk premium of 1.25%. Accordingly, he computed the mark-up on guarantee commission @ 3%. While doing so, he has analyzed in 7 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 detail how commission should be charged @ 3%, which has been incorporated at page 9 of the order and accordingly, adjustment of Rs. 39,19,02,658/- was made by him. The DRP has reduced the same to 1.5% per annum.
We find that this issue is permeating through in all the years. This fact has been noted by the Tribunal in its order for AY 2008-09, vide para 28 to 31, wherein after referring the Tribunal order in assessee’s own case right from assessment year 2005-06 to 2007-08, held that commission chargeable for guarantee commission by the assessee to its AEs should be taken at 0.5% as ALP. Thus, respectfully following the judicial precedence which is based on the same facts applicable in this year also, we direct the AO to take 0.5% as guarantee commission to be chargeable from AE in computing Arm’s Length Price. Accordingly, ground no. 7 is treated as partly allowed.
In ground no. 8, the assessee has challenged the disallowance of Rs. 692,49,161/- made under section 40(a)(ia) on account of non-deduction of TDS on alleged agency commission payable to advertising agency. Besides this, the assessee has also raised additional ground which reads as under: “1. The learned CIT (A) also failed to appreciate that the payees are assessed to tax and have already paid taxes on the said amount and therefore there should not be any disallowance. The aforesaid view is also supported by the subsequent amendment made by the Finance Act, 2012 inserting proviso to section 40(a)(ia) which is clarificatory in nature and inserted with a view to rationalize the provisions of disallowance. Therefore, the amendment should be applicable with retrospective effect. 2. Without prejudice to the above, the learned CIT (A) also failed to appreciate that to the extent of Rs.6,92,49,161/-, the Appellant has not debited the expenditure to the profit and loss account and not claimed deduction of the same. Hence, the question of disallowance u/s 40(a)(ia) does not arise”.
The Ld. Senior Counsel, Dr K Shivram, filed a detailed note with respect to non-applicability of TDS provision for alleged advertisement commission paid to the advertising agencies.
8 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 However, he submitted that here in this case the payees have already been assessed to tax and have paid taxes on the said amount and, therefore, in view of the Proviso inserted in by Finance Act, 2012 to section 40(a)(ia), such a disallowance cannot be made. Now, there are umpteen decisions, wherein, it has been held that the said Proviso is clarificatory in nature, therefore, amendment should be held to be applicable with retrospective effect. The list of some of the decisions are as under:- (i) Rajeev Kumar Agarwal vs Addl. CIT (2014) 149 ITD 363; (ii) ACIT v Shri Bhavook Chnadraprakash Tripathi (Pune) (Trib) 775 – 803(802); (iii) Santosh Kumar Kedia vs ITO –ITA No. 1905/Kol/2014 dtd. 04.03.2015; and (iv) Anthony D. Mumdackal vs ACIT –ITA No. 30/Coch/2013 order dt. 29/11/2013.
He further submitted that, even otherwise also, the assessee has not debited the expenditure to the profit and loss account and nor has claimed any deduction therefore, there is no question of disallowance under section 40(a)(ia).
On the issue of additional ground, Ld. CIT DR admitted that there are various decisions of the Tribunal wherein, it has been held that proviso brought by the Finance Act, 2012 is to be applied retrospectively, however, he stated that there is no jurisdictional High Court decision on this point. On the issue of assessee not claiming any expenditure of Rs. 6,92,49,161/-, he submitted that, the matter can be verified by the AO.
The relevant facts are that the assessee is engaged in the business of broadcasting and during the year under consideration, it has received net revenue of Rs.39,24,11,916/- from the advertising agency towards advertising. The said revenue was accounted in the books of account after deducting tax @ 15% on the gross receipts. The AO noted that assessee had earned gross revenue of Rs. 46,16,61,077/- and had not granted income and 9 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 expenses of 15%. This difference of 15% has been treated as commission paid by the assessee to the advertising agency. Since no TDS has been deducted, which according to him should have deducted under section 194H, therefore, he disallowed the amount of Rs. 6,92,49,161/- under section 40(a)(ia). However without going into the merits whether provision of TDS under section 194H is applicable on this alleged advertising commission paid to the advertising agencies, we find that assessee has a substance in the contentions raised in the additional grounds that, if the payee has been assessed to tax and has taken into account for computing such sum at its income in the return of income, then there should not be any disallowance. The second proviso to section 40(a)(ia) which has been inserted by the Finance Act, 2012, though w.e.f. 01.04.2013, provides that, if the assessee has failed to deduct the tax in accordance with the Chapter XVII-B then he cannot be treated as assessee in default under first proviso to section 201(1) and in such a case it shall be deemed as the assessee has deducted and paid the tax and consequently no disallowance under section 40(a)(ia) can be made. In the decisions relied by the Ld. Counsel, it has been held that such an amendment is curative and clarificatory in nature and, therefore, it has to be given retrospective effect. Now there is a Delhi High Court judgment in the case of CIT v Ansal Land Mark Township (P) Ltd in order dated 26.08.2015, wherein the Hon’ble High Court has held that the said Proviso is directory and curative and has retrospective effect from 1st April, 2015. Thus, we hold that if the payee has furnished the return of income under section 139 and has taken into account such sum for computing the income in such return of income and has paid taxes then, assessee cannot be treated as assessee in default within the meaning of section 201(1) and accordingly, the assessee shall be deemed to have deducted the tax and accordingly, no disallowance under section 40(a)(ia) can be made. Such a provision has been 10 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 brought in the statute to curb the mischief and therefore it has to be reckoned as curative in nature and should be given retrospective effect. Accordingly, AO is directed to clarify this issue and grant the relief to the assessee. On the second contention also, we agree with the Ld. Counsel that if assessee has not claimed any such as an expenditure, then there is no question of disallowance under section 40(a)(ia), the AO shall also verify this contention and if it is found that no such expenditure has been debited then there is no question of any disallowance under this section. With this direction, ground 8 as raised by the assessee is treated as allowed.
In Ground no. 9, the assessee has challenged the disallowance of Rs. 2,23,51,600/- made under section14A read with Rule 8D.
The assessee has received dividend income of Rs. 7,24,508/- which was claimed as exempt. The AO held that disallowance has to be made in accordance with the Rule 8D which is applicable for assessment year 2008-09 as held by Hon’ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. vs DCCIT, reported in [2010] 328 ITR 81.
Before us, the Ld. Counsel submitted that, all the investments were strategic investments in the subsidiaries and, therefore, no disallowance can be made under section 14A. In support, he relied upon various Tribunal decisions of ITAT Mumbai Bench. That apart, he submitted that there is no borrowing by the assessee, therefore, there is no question of disallowance of any interest. So far as indirect expenditure is concerned, such a huge addition cannot be made especially when dividend income is only Rs. 7.24 lakhs.
Ld. DR on the other hand, submitted that it does not make any difference whether the investment has been made in the subsidiary as a matter of strategic investment or otherwise because such an investment is only capable of earning exempt 11 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 income and any expenditure incurred on such an income has to be disallowed under section 14A. He referred to the decision of Hon’ble Delhi High Court in the case of Maxopp Investment Ltd v CIT, reported in 347 ITR 272 and drew our attention at Para 24 and 25. Thus, disallowance as made by the AO should be confirmed.
After considering the rival submissions and on perusal of the impugned orders, we find that there is no dispute that all the investments have been made in the subsidiary company as the strategic investment so as to get controlling interest in such subsidiaries. The investment was not made for earning of any dividend income. Besides this, the dividend income itself is Rs. 7,24,508/-, therefore, disallowance under section 14A cannot be more than the exempt income especially in view of the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd v CIT, reported in 378 ITR 272 (Del), wherein, the Hon’ble High Court has held that, if there is no dividend income, then there cannot be any corresponding disallowance. On the same principle, if the dividend income is Rs.7.24 lakhs, then disallowance cannot be more than that. Accordingly, we hold that such a huge disallowance of Rs. 2,21,51,600/- is uncalled for and therefore, we direct the AO to restrict the disallowance to Rs. 7,24,508/-. Accordingly, ground 9 is treated as partly allowed.
In the result, appeal of the assessee is partly allowed.
Now, we shall take-up revenue’s appeal, vide which following grounds have been raised:- "1. On the facts and circumstances of the case and in law, whether the Ld. DRP was correct in holding that the rate of 12.25% is appropriate with regard to interest on loan given to Associated Enterprises (AE) by the assessee.
2. On the facts and circumstances of the case and in law, Whether the Ld. DRP was correct in deleting the adjustment made at the rate of 14.5% in case of debit balance in the account of an Associated Enterprise of the assessee.
3. On the facts and circumstances of the case and in law, Whether the Ld. DRP was correct in holding that the rate of 1.5% is appropriate for charging commission to provide corporate guarantee on behalf of the Associated Enterprises (AE) as against the rate of 3% taken by the TPO and the AO”.
12 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 22. So far as ground no. 1 is concerned, it is similar to assessee’s ground no. 6, wherein we have set aside the issue to the file of the AO to be examine the issue in the light of the direction given by the Tribunal in the earlier years, therefore the impugned ground is also set aside to the file of the AO to be decided as per the direction given in the assessee’s appeal (supra). Accordingly, ground no. 1 stands allowed for statistical purposes.
So far as ground 3 is concerned, while dealing ground no. 7 of the assessee’s appeal we have already held that that guarantee commission should be taken at 0.5% as Arm’s length Price (ALP) therefore, ground no. 3 as raised by the revenue stands dismissed.
Now, coming to the issue of adjustment made @ 14.5 as raised in ground no. 2, we find that this issue has been dealt by the Tribunal in assessment year 2008-09 in ITA(TP) 429/Mum/2013 in assessee’s own case vide order dated 20.12.2013, wherein such an adjustment has been deleted. The relevant finding and observation of the Tribunal is as under:
“26. Insofar as the adjustment of notional interest on the outstanding debit balance in the account of FSI, it is seen that this is a recurring issue in assessee’s case, wherein the Tribunal has dealt and discussed this issue in detail. In the appeal for the assessment year 2007–08 in order dated 7th August 2013, the Tribunal has dealt and discussed this issue after observing and holding as under:– “7. As regards ground No. 3(d), the ld. representatives of both the sides have agreed that the issue involved therein relating to addition made on account of notional interest payable by Nimbus Sport International P. Ltd. on outstanding trade balances with the assessee is squarely covered in favour of the assessee by the order of the Tribunal dated 12-06-2013 (supra) passed in assessee’s own case for A.Y. 2005-06 wherein a similar issue was decided by the Tribunal in favour of the assessee for the following reasons given in para No. 19 & 20 of its order:- “19. We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. counsel for the assessee has submitted that similar issue involved in assessee’s own case for earlier years i.e. assessment years 2003-04 and 2004-05 has been decided
13 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 by the Tribunal in favour of the assessee. The ld. D.R., however, has submitted that similar issue was decided by the Tribunal in favour of the assessee in the earlier years holding that the continuing debit balance was not an international transaction. He has contended that the law on this point, however, has undergone a change by insertion of Explanation to section 92-B with retrospective effect from 1-4-1992 and clause (i)(c) of the said Explanation is clearly applicable in the present case. The ld. counsel for the assessee, on the other hand, has contended that although the law has changed on this point and continuing debit balance is now treated as an international transaction as per the retrospective amendment, the Tribunal vide its order dtd. 5-1-2011 passed in for A.Y. 2004-05 has given relief to the assessee on this issue even on merit. In this regard, he has referred to para 5 & 6 of the said order which is reproduced hereunder:- “5. A continuing debit balance, in our humble understanding, is not an international transaction per se, but is a result of the international transaction. In plain words, a continuing debit balance only reflects that the payment, even though due, has not been made by the debtor. It is not, however, necessary that a payment is to be made as soon as it becomes due. Many factors, including terms of payment and normal business practices, influence the fact of payment in respect of a commercial transaction. Unlike a loan or borrowing, it is not an independent transaction which can be viewed on standalone basis. What can be examined on the touchstone of arm’s length principles is the commercial transaction itself, as a result of which the debit balance has come into existence, and the terms and conditions, including terms of payment, on which the said commercial transaction has been entered into. The payment terms are an integral part of any commercial transaction, and the transaction value takes into account the terms of payment, such as permissible credit period, as well. The residuary clause in the definition of international transaction’, i.e. any other transaction having a bearing on the profits, incomes, losses or assets of such enterprises, does not apply to a continuing debit balance, on the given facts of the case, for the elementary reason that there is nothing on record to show that as a result of not realizing the debts from associated enterprises, there has been any impact on profits, incomes, losses or assets of the assessee. In view of these discussions, in our considered view, a continuing debit balance per se, in the account of the associated enterprises, does not amount to an international transaction under section 92 B in respect of which ALP adjustments can be made. The factum of payment has to be considered vis-à-vis terms of payment set out in the transaction arrangement, and not in isolation with the commercial terms on which transaction in respect of which 14 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 payment is, according to the revenue authorities, delayed. In any event, even when an ALP is made in respect excessive credit period allowed under the CUP method, stated by the TPO, the comparable has to be dues recoverable from a debtor and not a borrower. It appears that the TPO has adopted interest @ 2.19% LIBOR on balances which exceed 30 days, but LIBOR rate is relevant only in the case of lending or borrowing of funds, and not in the case of commercial overdues. Even assuming that the continuing debit balances of associated enterprises can be treated as „international transactions’ under section 92 B, the right course of applying the CUP method, in the case of non charging of interest on overdue balances, would have been by comparing this not charging of interest with other cases in which the assessee has charged interest on overdues with independent enterprises (internal CUP) or with the cases in which other enterprises have charged interest, in respect of overdues in respect of similar business transactions, with independent enterprises (external CUP). No such exercise has been carried out in this case, nor is it shown, as is the condition precedent for bringing this continuing debit balance in the ambit of „international transaction’, that as a result of not realizing the debts from associated enterprises, there has been any impact on profits, incomes, losses or assets of the assessee.
6. For all these reasons set out above, as also respectfully following the decision dated 28th January 2010 of the coordinate bench in assessee’s own case in the immediately preceding year, we hold that the impugned addition of Rs 12,51,175 is unsustainable in law and that the CIT(A) ought to have deleted the same. We, accordingly, direct the Assessing Officer to delete the impugned adjustment. The assessee gets the relief accordingly”.
20. It is clearly evident from the relevant portion of the Tribunal’s order as reproduced above that a similar addition made in assessee’s own case for the earlier A.Y. i.e. 2004-05 has been deleted by the Tribunal even on merit holding that even when an ALP is made in respect excessive credit period allowed under the CUP method, the comparable has to be dues recoverable from a debtor and not a borrower. It was held that the TPO had adopted interest @ 2.19% LIBOR on balances which exceeded 30 days, but LIBOR rate was relevant only in the case of lending or borrowing of funds and not in the case of commercial overdues. It was held that even if the continuing debit balances of Associated Enterprises could be treated as “international transactions” u/s 92-B, the right course of applying the CUP method, in the case of non-charging of interest on overdue balances, would have been by comparing this not charging of interest with other cases in which the assessee had charged interest on overdues with independent enterprises (internal CUP) or 15 Nimbus Communications Ltd. ITA 1424/Mum/2014 ITA 1332/Mum/2014 with the cases in which other enterprises had charged interest in respect of overdues in respect of similar business transactions with independent enterprises (external CUP). Since no such exercise had been carried out in the case of the assessee for A.Y. 2004-05, the Tribunal held that the impugned addition was not sustainable. In the year under consideration also, no such exercise has been carried out by the TPO and since the addition was made by adopting interest at LIBOR rate, we hold, respectfully following the order of the Tribunal in assessee’s own case for A.Y. 2004-05, that the impugned addition of ` 12,98,048/- made on this issue is not sustainable. The same is accordingly deleted allowing ground No. 3 & 4 of the assessee’s appeal”.
Respectfully following the order of the co-ordinate Bench of this Tribunal in assessee’s own case for A.Y. 2005-06 on similar issue, we delete the addition of Rs. 1,99,504/- made by the A.O. and confirmed by the ld. CIT(A) on account of interest payable by Nimbus Sport International P. Ltd. on outstanding trade balance to the assessee. Ground No. 3 (d) of the assessee’s appeal for A.Y. 2006-07 is accordingly allowed.” Thus, respectfully following the same, we uphold the order of the DRP in deleting such an adjustment, accordingly, ground no. 2 is dismissed.
In the result, appeal of the revenue is partly allowed for statistical purposes.
To sum-up: Assessee’s appeal is partly allowed and that of the revenue stands partly allowed for statistical purposes. Order pronounced in the open court on 9th February, 2016.
Sd/- Sd/- (बी आर भा�करन) (अिमत शु�ला) लेखा सद�य �याईक सद�य (B R BHASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 9th February, 2016 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent.