RABO INDIA FINANCE LTD, MUMBAI V. DCIT 1(3), MUMBAI

CO 73/MUM/2014

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 8055 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 11 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-03-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 12-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 03-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained investment; Transfer pricing; International transaction; Wholly owned subsidiary; Notional interest; Commercial expediency; TDS
• Section: 143(3); 13; 69

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI , # ,$ % BEFORE VIKAS AWASTHY, JUDICIAL MEMBER & SHRI N.K.PRADHAN, ACCOUNTANT MEMBER . 1584/ / 2014 (. . 2006-07 ) ITA NO.1584/MUM/2014(A.Y.2006-07) . 1583/ / 2014 (. . 2007-08 ) ITA NO.1583/MUM/2014(A.Y.2007-08) DY. COMMISSIONER OF INCOME TAX 1(3), ROOM NO.564, 5 TH FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 ...... * / APPELLANT VS. M/S. RABO INDIA FINANCE LTD. FORBES BLDG., 1 ST FLOOR, CHARANJIT RAI MARG, FORT, MUMBAI 400 001 PAN: AAACR6065R ..... #+ / RESPONDENT C.O. NO.73/MUM/2014 (ARISING OUT OF ITA NO.1583/MUM/2014, A.Y.2007-08) M/S. RABO INDIA FINANCE LTD. FORBES BLDG., 1 ST FLOOR, CHARANJIT RAI MARG, FORT, MUMBAI 400 001 .... CRO SS OBJECTOR VS. DY. COMMISSIONER OF INCOME TAX 1(3), MUMBAI 400 020 ... APPE LLANT IN APPEAL 2 M/S. RABO INDIA FINANCE LTD. ASSESSEE BY : SHRI PERCY PA RDIWALA & SHRI NITESH JOSHI REVENUE BY : SHRI A.MOHAN ,+ / DATE OF HEARING : 25/01/2021 -./ ,+ / DATE OF PRONOUNCEMENT : 26/03/2021 / ORDER PER VIKAS AWASTHY, J.M : THE APPEAL BY THE REVENUE IN ITA NO.1584/MUM/14 F OR 2006-07 IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 07/01/2 014 PASSED UNDER SECTION 143(3) R.W.S. 147 AND 144C(13) OF THE INCOME TAX AC T, 1961 ( IN SHORT THE ACT). THE APPEAL BY REVENUE IN ITA NO.1583/MUM/2014 FOR A SSESSMENT YEAR 2007- 08 IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 0 7/01/2014 PASSED UNDER SECTION 143(3) R.W.S. 147 AND 144C(13) OF THE ACT. THE ASSESSEE HAS FILED CROSS OBJECTIONS IN APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 2007-08. SINCE, THE ISSUES INVOLVED IN BOTH THESE APPEALS AND CROSS OBJ ECTIONS ARE INTER CONNECTED, THESE APPEALS ARE TAKEN UP TOGETHER FOR ADJUDICATIO N AND ARE DECIDED BY THIS COMMON ORDER. 2. BOTH THE APPEALS HAVE BEEN FILED WITH A DELAY OF FOUR DAYS. SHRI A. MOHAN REPRESENTING THE DEPARTMENT REFERRED TO APPLICATION DATED 20/01/2021 FILED BY THE DEPARTMENT STATING REASONS FOR DELAY IN FILI NG OF THE APPEALS. AFTER CONSIDERING THE SUBMISSIONS MADE IN APPLICATION, TH E DELAY IN FILING OF APPEALS IS CONDONED AND THE APPEALS ARE ADMITTED TO BE HEAR D AND DISPOSED OF ON MERITS. 3 M/S. RABO INDIA FINANCE LTD. ITA NO.1584/MUM/2014- A.Y 2006-07: 3. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: 1. 'WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. DRP ERRED IN DELETING THE ADDITION MADE IN DRAFT ASSESS MENT ORDER ON ACCOUNT OF TP ADJUSTMENT OF AN AMOUNT OF GBP 37.5 MILLION (RS.297 CRORES)?' 2. 'WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. DRP ERRED IN DELETING THE ADDITION MADE IN DRAFT ASSESS MENT ORDER ON ACCOUNT OF UNEXPLAINED INVESTMENT U/S.69 OF THE I.T. ACT FOR R S.297.71 CRORES? 3. 'WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. DRP ERRED IN DELETING THE ADDITION MADE IN DRAFT ASSESS MENT ORDER ON ACCOUNT OF INTEREST ON EXTERNAL COMMERCIAL BORROWING?' 4. 'WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP ERRED IN DELETING THE ADDITION MADE IN DRAFT ASSESS MENT ORDER ON ACCOUNT OF GUARANTEE FEE PAID - RS.5,63,600/-, SERVICE FEE PAI D - RS.5,63,600/- AND INTEREST ON ECB - RS.3,90,69,364/- PAID TO ITS HOLDING COMPANY EVEN THOUGH NO SUBSTANTIAL/ SPECIFIC SERVICE HAVE BEEN RENDERED BY THE HOLDING COMPANY?' 4. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RE CORDS ARE: THE ASSESSEE IS AN INDIAN COMPANY AND A 100% SUBSIDIARY OF RABOB ANK INTERNATIONAL HOLDINGS BV. THE ASSESSEE IS A NON BANKING FINANCE COMPANY (NBFC) ENGAGED IN PROVIDING LOANS AND INVESTMENT ACTIVITIES IN IND IA. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE A SSESSEE ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS: S.NO. NATURE OF TRANSACTION FY 2005-06 (AMT.IN RS.) METHOD ADOPTED BY THE ASSESSEE 1. FEE FOR SERVICES (RECEIVED) 40,62,25 0 CUP 2. FEES FOR INVESTMENT BANKING SERVICES- FCCB PLACEMENT (RECEIVED) 3,70,83,020 PSM 3. FEE FOR INVESTMENT BANKKING SERVICES- MERGERS & ACQUISITIONS(RECEIVED) 47,51,516 PSM 4. FEES FOR LOAN SUPPORT SERVICES (RECEIVED) 4,90,79,381 PSM 5. GUARANTEE FEE (PAID) 3,13,168 CUP 6. FEES FOR SERVICES (PAID) 5,63,600 CUP 7. INTEREST ON ECB(PAID) 3,81,92,596 CUP 4 M/S. RABO INDIA FINANCE LTD. 8. PAYMENT FOR SUPPORT SERVICES(PAID) 14,71,3 2,881 CUP 9. RECEIPT FOR SUPPORT SERVICE CHARGES (RECEIVED) 80,38,180 CUP 10. REIMBURSEMENT OF EXPENSES(RECEIVED) 30,77,605 CUP 11. REIMBURSEMENT OF EXPENSES (PAID) 1,89,2 8,418 CUP TOTAL 31,12,22,615 THE TRANSACTIONS THAT ARE SUBJECT MATTER OF DISPUTE IN THE PRESENT APPEAL ARE AT SL.NO.5, 6 AND 7 OF THE ABOVE TABLE. APART FROM AFO RESAID TRANSACTIONS, THE REVENUE HAS ASSAILED DELETING OF ADDITION U/S. 69 O F THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). SUBMISSIONS OF THE DEPARTMENTS 5. SHRI A. MOHAN REPRESENTING THE DEPARTMENT SUBMIT TED THAT IN GROUND NO.1 & 2 OF THE APPEAL, THE REVENUE HAS ASSAILED TH E FINDINGS OF DISPUTE RESOLUTION PANEL (DRP) IN DELETING THE ADDITION MAD E U/S 69 OF THE ACT ON ACCOUNT OF TRANSFER PRICING (TP) ADJUSTMENT OF GBP 37.50 MILLION (RS.297.71 CRORES). THE LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT THE ASSESSEE IN CONSORTIUM WITH ITS ASSOCIATED ENTERPRISES (AE) RAB OBANK LONDON AND OTHER BANKS/FINANCIAL INSTITUTIONS HAD ADVANCED LOAN TO T ATA TEA (GB) LTD. UK (IN SHORT TATA TEA UK). DURING THE COURSE OF TP PROC EEDINGS FOR ASSESSMENT YEAR 2008-09 SH. CHIRAG VAJRANI, THE REPRESENTATIVE OF T HE ASSESSEE VIDE LETTER DATED 27/07/2011 AND 06/09/2011 ADMITED THAT THE ASSESSEE IS PART OF THE CONSORTIUM FOR EXTENDING LOAN TO TATA TEA UK AND HA S RECEIVED PARTICIPATION/COMMITMENT FEE OF THE CREDIT ALLOCATI ON OF GBP 37.5 MILLION. THE LD. DEPARTMENTAL REPRESENTATIVE POINTED THAT A PERU SAL OF LETTER DATED 27/07/2011 WOULD SHOW THAT THE ASSESSEE HAS CONTRIB UTED GBP 37.50 MILLION TO LOAN CONSORTIUM. IN SUBSEQUENT LETTER DATED 06/0 9/2011 THE SAME EMPLOYEE OF THE ASSESSEE COMPANY CHANGED ITS STAND AND STATED THAT THE ASSESSEE WAS NOT PART OF THE CONSORTIUM BUT ADMITTE D THAT THE ASSESSEE HAS 5 M/S. RABO INDIA FINANCE LTD. RECEIVED PARTICIPATION/COMMITMENT FEE. THE LD. DEP ARTMENTAL REPRESENTATIVE REFERRED TO THE DRAFT ASSESSMENT ORDER DATED 08/05/ 2013 AND SUBMITTED THAT LETTERS FURNISHED BY THE ASSESSEE ARE SELF-CONTRADI CTORY. THE ASSESSEE HAS FAILED TO FURNISH DOCUMENTARY EVIDENCE AS PART OF T RANSFER PRICING STUDY DOCUMENTATION TO BENCHMARK THE TRANSACTION. THE AS SESSEE HAS NOT SUBMITTED CONTEMPORANEOUS DOCUMENTS FOR THE PERIOD DURING WHI CH THE ENTIRE LOAN TRANSACTION TOOK PLACE. NO DOCUMENTS WERE SUBMITTE D BY THE ASSESSEE ON THE BASIS OF WHICH FEES AND INTEREST WAS NEGOTIATED AND THE BASIS FOR QUANTIFICATION OF GBP 37.50 MILLION ALLOCATION TO THE ASSESSEE. TH E LD. DEPARTMENTAL REPRESENTATIVE REFERRED TO THE FINDINGS OF ASSESSIN G OFFICER IN DRAFT ASSESSMENT ORDER IN PARA 5.9 TO CONTEND THAT IN ASSESSMENT YEA R 2008-09 AN ADJUSTMENT TO THE TUNE OF RS.29.50 CRORES WAS MADE ON ACCOUNT OF INTEREST FOREGONE IN RESPECT OF AMOUNT ADVANCED TO RABOBANK LONDON (AE). SINCE, THE ASSESSEE FAILED TO DISCLOSE THE LOAN ADVANCED, AN AMOUNT OF RS.297.71 CRORES IN RESPECT OF LOAN EXTENDED TO TATA TEA UK THROUGH CONSORTIUM WAS ADDED U/S 69 OF THE ACT. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY DEFENDED THE FINDINGS OF ASSESSING OFFICER IN DRAFT ASSESSMENT ORDER. THE LD . DEPARTMENTAL REPRESENTATIVE FINALLY SUBMITTED THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THAT THE ASSESSEE HAD NOT ADVANCED LOAN TO RABOBANK LONDON. TO DISCHARGE ITS ONUS, THE ASSESSEE COULD HAVE FURNISHED COPY OF BAL ANCE SHEET OF RABOBANK LONDON. 6. IN RESPECT OF GROUNDS NO.3 & 4 OF THE APPEAL, TH E LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT DRP HAS ERRED IN DELE TING THE ADDITION IN RESPECT OF INTEREST PAID ON EXTERNAL COMMERCIAL BOR ROWINGS (ECB), GUARANTEE FEE PAID AND SERVICE FEE PAID. THE ASSESSEE ALLEGED LY BENCHMARKED THE TRANSACTION BY APPLYING CUP. HOWEVER, IN PROCEEDING S BEFORE THE TPO, THE ASSESSEE ADMITTED THAT THERE WAS NO EVIDENCE OF CAR RYING OUT ANY COST BENEFIT 6 M/S. RABO INDIA FINANCE LTD. ANALYSIS OR ANY BENCHMARK ANALYSIS AT THE TIME OF A VAILING THE SERVICES. THE ASSESSEE COULD NOT GIVE ANY VALID EXPLANATION FOR I NCURRING EXPENDITURE ON PAYMENT OF GUARANTEE FEE, SERVICE CHARGES AND INTER EST ON ECB. THE DRP DELETED THE ADDITIONS WITHOUT EXAMINING THE FACTS B Y MAKING MERE SUPERFICIAL OBSERVATIONS. THE LD. DEPARTMENTAL REPRESENTATIVE P RAYED FOR REVERSING THE FINDINGS OF ASSESSING OFFICER AND DRP AND RESTORING THE ADDITION MADE IN DRAFT ASSESSMENT ORDER. SUBMISSIONS ON BEHALF OF ASSESSEE 7. SHRI PERCY PARDIWALA APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT EXTENDED ANY LOAN FACILITY TO TATA TEA UK. THE ADDITION U/S 69 OF THE ACT HAS BEEN MADE ON MERE MIS-APPRECI ATION OF THE FACTS AND CONJUNCTURES. THE ASSESSEE WAS INSTRUMENTAL IN NEGO TIATING WITH TATA TEA UK FOR ARRANGING LOAN THROUGH ITS AE. SINCE, THE QUAN TUM OF LOAN REQUIRED BY TATA TEA UK WAS SUBSTANTIAL I.E GBP 160 MILLION, NEITHER THE ASSESSEE NOR AE OF THE ASSESSEE WAS IN A POSITION TO EXTEND SUCH HUGE LOAN FACILITY SOLELY. THE LOAN WAS EXTENDED TO TATA TEA UK BY CONSORTIUM OF BANKS/ FINANCIAL INSTITUTIONS WITH RABOBANK LONDON AS LEAD LENDER. THE ASSESSEE BEING ORIGINATOR OF THE DEAL WAS REMUNERATED WITH PERCENTAGE OF INTEREST EARNED. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE LETTER DATED 06/09/2011 P OINTED THAT THE TABLE GIVEN IN THE SAID LETTER WOULD SHOW THAT A LOAN OF GBP 16 0 MILLION WAS EXTENDED TO TATA TEA UK DURING THE FINANCIAL YEAR 2005-06 BY CO NSORTIUM OF SIX BANKS /FINANCIAL INSTITUTIONS. THE ASSESSEE WAS NOT PART OF THAT CONSORTIUM. AS PER THE ARRANGEMENT THE ASSESSEE WAS PAID FEE ONLY FOR ORIGINATING THE DEAL. THE ASSESSEE WAS NOT EXPOSED TO ANY FINANCIAL RISK. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO ORDER UNDER SECTION 92CA(3) OF THE ACT FOR ASSESSMENT YEAR 2008- 09, WHEREIN THE LETTER OF THE ASSESSEE DATED 21/09 /2011 IS REPRODUCED. THE SAID LETTER CLEARLY STATES THAT RABOBANK LONDON PER FORMED THE KEY FUNCTIONS 7 M/S. RABO INDIA FINANCE LTD. SUCH AS NEGOTIATING THE PRICING TERMS WITH TATA TEA UK, INVITED VARIOUS BANKS TO PARTICIPATE IN THE SYNDICATION TO JOINTLY PROVIDE L OAN TO TATA TEA UK. IN THE SAME VERY COMMUNICATION IT WAS CATEGORICALLY DENIED THAT THE ASSESSEE WAS NOT EXPOSED TO THE LOAN. THE ASSESSEE ONLY SPOTTED AND ORIGINATED THE DEAL. THE LD. COUNSEL FOR THE ASSESSEE POINTED THAT LETTE R DATED 27/07/2011 (AT PAGE 590 OF THE PAPER BOOK) WAS WRITTEN BY CHIRAG VAJANI , FINANCIAL CONTROLLER OF ASSESSEE. IT WAS INADVERTENTLY STATED IN THE LETTE R THAT THE ASSESSEE IS PART OF CONSORTIUM. THE STATEMENT MADE IN THE LETTER WAS R ETRACTED BY MR. VAJANI IN HIS AFFIDAVIT DATED 04/03/2013 (AT PAGE 1044 TO 104 7 OF THE PAPER BOOK). THUS, THE STATEMENT MADE ON BEHALF OF THE ASSESSEE BY CHI RAG VAJANI WAS RETRACTED. 7.1. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT A PERUSAL OF LETTER DATED 17/01/2013 AT PAGE 1036 AND 1037 OF THE PAPER BOOK WOULD SHOW THAT RABOBANK SINGAPORE HAD CLARIFIED THAT IN LIEU OF AS SESSEE ORIGINATING THE LOAN TRANSACTION AND GETTING THE OPPORTUNITY TO ISSUE TH E CREDIT ALLOCATION, IS ENTITLED TO FEE EQUIVALENT TO 2/8 TH OF THE NET INCOME EARNED BY RABOBANK SINGAPORE UNDER LOAN TRANSACTION. THE FEE RECEIVED BY ASSESSEE THROUGH RABOBANK SINGAPORE WAS OFFERED TO TAX. THE TRANSACT ION BETWEEN THE ASSESSEE AND RABOBANK SINGAPORE WAS FOUND TO BE AT ARMS LEN GTH AND THE SAME WAS ACCEPTED BY THE DEPARTMENT. 7.2. THE LD. COUNSEL FOR THE ASSESSEE FURTHER REFER RED TO THE LETTER DATED 28/09/2011 FROM RABOBANK LONDON AT PAGE 1034 AND 10 35 GIVING THE LIST OF BANKS/FINANCIAL INSTITUTIONS THAT WERE PART OF CONS ORTIUM FOR EXTENDING LOAN TO TATA TEA UK AND THE EXTENT OF LOAN FACILITY PROVIDE BY EACH OF THE PARTICIPANTS OF CONSORTIUM. THE LD. COUNSEL FOR THE ASSESSEE PO INTED THAT THE NAME OF THE ASSESSEE DOES NOT FIND MENTION IN THE SAID LETTER. THE LD. COUNSEL FOR THE ASSESSEE FURTHER REFERRED TO GLOBAL SUBSTITUTION CE RTIFICATE AT PAGE 961 AND 962 OF THE PAPER BOOK TO SHOW THE NAMES OF BANKS/FI NANCIAL INSTITUTIONS THAT 8 M/S. RABO INDIA FINANCE LTD. HAD CONTRIBUTED TO THE LOAN FACILITY EXTENDED TO TA TA TEA UK. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE ABOVE DOCUMENT FU RNISHED IN THE PAPER BOOK CONTENDED THAT THE DOCUMENTS ON RECORD CLEARLY INDI CATE THAT THE ASSESSEE NEVER EXTENDED ANY LOAN FACILITY TO THE TATA TEA UK . SINCE, THE ASSESSEE WAS NOT PART OF CONSORTIUM FOR EXTENDING LOAN THERE WAS NO OCCASION FOR THE ASSESSEE TO FURNISH ANY LOAN DOCUMENTS IN THE TP ST UDY DOCUMENTATION. 7.3. THE LD. COUNSEL FOR THE ASSESSEE POINTED THAT THE OBSERVATION OF THE ASSESSING OFFICER IN DRAFT ASSESSMENT ORDER ARE PUR ELY BASED ON SURMISES AND CONJECTURES. THE CLOUD OF SUSPICION AROSE IN THE M IND OF ASSESSING OFFICER FROM TWO LETTERS I.E. DATED 27/07/2011 AND 06/09/2011, W HEREIN INADVERTENTLY MR. CHIRAG VAJANI, MADE SAME STATEMENTS WHICH WERE FACT UALLY INCORRECT. THE SAID STATEMENTS WERE SUBSEQUENTLY RETRACTED BY FILING AN AFFIDAVIT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF THE ASSESSEE WOU LD HAVE EXTENDED LOAN TO OVERSEAS ENTITY IN A CLANDESTINE MANNER, WITHOUT PR OPER APPROVAL, APART FROM BEACHING INCOME TAX ACT, IT WOULD HAVE ALSO VIOLATE D THE PROVISIONS OF COMPANY LAW, FEMA AND VARIOUS OTHER LAWS THAT WOULD HAVE ATTRACTED MAJOR PENALTY. THE LD. COUNSEL TO SUPPORT HIS ARGUMENT P LACED RELIANCE ON THE DECISION IN THE CASE OF A.S. SIVAN PILLAI VS. CIT, 34 ITR 328(MAD). 8. IN RESPECT OF GROUND NO. 3 AND 4 OF THE APPEAL, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD AVAILED EC B LOAN UNDER AUTOMATIC ROUTE. THE ASSESSEE HAD AVAILED ECB TO FINANCE ITS WORKING CAPITAL REQUIREMENT IN INDIA. THE INTEREST ON ECB PAID TO RABOBANK HON G KONG WAS OFFERED TO TAX IN ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR. THE ASSESSEE COMPLIED WITH TDS PROVISIONS ON SAID INTEREST PAYME NT. THE ASSESSEE REFERRED TO FACILITY LETTER FROM RABOBANK HONG KONG AT PAGES 1119 OF PAPER BOOK. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALL THE RELEVANT DOCUMENTS WERE 9 M/S. RABO INDIA FINANCE LTD. FILED BEFORE THE TPO TO SUBSTANTIATE THAT ECB LOAN FACILITY WAS AVAILED FOR BUSINESS PURPOSE ONLY. THE DRP ACCEPTED THE CONTEN TIONS OF THE ASSESSEE AND DELETED THE ADJUSTMENT. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT THE ASSESSEE HAD PAID GUARANTEE FEE TO RABOBANK HONG KONG FOR TH E LOAN GUARANTEED BY THE SAID AE. THE ASSESSEE HAD EXTENDED LOANS TO NOBLE G RAIN/SIDDARTH SOYA. THE INTEREST ON SAID LOAN WAS GUARANTEED BY RABOBANK HO NG KONG. IN CASE OF DEFAULT IN PAYMENT OF INTEREST, THE ASSESSE WOULD H AVE RECOVERED THE INTEREST AMOUNT FROM RABOBANK HONG KONG. THE ASSESSEE PAID G UARANTEE COMMISSION/FEE TO RABOBANK HONG KONG AFTER DEDUCTIN G TAX AT SOURCE. THESE FACTS HAVE NOT BEEN DISPUTED. CONSEQUENTLY, THE DR P DELETED ADJUSTMENTS. 8.1. WITH REGARD TO PAYMENT OF SERVICE FEE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD SOUGHT ADVISORY SER VICES FROM RABOBANK NETHERLANDS IN RESPECT OF CERTAIN SPECIALIZED PROJE CT UNDERTAKEN BY IT. THE TPO HAS NOT DISPUTED RENDERING OF SERVICES NOR THE TPO DISPUTED ARMS LENGTH OF TRANSACTIONS. THE ONLY REASON FOR MAKING ADJUSTME NT IS BENEFIT TEST. THE TPO HAS ACTED BEYOND JURISDICTION IN QUESTIONING BENEFI T OF SERVICES. THE LD. COUNSEL FOR THE ASSESSEE PRAYED FOR UPHOLDING THE F INDINGS OF DRP IN RESPECT OF PAYMENT OF INTEREST ON ECB, GUARANTEE COMMISSION AN D FEE FOR ADVISORY SERVICES. FINDINGS: 9. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SIDE S AT LENGTH AND HAVE EXAMINED THE DOCUMENTS ON RECORD. IN GROUND NO. 1 AND 2 OF THE APPEAL, THE REVENUE HAS ASSAILED THE FINDING OF DRP IN DELETING THE ADDITION OF RS.297.71 CRORES (GBP 37.5 MILLION) MADE UNDER SECTION 69 OF THE ACT. THE CONTENTION OF REVENUE IS THAT THE ASSESSEE WAS PART OF CONSORTIUM THAT HAD EXTENDED LOAN TO 10 M/S. RABO INDIA FINANCE LTD. TATA TEA UK. THE REVENUE HAS PLACED RELIANCE ON LE TTERS DATED 27/07/2011 AND 06/09/2011 WRITTEN BY ONE MR. CHIRAG VAJANI, FI NANCIAL CONTROLLER OF THE ASSESSEE TO THE TPO IN ASSESSMENT PROCEEDINGS FOR A Y 2008-09. IN LETTER DATED 27/07/2011 THE LIST OF PARTICIPANTS THAT HAD EXTEND ED CREDIT FACILITY TO TATA TEA UK HAS BEEN GIVEN. THE NAME OF ASSESSEE FIGURES IN THAT LIST AND AGAINST THE NAME OF THE ASSESSEE IT HAS BEEN MENTIONED THAT THE ASSESSEE HAS EXTENDED CREDIT FACILITY TO THE TUNE OF GBP 37.5 MILLION. I N THE SUBSEQUENT LETTER DATED 06/09/2011 CHIRAG VAJANI REPUDIATED THAT THE ASSESS EE WAS PART OF SYNDICATE FOR EXTENDING LOAN. HOWEVER, HE STATED THAT THE ASS ESSEE WAS PAID PARTICIPATION/COMMITMENT FEE OF GBP 1,50,000 @ 0.40 % OF THE CREDIT ALLOCATION. THE AFORESAID LETTERS DO CREATE AN IMP RESSION THAT THE ASSESSEE IN SOME MANNER WAS PART OF CONSORTIUM THAT EXTENDED CR EDIT FACILITY TO TATA TEA UK. LATER, CHIRAG VAJANI RETRACTED FROM THE STATEM ENTS MADE IN THE AFORESAID LETTERS BY FILING AN AFFIDAVIT DATED 04/03/2013 (PA GE 1044 TO 1047 OF THE PAPER BOOK). 10. FURTHER, TO SUBSTANTIATE THAT THE ASSESSEE WAS NOT PART OF CONSORTIUM THAT HAD EXTENDED CREDIT FACILITY TO TATA TEA UK, T HE ASSESSEE FURNISHED VARIOUS DOCUMENTS WHICH INTER-ALIA INCLUDE; CONFIRMATION FR OM RABOBANK LONDON (AT PAGE 958 OF THE PAPER BOOK), GLOBAL SUBSTITUTION CE RTIFICATE GIVING LIST OF PARTICIPANTS (AT PAGES 961 AND 962 OF THE PAPER BOO K), COMMUNICATION DATED 19/09/2011 AND 28/09/2011 FROM RABOBANK LONDON (AT PAGES 1033 AND 1034 OF PAPER BOOK), A COMMUNICATION DATED 17/01/2013 FR OM RABOBANK SINGAPORE REGARDING CREDIT ALLOCATION OF RABOBANK LONDON (AT PAGES 1036 AND 1037 OF THE PAPER BOOK). FROM PERUSAL OF DOCUMENTS FURNISHED B Y THE ASSESSEE, INEVITABLE CONCLUSION THAT CAN BE DRAWN IS THAT THE ASSESSEE W AS ONLY INSTRUMENTAL IN ORIGINATING TRANSACTION FOR EXTENDING CREDIT FACILI TY TO TATA TEA UK. THE ASSESSEE FORWARDED THE OPPORTUNITY TO RABOBANK LOND ON, ITS AE. SINCE, 11 M/S. RABO INDIA FINANCE LTD. EXPOSURE TO CREDIT FACILITY SOUGHT BY TATA TEA UK W AS SUBSTANTIAL, RABOBANK LONDON ALONG WITH OTHER PARTICIPATING BANKS/FINANCI AL INSTITUTIONS FORMED A CONSORTIUM FOR EXTENDING THE CREDIT FACILITY. RABOB ANK LONDON VIDE LETTER DATED 28/9/2011 (AT PAGE 1034 OF PAPER BOOK) HAS GIVEN TH E DETAILS OF CONSTITUENTS OF CONSORTIUM AND THE CREDIT FACILITY EXTENDED BY E ACH OF THEM. RABOBANK LONDON RETAINED GBP 77.5 MILLION AND SYNDICATE CONT RIBUTED GBP 82.5 MILLION: S.NO. NAME OF THE PARTICIPATING MEMBER AMOUNT OF LOAN DISBURSED DURING FY 2005-06 (BGP) 1. CITIBANK 20,000,000 2. ROYAL BANK OF SCOTLAND 20,000,000 3. ALLIED IRISH BANK 14,166,667 4. HBOS 14,166,667 5. LLOYDS TSB 14,166,667 82,500,000 IN THE AFORESAID COMMUNICATION IT IS AGAIN REITERAT ED THAT THE LOAN TO TATA TEA UK WAS GRANTED BY RABOBANK LONDON FROM FUN DS IN ITS BALANCE SHEET AFTER BORROWINGS FROM THE MARKET AND IN SYNDICATION WITH OTHER MEMBERS. NO PART OF THE LOAN PROVIDED TO TATA TEA UK WAS FUNDED BY THE ASSESSEE OR ANY ENTITY ACTING ON BEHALF OF THE ASSESSEE. IT WAS FUR THER CLARIFIED THAT RABOBANK LONDON PROVIDED LOAN ON ITS OWN BEHALF AND NOT ON B EHALF OF THE ASSESSEE. 11. IN THE PRESENT CASE, THE REASON FOR INVOKING PR OVISIONS OF SECTION 69 OF THE ACT GERMINATES FROM THE CONTENTS OF LETTERS DAT ED 27/07/2011 AND 06/09/2011 WRITTEN BY ONE OF THE EMPLOYEE INDICATIN G THAT THE ASSESSEE HAS EXTENDED LOAN OF GBP 37.50 MILLION AS PER PART OF S YNDICATE AND THE PARTICIPATION/COMMITMENT FEE OF GBP 1,50,000 HAS BE EN RECEIVED BY THE ASSESSEE. APART FROM THE SAID LETTERS, THERE IS NO OTHER MATERIAL ON RECORD TO CORROBORATE THAT THE ASSESSEE IN ANY MANNER PARTICI PATED IN EXTENDING LOAN 12 M/S. RABO INDIA FINANCE LTD. FACILITY TO TATA TEA UK AS PART OF CONSORTIUM/SYNDI CATE. IN THE FIRST PLACE THE ASSESSING OFFICER HAS FAILED TO TAKE NOTE OF THE FA CT THAT THE CONTENTS OF LETTER ON THE BASIS OF WHICH ADDITION U/S.69 OF THE ACT WA S MADE, WERE RETRACTED BY WAY OF AFFIDAVIT. FURTHER, THE ADDITION CANNOT BE M ADE SOLELY ON THE BASIS OF PHRASEOLOGY OF THE SUBMISSIONS MADE DURING PROCEEDI NGS. THERE HAS TO BE SUBSTANTIVE EVIDENCE ON RECORD TO CORROBORATE WITH THE STATEMENTS. 12. THE FINDINGS OF THE TPO AND THE ASSESSING OFF ICER IN DRAFT ASSESSMENT ORDER THAT THE ASSESSEE HAS ADVANCED LOANS FROM UND ISCLOSED SOURCES IS MERELY BASED ON SURMISES AND CONJUNCTURES. IT IS A WELL SE TTLED LEGAL PROPOSITION THAT SUSPICION, HOWSOEVER STRONG, CANNOT TAKE PLACE OF E VIDENCE. EXCEPT FROM THE LETTERS REFERRED ABOVE THERE IS NO MATERIAL TO BACK THE OBSERVATIONS MADE BY THE TPO/AO. ON THE CONTRARY, THE ASSESSEE HAS FURNI SHED VARIOUS DOCUMENTS TO SUBSTANTIATE THAT THE ASSESSEE WAS NOT PART OF SYND ICATE THAT HAS EXTENDED LOAN FACILITY TO TATA TEA UK, HOWEVER, THE SAME HAV E BEEN IGNORED BY THE TPO AND THE ASSESSING OFFICER WHILE PASSING THE DRAFT A SSESSMENT ORDER. IN THE ABSENCE OF ANY COGENT EVIDENCE, THE REVENUE HAS FAI LED TO DISCHARGE ITS ONUS WHILE ALLEGING THAT THERE WAS AN OUTFLOW OF FUNDS F ROM INDIA BY ASSESSEE OR RECEIVABLES FROM RABOBANK LONDON HAVE BEEN SQUARED OFF FOR DIVERSION OF FUNDS TO SYNDICATE FOR ADVANCING LOAN TO TATA TEA U K. THE ASSESSEE CANNOT BE EXPECTED TO PROVE NEGATIVE. THE ONUS IS ON THE DEPA RTMENT TO SUBSTANTIATE THAT THE ASSESSEE HAS ADVANCED AMOUNT TO RABOBANK L ONDON FOR LOAN TO TATA TEA UK OR ASSESSEES FUNDS HAVE BEEN DIVERTED IN AN Y MANNER TO FUND PART OF SAID LOAN. WE FIND THAT THE TPO AND THE ASSESSING O FFICER IN DRAFT ASSESSMENT ORDER HAS PLACED RELIANCE SOLELY ON THE LETTERS FUR NISHED BY AN EMPLOYEE OF THE ASSESSEE WITHOUT THERE BEING ANY CORROBORATIVE EVID ENCE FOR MAKING ADDITION U/S.69 OF THE ACT. 13 M/S. RABO INDIA FINANCE LTD. 13. THE SECOND LIMB OF PRESUMPTION IS THAT THE COMM ITMENT CHARGES RECEIVED BY THE ASSESSEE ARE IN FACT, PART OF INTER EST INCOME ON THE LOAN ADVANCED. THE ASSESSEE HAS CLARIFIED THAT THE ROLE OF ASSESSEE WAS LIMITED TO IDENTIFYING AND REFERRING THE OPPORTUNITY TO RABOBA NK LONDON. RABOBANK LONDON IS THE LEAD ARRANGER FOR THE LOAN AND THE OT HER FINANCIAL INSTITUTIONS/BANKS JOINED HANDS TO FORM A CONSORTIU M FOR EXTENDING LOAN FACILITY TO TATA TEA UK. THE ASSESSEE IS REMUNERATED FOR THE SERVICES RENDERED BY WAY OF SHARE IN UPFRONT FEE, PARTICIPATION/COMMITMENT F EE. THE SHARE IN PARTICIPATION/COMMITMENT FEE AT SOME PERCENTAGE (0. 40%) OF THE CREDIT ALLOCATION OF GBP37.5 MILLION WAS THE METHOD OF REM UNERATING THE ASSESSEE FOR THE FUNCTIONS PERFORMED. SINCE, WE HAVE ALREADY HE LD THAT THE ASSESSEE HAD NOT PARTICIPATED IN EXTENDING LOAN FACILITY TO TATA TEA UK THROUGH THE CONSORTIUM IN ANY MANNER WHATSOEVER, THE REMUNERATI ON RECEIVED BY THE ASSESSEE IN LIEU OF THE SERVICES RENDERED CANNOT BE TERMED AS INTEREST INCOME OF THE ASSESSEE FROM THE ALLEGED ADVANCING OF LOAN. THE AFORESAID INCOME RECEIVED BY THE ASSESSEE HAS ALREADY BEEN OFFERED T O TAX, THIS FACT HAS NOT BEEN DISPUTED BY THE REVENUE. WE FIND NO MERIT IN GROUND NO.1 AND 2 RAISED BY THE REVENUE IN APPEAL, THE SAME ARE DISMISSED, ACCO RDINGLY . 14. IN GROUNDS NO. 3 AND 4 OF APPEAL, THE REVENUE H AS ASSAILED DELETING OF ADDITION IN RESPECT OF INTEREST PAID ON EXTERNAL CO MMERCIAL BORROWINGS (ECB), PAYMENT OF GUARANTEE FEE AND SERVICE FEE. THE AFOR ESAID CHARGES/PAYMENTS HAVE BEEN DISALLOWED PRIMARILY FOR THE REASON THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH NEED FOR THE SERVICES AND THE BEN EFIT DERIVED FROM THE SAID SERVICES. UNDISPUTEDLY, THE ASSESSEE FURNISHED GUAR ANTEE AGREEMENT AND ECB AGREEMENT. THE SAME HAVE NOT BEEN DISPUTED BY THE T PO. THE ASSESSEE HAS BENCHMARKED THE TRANSACTION BY APPLYING CUP AS THE MOST APPROPRIATE METHOD. THE ROLE OF TPO IS LIMITED TO DETERMINE ALP OF THE INTERNATIONAL 14 M/S. RABO INDIA FINANCE LTD. TRANSACTION. THE TPO CANNOT QUESTION THE NEED OR/AN D BENEFIT DERIVED FROM THE INTERNATIONAL TRANSACTION. THE HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. LEVER INDIA EXPORTS LTD., 292 CTR 393 HAS HELD THAT THE JURISDICTION OF THE TPO IS ONLY TO DETERMINE ALP BY APPLYING MOST APPRO PRIATE METHOD SPECIFIED UNDER SECTION 92C(1) OF THE ACT. IT IS NOT THE DOMA IN OF TPO TO DETERMINE ALLOW ABILITY OF THE EXPENDITURE. SIMILAR VIEW HAS BEEN E XPRESSED IN THE CASE OF CIT VS. EKL APPLIANCE LTD. 345 ITR 241 (DELHI). THE HON BLE DELHI HIGH COURT HELD THAT THE TPO CANNOT QUESTION COMMERCIAL EXPEDIENCY OF THE TRANSACTION OR THE QUANTUM OF BENEFIT DERIVED. 15. IN THE INSTANT CASE THE ASSESSEE HAS BORROWED F UNDS FROM RABOBANK HONG KONG TO FINANCE ITS WORKING CAPITAL REQUIREMEN TS. THE INTEREST PAID TO RABOBANK HONG KONG ON ECB HAS BEEN REFLECTED IN THE BOOKS. TAX HAS BEEN DULY DEDUCTED ON THE PAYMENT OF INTEREST. SIMILARL Y, IN RESPECT OF GUARANTEE FEE AND SERVICE FEE THE ASSESSEE HAS BEEN ABLE TO S UBSTANTIATE THAT THE PAYMENTS HAVE BEEN MADE FOR THE PURPOSE OF ASSESSEE S BUSINESS. THE TPO CANNOT SIT IN THE JUDGMENT WHETHER THESE EXPENSES W ERE NECESSARY FOR CONDUCTING THE BUSINESS OR WHETHER ANY BENEFIT HAS BEEN DERIVED FROM THE EXPENDITURE SO INCURRED. THE REQUIREMENT OF THE LA W IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THIS FACT HAS NOT BEEN DISPUTED BY THE ASSESSING OF FICER. WE FIND NO MERIT IN GROUND NO. 3 AND 4 OF THE APPEAL BY THE REVENUE, HEN CE, DISMISSED. 16. IN THE RESULT, APPEAL BY THE REVENUE FOR ASSESS MENT YEAR 2006-07 IS DISMISSED. 15 M/S. RABO INDIA FINANCE LTD. ITA NO.1583/MUM/2014 (A.Y. 2007-08) & C.O.73/MUM/20 14: 17. THE REVENUE IN APPEAL HAS RAISED SOLITARY GROUN D. THE SAME READS AS UNDER: 'WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD.DRP ERRED IN DIRECTING THE ASSESSING OFFICER NOT TO CHA RGE ANY NOTIONAL INTEREST ON THE UNEXPLAINED INVESTMENT OF RS.297 CRORES AS THE DRP FOR THE A.Y.2006-07 HAS DELETED THE ADDITION EVEN THOUGH THE DEPARTMENT IS FILING 2 ND APPEAL TO THE ITAT FOR A.Y.2006- 07?' 18. THE GROUND OF APPEAL IN ASSESSMENT YEAR 2007-08 IS A COROLLARY TO THE ISSUES RAISED BY THE REVENUE IN APPEAL FOR ASSESSMENT YEAR 2006-07. SINCE, WE HAVE DISMISSED THE GROUNDS RAISED IN APPEAL BY THE REVEN UE FOR ASSESSMENT YEAR 2006-07, THE BEDROCK OF THE GROUND RAISED BY THE REVENUE IN ASSESSMENT YEAR 2007-08 HAS ERODED HENCE, THE GROUND DOES NOT SURVIVE. CONSEQUE NTLY, THE APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 2007-08 IS DISMISSED. 19. THE LD. COUNSEL FOR THE ASSESSEE STATED AT THE BAR THAT HE IS NOT PRESSING THE CROSS OBJECTIONS. CONSEQUENTLY, THE SAME ARE DISMI SSED AS NOT PRESSED. 20. TO SUM UP, THE APPEALS OF THE REVENUE FOR ASSESSMENT YEARS 200 6-07 AND 2007-08 AND THE CROSS OBJECTIONS FILED BY THE ASSES SEE FOR 2007-08 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, T HE 26 TH DAY OF MARCH, 2021. SD/- SD/- (N.K.PRADHAN) (VIKAS AWAST HY) $ / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 1 '/ DATED 26/03/2021 VM , SR. PS (O/S) 16 M/S. RABO INDIA FINANCE LTD. #+2 3/+ COPY OF THE ORDER FORWARDED TO : 1. * / THE APPELLANT , 2. #+ / THE RESPONDENT. 3. 4+ ( )/ THE CIT(A)- 4. 4+ CIT 5. 56 #+' , . . . , / DR, ITAT, MUMBAI 6. 678 9: / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI