GEODESIC LIMITED, MUMBAI V. DCIT -8(1), MUMBAI

ITA 1234/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8334 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 14-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 24-02-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS MALATHI SRIDHARAN
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Arm length price; Notional interest; Capital expenditure
• Section: 143(3)

Judgement Text

K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 1234/ MUM/2014 ( / ASSESSMENT YEAR : 2009-10) GEODESIC LIMITED, B-3, LUNIC INDUSTRIES, MIDC, CROSS ROAD B, OPP SBI, ANDHERI (EAST), MUMBAI 400 093. / V. DCIT 8(1), MUMBAI. ./ PAN : AAACB6163A ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : NONE REVENUE BY : MRS. MALATHI SRIDHARAN, DR / DATE OF HEARING : 14-02-2017 / DATE OF PRONOUNCEMENT : 27-02-2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 1234/MUM/2014, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 19 TH DECEMBER, 2013 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 15, M UMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2009- 10, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSMENT ORDER DATED 4 TH JANUARY, 2013 PASSED BY LEARNED ASSESSING OFFICER ( HEREINAFTER CALLED THE AO) U/S 143(3) R.W.S. 144C(3)(A) OF THE INCOME-TAX ACT,1961 (HEREINAFTER CALLED THE ACT). ITA 1234/MUM/2014 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI (HER EINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- L. THE LD CIT (A) -15 HAS ERRED IN CONFIRMING THE UPWARD ADJUSTMENT OF RS. 15,50,59,824/- ON ACCOUNT OF INTERES T ON TRANSACTIONS OF LOANS AND SHARE APPLICATION MONEY GIVE N BY THE APPELLANT COMPANY TO ITS ASSOCIATES ENTERPRISES. WHER EAS, IT IS MERELY BASED ON THE OWN CALCULATIONS AND ASSUMPTIONS AND AP PLIED THE FIXED DEPOSIT RATE OF INTEREST @ 8.90%. THE INTEREST RATE APP LIED BY THE TPO IS PREJUDICIAL TO APPELLANT AND AGAINST THE NATURAL JUSTIC E. 2. THE LD CIT(A)-15 HAS ERRED IN IGNORING THE FACTS AND CIRCUMSTANCES OF THE CASE IN LAW THAT DURING THE A.Y. 2008-09, HIS 'PREDECESSOR CIT (A)-15 HAS GIVEN THE VERDICT BASED ON THE BENCHMARKING OF THE TRANSACTION OF LOAN WITH RBI GUIDE LINES ON EXTERNAL COMMERCIAL BORROWINGS BY APPLYING 6 MONTHS LIBOR+ 150 BASIS POINTS FOR A PERIOD OF 3 YEARS AND 6 MONTHS L IBOR + 250 BASIS POINTS FOR A PERIOD OF MORE THAN 5 YEARS. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT CONSULTANCY AND ONLINE TRAD ING. A REFERENCE U/S 92CA(1) OF THE ACT WAS MADE BY THE A.O. TO THE TPO FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) WITH RESPECT TO THE INTERE ST ON LOAN AND SHARE CAPITAL ADVANCED BY THE ASSESSEE TO ASSOCIATED ENTERPRISES (AES) , WHEREIN THE TPO NOTED THAT THE COMPANY HAD ADVANCED LOANS AND SHARE APPLICATION MONEY TO AES. THE DETAILS OF THESE INVESTMENTS ARE AS UNDER :- 1 INVESTMENT IN FORM OF SHARE APPLICATION GEODESIC TECHNOLOGY SOLUTIONS LTD. HONG KONG 313884711 INVESTMENT IN FORM OF SHARE APPLICATION GEODESIC HOLDING LTD., MAURITIUS 3687059838 TOTAL 400,09,44,549 2 UNSECURED LOAN AND & ADVANCES GEODESIC TECHNOLOGY SOLUTIONS LTD. HONG KONG 341844483 UNSECURED LOAN AND & ADVANCES GEODESIC INFORMATION SYSTEMS INC., USA 594860 UNSECURED LOAN AND & ADVANCES GEODESIC HONG KONG LIMITED (ENGAGE SOLUTIONS LTD.) 1081603 REIMBURSEMENT OF EXPENSES 1211966 ITA 1234/MUM/2014 3 TOTAL 34,47,32,912 IT WAS OBSERVED BY THE TPO THAT THE ASSESSEE COMPAN Y HAS NOT CHARGED ANY INTEREST ON THESE INVESTMENTS EXCEPT ON LOAN TO GEO DESIC HONG KONG LTD. (FORMERLY KNOWN AS ENGAGE SOLUTIONS LIMITED) WHEREI N THE ASSESSEE HAD CHARGED INTEREST AT THE RATE OF 5% ON LOANS ADVANCE D TO GEODESIC HONG KONG LTD. AND THE BASIS OF CHARGING INTEREST @ 5% WAS ST ATED TO BE ON THE BASIS OF LIBOR PLUS 200 BASIS POINT RATE. IT WAS FURTHER ST ATED THAT THE ASSESSEE COMPANY DID NOT CHARGE ANY INTEREST ON LOAN TO GEOD ESIC TECHNOLOGY SOLUTIONS LTD., HONG KONG (GTSL) BECAUSE THE GTSL(A E) MARKETS THE PRODUCTS OF ASSESSEE COMPANY ALL OVER THE WORLD, TH US, FOR FUNDING THE CAPITAL REQUIREMENT OF GTSL, INTEREST FREE LOAN WAS GIVEN. THE ASSESSEE COMPANY WAS ASKED AS TO WHY INTEREST @ 20.72% SHOULD NOT BE CHARGED IN THIS YEAR , AS WAS CHARGED ON LOAN AN D SHARE APPLICATION MONEY IN ASSESSMENT YEAR 2008-09 . THE ASSESSEE COMPANY IN REPLY SUBMITTED AS UNDER:- A) THE COMPANY HAD RAISED ZERO-COUPON BONDS DURING THE YEAR AMOUNTING TO 125 MILLION (RS. 489 CRORES). THE SE FUNDS WERE PLACED IN FOREIGN CURRENCY, IN BANK ACCOUNTS IN UK AND SINGAPORE. THE SHARE APPLICATION MONEY WAS INVESTED OUT OF THESE FUNDS WHICH WAS THE PREREQUISITE FOR USE OF THESE F UNDS. THE TERM-SHEET STATES THAT THE PROCEEDS FROM THE ISSUE OF THE BONDS WILL BE UTILIZED PRIMARILY FOR STRATEGIC ACQUISITIO NS AND STRATEGIC ALLIANCES OUTSIDE INDIA AND FOR CAPITAL EXPENDITURE . THE COMPANY THEREFORE INVESTED SHARE APPLICATION MONEY IN VARIO US ASSOCIATED ENTERPRISES AS PER DETAILS GIVEN IN LETTER DATED 18 .01.2012. THE ASSESSEE SUBMITTED THAT THE SOURCE OF THE FUNDS IS FDI, THE FUNDS WERE RAISED ABROAD AND PLACED IN FOREIGN BANKS. IT WAS ALSO PLEADED THAT NO INTEREST WAS PAYABLE ON THE ZERO CO UPON BONDS, AS THESE BONDS WERE CONVERTIBLE AFTER 5 YEARS INTO SHARE CAPITAL AND ASSESSEE HAS NOT PAID ANY INTEREST, THEREFORE T HE ASSESSEE DID NOT CHARGE ANY INTEREST FROM THE AE. ITA 1234/MUM/2014 4 B) THE ASSESSEE SUBMITTED THAT HONBLE ITATS HAVE H ELD THAT LONDON INTERBANK OFFER RATE (LIBOR) PLUS RATE SHOUL D BE USED FOR DETERMINING ARM LENGTH PRICE FOR FOREIGN CURREN CY LOANS. HE CITED JUDGMENT OF ITAT IN THE CASE OF FOURSOFT LTD 20L2 16 ITR (TRIB) 73 HYDERABAD (VOLUME TP/35/2011 DATED 06.10. 2011), WHEREIN ITAT HAS HELD THAT THE ALP AS REGARDS FOREI GN CURRENCY LOAN IS TO BE DETERMINED ON INTERNATIONAL LOAN AND NOT FOR THE DOMESTIC LOAN AND HENCE CORPORATE BONDS CANNOT BE T AKEN FOR COMPARABILITY. ITAT FURTHER HELD THAT LIBOR IS AN I NTERNATIONALLY WELL RECOGNIZED RATE FOR BENCHMARKING LOANS DENOMIN ATED IN FOREIGN CURRENCY. THE TRIBUNAL RELIED ON THE CASE O F SHIVA INDUSTRIES AND HOLDING LTD (ITA NO. 2148/MADRAS/201 0). THE ASSESSEE ALSO RELIED UPON ITAT, MUMBAI DECISION IN THE CASE OF TECH MAHINDRA VS. DCIT (ITA NO.1176/MUM/2010) WHERE IN THE ITAT HELD THAT 'ONCE THE TRANSACTION BETWEEN THE AS SESSEE AND THE AE IS IN FOREIGN CURRENCY AND THE TRANSACTION I S INTERNATIONAL TRANSACTION, THEN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APPLYING THE COMMERCIAL PRINCIPLES IN REGARD TO INTERNATIONAL TRANSACTION. ITAT CONFIRMED THE ORDER OF CIT(A) WHE REIN TRANSFER PRICING ADJUSTMENT FOR EXTENDED CREDIT PERIOD TO IT S US AE ON THE BASIS OF US DOLLAR LIBOR PLUS MARK OF 2% WAS CONFIR MED, AS COMPARED TO 10% BY THE AO. THE ASSESSEE SUBMITTED T HAT IN THE CASE OF ENGAGE SOLUTION LTD. (AE), THE ASSESSEE COM PANY HAS CHARGED 5% INTEREST WHICH IS LIBOR PLUS 2%. HE SUBM ITTED THAT THE LIBOR PLUS METHOD SHOULD BE USED FOR DETERMININ G ALP IN OTHER TRANSACTIONS ALSO. C) THE ASSESSEE ALSO SUBMITTED THAT EVEN THE RBI HA S ISSUED INSTRUCTIONS FOR CALCULATING INTEREST RATE ON EXPOR T CREDIT IN FOREIGN CURRENCY ON LIBOR PLUS BASIS. THE ASSESSEE ALSO SUBMITTED THAT THE TPO HAD ISSUED SHOW CAUSE NOTICE DATED 22.07.2011 WITH RESPECT TO APPLYING RATE OF LIBOR P LUS 300 BASIS POINT, THE REPLY FOR WHICH WAS GIVEN BY THE ASSESSE E. HOWEVER THE TPO APPLIED CRISIL RATED BONDS RATING AS PER THE SH OW CAUSE GIVEN ON 06.09.2011 BY RATING THE ASSESSEE AE AS 'B ' CATEGORY AND INTEREST RATE OF 20.76% WAS APPLIED, WHICH IS N OT ACCEPTABLE TO THE ASSESSEE. D) IT WAS STATED THAT THE ASSESSEE COMPANY HAD RAIS ED ZERO COUPON BONDS, ON WHICH NOTIONAL INTEREST OF 6.60% P .A. WAS CHARGEABLE, IF THE BONDS ARE NOT CONVERTED INTO EQU ITY AFTER PERIOD OF 5 YEARS. IT WAS FURTHER STATED THAT THE ASSESSEE HAD PROVIDED FOR ACCRUAL OF NOTIONAL INTEREST IN THE BALANCE SHE ET. THE ASSESSEE ALSO SUBMITTED THAT DURING THE YEAR, THERE WAS PART IAL BUYBACK OF ITA 1234/MUM/2014 5 FCCB BONDS AMOUNTING AND THERE WAS PROFIT OF RS.23,60,94,195/- AND AN AMOUNT OF RS.2,60,63,445/- PERTAINING TO NOTIONAL INTEREST DEBITED IN EARLIER YEAR WAS WR ITTEN BACK. THE ASSESSEE SUBMITTED THAT WHEN THE ASSESSEE COMPANY H AS NOT PAID ANY INTEREST BUT EARNED PROFIT ON ZERO COUPON BONDS, THEN THE ASSESSING OFFICER SHOULD NOT APPLY INTEREST RAT E, WHICH IS MORE THAN THE NOTIONAL RATE 6.60% CHARGED TO FCCB B ONDS. E) IT WAS SUBMITTED THAT THE ASSESSEE COMPANY HAD R AISED THESE FUNDS WITH THE SPECIFIC PURPOSE OF INVESTING IN SHARE CAPITALS IN AE'S ABROAD. THE PURPOSE IS CLEARLY WRI TTEN IN THE TERM AGREEMENT. THE ASSESSING OFFICER SHOULD HAVE A SCERTAINED THE CREDIT RATING OF THE ASSESSEE COMPANY WHO HAS R AISED THESE FUNDS AND NOT TAKEN THE CREDIT RATING OF THE AE. TH E AE NEVER RAISED THE FUNDS, THEREFORE RATING THE AE AS 'B' BY THE ASSESSING OFFICER WAS NOT CORRECT. ASSESSING OFFICER HAS NOT GIVEN ANY REASONS OF HOW HE HAS GIVEN THE RATING AS 'B'. F) THE ASSESSEE ALSO SUBMITTED THAT THE CREDIT RATI NG SHOULD CHANGE EVERY YEAR AS THE FINANCIALS OF THE COMPANY AS WELL AS THAT OF THE AE ARE CHANGING. THE CREDIT RATING OF THE CO MPANY COMES TO 'A', AS THIS IS AMONGST THE TOP 15 COMPUTER SOFT WARE COMPANIES AND COMPANY HAS ITS OWN FUNDS OF MORE THAN RS.600 C RORES. THE ASSESSEE COMPANY HAS UNSECURED LOANS OF RS.640 CROR ES AND THAT TOO OF ZERO COUPON BONDS WHICH ARE CONVERTIBLE TO S HARE CAPITAL. THE ASSESSEE PLEADED THAT APPLYING RATE OF 20.72% W ILL NOT BE JUDICIOUS. HE SUBMITTED THAT THE ASSESSEE HAS MADE INROADS IN HONG KONG, WHERE CHINESE COMPANIES ARE GETTING FINA NCIAL SUPPORT FROM CHINA AND GETTING FUNDS AT VERY CHEAP RATE. BY APPLYING INTEREST RATE OF 20.72% IT WOULD BE PROHIB ITIVE FOR INDIAN COMPANIES TO COMPETE IN GLOBAL MARKET. HE REQUESTED THAT THE LIBOR RATE MAY BE APPLIED ON THE ABOVE TRANSACTION. AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSE SSEE, THE TPO OBSERVED THAT THE ASSESSEE HAS RAISED RS.640 CRORES BY ZERO COUPON CONVERTIBLE BONDS WHICH ARE CONVERTIBLE INTO SHARES AFTER 5 YEARS. TH E LENDER HAD OPTION TO GET INTEREST @ 6.60% ON THE AMOUNT GIVEN TO THE ASSESSE E COMPANY, IF THE BONDS WERE NOT CONVERTED TO EQUITY. THE ASSESSEE WAS THER EFORE ACCRUING INTEREST @ 6.60% IN THE BALANCE SHEET. THE LIBOR+ RATE IS ONE OF THE VARIOUS METHODS FOR DETERMINING ALP OF THE INTERNATIONAL TRANSACTIO N IN FOREIGN CURRENCY. THE TPO OBSERVED THAT LIBOR + 200 BASIS POINTS COMES TO 5% BUT , HOWEVER, HE ITA 1234/MUM/2014 6 ALSO OBSERVED THAT THE ASSESSEE IS LIABLE TO PAY 6. 6% AFTER MATURITY OF 5 YEARS AND HELD THAT , THEREFORE , APPLYING LIBOR PLUS RAT E WILL NOT BE CORRECT IN THE CASE OF THE ASSESSEE. THE TPO AFTER CONSIDERING VAR IOUS RATES APPLICABLE FOUND IT APPROPRIATE TO APPLY NET INTEREST MARGIN RATE OF 2.3% ON THE INTEREST RATE OF 6.6% FOR WHICH PROVISION HAS BEEN MADE BY THE ASSES SEE IN THE BALANCE SHEET TO COMPUTE ALP W.R.T. TO INTEREST-FREE LOANS AND SH ARE APPLICATION MONEY ADVANCED BY THE ASSESSEE TO ITS AES. THUS, THE ALP OF THE LOANS AND FUNDS INVESTED IN THE AES AS PER TPO COMES TO 8.9% AND TP O HELD THAT THE ASSESSEE SHOULD HAVE CHARGED INTEREST RATE OF 8.9% FROM THE AES, VIDE ORDERS OF THE TPO DATED 28.06.2012 PASSED U/S 92CA(3) OF THE ACT, WHEREIN TP ADJUSTMENT OF RS. 15,50,59,8224/- TOWARDS INTEREST ON LOANS AN D SHARE APPLICATION MONEY ADVANCED BY THE ASSESSEE TO ITS AE WAS PROPO SED BY TPO. THE RATE OF INTEREST OF 8.9% APPLIED BY THE TPO ON LOANS AND S HARE APPLICATION MONEY ADVANCED BY THE ASSESSEE TO ITS AES FOR DETERMINAT ION OF ALP WAS APPROVED BY THE A.O VIDE ASSESSMENT ORDER DATED 04-01-2013 PASSED BY THE AO U/S 143(3) R.W.S. 144C(3)(A) OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED ORDER DA TED 04-01-2013 PASSED BY THE AO U/S 143(3) R.W.S. 144C(3)(A) OF THE ACT. , THE ASSESSEE WENT INTO APPEAL BEFORE THE LD. CIT(A) WHO UPHELD THE ASSESSM ENT ORDER OF THE A.O. VIDE APPELLATE ORDER DATED 19-12-2013 PASSED BY LEARNED CIT(A) . THE LEARNED CIT(A) RELIED UPON THE DECISION OF ITAT, DELHI IN T HE CASE OF PEROT SYSTEMS TSI(INDIA) LIMITED V. DCIT (2010-TIOL-ITAT-DEL). 5. AGGRIEVED BY THE APPELLATE ORDER PASSED BY THE L EARNED CIT(A) , THE ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL. 6. NONE APPEARED ON BEHALF OF THE ASSESSEE, HENCE, WE PROCEED TO DISPOSE OF THE APPEAL AFTER HEARING THE LD. CIT-D.R. AND MA TERIAL PLACED ON RECORD. ITA 1234/MUM/2014 7 7. THE LD. CIT-D.R. RELIED UPON THE ORDERS OF THE A UTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAD ENTERED INTO INTERN ATIONAL TRANSACTIONS WITH AES , WHEREBY LOANS AND SHARE APPLICATIONS WERE GRA NTED BY THE ASSESSEE TO ITS AES WHEREIN NO INTEREST WAS CHARGED BY THE ASSE SSEE, HENCE, THE AUTHORITIES HAVE RIGHTLY APPLIED INTEREST RATE OF 8 .9% KEEPING IN VIEW SPREAD OF NET INTEREST MARGIN OF 2.3% ON BORROWING COST OF TH E ASSESSEE OF 6.6.% ON ZERO COUPEN BONDS RAISED BY THE ASSESSEE, TO WORK OUT AL P OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES WHEREIN U PWARD TP ADJUSTMENT TO THE TUNE OF RS. 15,50,59,824/- WAS UPHELD BY LEARNE D CIT(A).THE LEARNED CIT- DR RELIED UPON THE APPELLATE ORDER OF LEARNED CIT(A ). 8. WE HAVE HEARD LD. CIT-D.R. AND ALSO PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE OBSERVED THAT THE ASSESS EE HAS BORROWED FUNDS OF RS. 640 CRORES BY ISSUING ZERO COUPON CONVERTIBLE B ONDS WHICH ARE CONVERTIBLE INTO SHARES AFTER FIVE YEARS. THE LEND ER HAD AN OPTION TO GET INTEREST @6.6% IN CASE THE BONDS ARE NOT CONVERTED INTO EQUITY SHARES . THE ASSESSEE HAS MADE PROVISION OF INTEREST @6.6% ON TH ESE BONDS IN ITS BALANCE SHEET. THE ASSESSEE HAS ADVANCED INTEREST-FREE LOAN S AND SHARE APPLICATION MONEY TO ITS AES OUT OF PROCEEDS OF THE AFORE-STAT ED ZERO COUPEN CONVERTIBLE BONDS ON WHICH NO INTEREST HAS BEEN CHARGED BY THE ASSESSEE FROM ITS AES. THE TPO PROPOSED UPWARD TP ADJUSTMENT OF RS.15,50,5 9,824/- TO DETERMINE ALP OF INTERNATIONAL TRANSACTION OF INTEREST-FREE L OANS AND SHARE APPLICATION ADVANCED BY THE ASSESSEE TO ITS AE BY APPLYING NET MARGIN OF 2.3% ON THE INTEREST COST ON BONDS OF 6.6% , WHEREIN INTEREST D ETERMINED TO BE CHARGEABLE TO COMPUTE ALP FOR TP ADDITIONS WAS WORKED OUT BY T PO @8.9% ON INTEREST- FREE LOANS AND SHARE APPLICATION MONEY ADVANCED BY ASSESSEE TO ITS AES, WHICH WAS ACCEPTED BY THE AO . THE LEARNED CIT(A) D ISMISSED THE FIRST APPEAL FILED BY THE ASSESSEE BY CONFIRMING THE ASSESSMENT ORDER PASSED BY THE AO. WE HAVE OBSERVED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. ITA 1234/MUM/2014 8 TATA AUTOCOMP SYSTEMS LIMITED (2015) 56 TAXMANN.COM 206(BOM.) HAS HELD THAT IN CASE THE TAX-PAYER ADVANCES LOANS TO ITS AE IN GERMANY , THEN RATE OF INTEREST FOR TP PURPOSES SHALL BE APPLIED BASED UP ON THE RATES PREVAILING IN THE GERMANY WHERE LOANS ARE CONSUMED. THE RELEVAN T OPERATIVE PART OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F TATA AUTOCOMP SYSTEMS LIMITED (SUPRA) IS REPRODUCED AS UNDER:- 7. WE FIND THAT THE IMPUGNED ORDER OF THE TRIBUNAL IN TER ALIA HAS FOLLOWED THE DECISIONS OF THE BOMBAY BENCH OF THE TRIBUNAL IN CA SES OF VVF LTD. V. DY. CIT [IT APPEAL NO. 673 (MUM.) OF 2006] AND DY. CIT V. TECH MAHINDRA LTD . [2011] 12 TAXMANN.COM 132/46 SOT 141 (MUM.) (URO) TO REACH THE CONCLUSION THAT ALP IN THE CASE OF LOANS ADVANCED TO ASSOCIATE ENTERPRISES WOULD BE DETERMINED ON THE BASIS OF RATE OF INTEREST BEING CHARGED IN THE COUNTRY WH ERE THE LOAN IS RECEIVED/CONSUMED. MR. SURESH KUMAR THE LEARNED COUNSEL FOR THE REVENU E INFORMED US THAT THE REVENUE HAS NOT PREFERRED ANY APPEAL AGAINST THE DECISION O F THE TRIBUNAL IN VVF LTD . ( SUPRA ) AND TECH MAHINDRA LTD . ( SUPRA ) ON THE ABOVE ISSUE. NO REASON HAS BEEN SHOWN TO U S AS TO WHY THE REVENUE SEEKS TO TAKE A DIFFERENT VIEW I N RESPECT OF THE IMPUGNED ORDER FROM THAT TAKEN IN VVF LTD. ( SUPRA ) AND TECH MAHINDRA LTD . ( SUPRA ) . THE REVENUE NOT HAVING FILED ANY APPEAL, HAS IN FACT ACCEPTED THE D ECISION OF THE TRIBUNAL IN VVF LTD . ( SUPRA ) AND TECH MAHINDRA LTD . ( SUPRA ). THUS, RESPECTFULLY FOLLOWING THE VIEWS TAKEN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF TATA AUTOCOMP SYSTEMS LIMITED (SUPRA) WHICH IS BINDING ON US, WE HOLD THAT THE RATES APPLIED BY THE AUTHOR ITIES BELOW BASED ON NET MARGIN ON BORROWING COSTS OF THE ASSESSEE TO COMPUT E ALP OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE IN GRANTING INTEREST-F REE LOANS AND SHARE APPLICATION MONEY CANNOT BE SUSTAINED AND THE MATTE R IS SET ASIDE AND RESTORED BACK TO THE FILE OF THE A.O. FOR DE-NOVO D ETERMINATION OF THE ALP OF INTERNATIONAL TRANSACTION OF ASSESSEE WITH AE ON ME RITS W.R.T. TO LOANS AND SHARE APPLICATION MONEY ADVANCED BY THE ASSESSEE TO ITS AE IN LIGHT OF RATIO OF AFORESAID DECISION OF HONBLE BOMBAY HIGH COURT IN 56 TAXMANN.COM 206. THE ASSESSEE IS DIRECTED TO PRODUCE ALL NECESSARY A ND RELEVANT EVIDENCES AND EXPLANATIONS BEFORE THE A.O. TO SUBSTANTIATE ITS C LAIM IN ITS DEFENSE WHICH SHALL BE ADMITTED BY THE AO IN THE INTEREST OF JUST ICE . NEEDLESS TO SAY THAT PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD SHAL L BE PROVIDED BY THE A.O. ITA 1234/MUM/2014 9 TO THE ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NA TURAL JUSTICE IN ACCORDANCE WITH LAW. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN I TA NO. 1234/MUM/2014 FOR ASSESSMENT YEAR 2009-10 IS ALLOWED FOR STATISTI CAL PURPOSES AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH FEBRUARY, 2017. # $% &' 27-02-2017 ( ) SD/- SD/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 27-02-2017 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI K BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI