Appeal details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 5973 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 5 month(s) 1 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
17-08-2020
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
K
Assessment Year
2010-2011
Appeal Filed On
16-03-2015
Judgement Text
IN THE INCOME-TAX APPELLATE TRIBUNAL K BENCH MUMB AI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI M. BALAGANESH ACCOUNTANT MEMBER AND VERTUAL COURT NO. IV ITA NO.1560/MUM/2015 (ASSESSMENT YEAR 2010-11) DCIT, CIRCLE 1(3)1, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 VS. .M/S. TELEPERFORMENCE GLOBAL SERVICES PRIVATE LIMITED, (EARLIER KNOWN AS INTEL GLOBAL SERVICES PRIVATE LIMITED), TELEPERFORMENCE TOWERS, PLOT CST NO. 1406-A/28, MINDSPACE, MALAD, (WEST) MUMBAI-400090 P AN: AABCV2572L APPELLANT RESPONDENT ITA NO.1664/MUM/2015 (ASSESSMENT YEAR 2010-11) ITA NO.5828/MUM/2015 (ASSESSMENT YEAR 2011-12) M/S. TELEPERFORMENCE GLOBAL SERVICES PRIVATE LIMITED, (EARLIER KNOWN AS INTEL GLOBAL SERVICES PRIVATE LIMITED), TELEPERFORMENCE TOWERS, PLOT CST NO. 1406-A/28, MINDSPACE, MALAD, (WEST) MUMBAI-400090 P AN: AABCV2572L VS. DCIT, CIRCLE 1(3)1 , AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. APPELLANT RESPONDENT APPELLANT BY : SHRI J.D. MISTRY SR ADVOCATE A/W SH. MADHUR AGARWAL ADVOCATE REVENUE BY : SH. ANAND MOHAN CIT-DR AND SH. AHKTAR HUSSAIN SR D R ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 2 DATE OF HEARING : 17.08.2020 DATE OF PRONOUNCEMEN T : 17.08.2020 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS SET OF THREE APPEALS, OUT OF WHICH TWO CROSS A PPEAL FOR AY 2010-11 AND APPEAL BY ASSESSEE FOR AY 2011-12 ARE DIRECTED AGAI NST THE ASSESSMENT ORDER UNDER SECTION 143(3) READ WITH SECTION 144C(13) DAT ED 15.01.2015 AND 29.10.2015 RESPECTIVELY, PASSED IN PURSUANCE OF DIR ECTIONS OF DISPUTE RESOLUTION PENAL (DRP). IN BOTH THE YEARS THE ASSES SEE HAS RAISED CERTAIN COMMON GROUNDS OF APPEAL, THEREFORE, ALL THE APPEAL S WERE CLUBBED HEARD TOGETHER AND ARE DECIDED BY COMMON ORDER. THE REVE NUE IN ITS APPEAL FOR AY 2010-11 IN ITA NO. 1560/MUM/2015 HAS RAISED FOL LOWING GROUNDS OF APPEAL; 1. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HON'BLE DRP IS JUSTIFIED IN DELETING THE ADJUSTMENT MADE ON ACCOUNT OF ADJUSTMENT OF NOTIONAL INTEREST ON THE DIFFERENCE IN PRICE AT WHI CH INVESTMENT WAS MADE IN EQUITY SHARES OF ASSOCIATED ENTERPRISE AND PRICE AR RIVED ON APPLICATION OF NAV METHOD FOLLOWING THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES PVT. LTD. IN WRIT PETITION NO. 871 O F 2014? 2. THE ASSESSEE IN ITS CROSS APPEAL FOR AY 2010-11 IN ITA NO. 1664/MUM/2015 HAS RAISED FOLLOWING GROUNDS OF APPEAL; 1.0 RE: ADJUSTMENT OF RS. 2,70,65,250/- AS REGARDS PROVISION OF GUARANTEE: ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 3 1.1 THE LEARNED ASSESSING OFFICER/DISPUTE RESOLUTIO N PANEL/ TRANSFER PRICING OFFICER HAVE ERRED IN MAKING AN UPWARD ADJU STMENT OF RS. 2,70,65,250/- TO THE TOTAL INCOME OF THE APPELLANT BY HOLDING THAT TRANSACTION OF PROVISION OF GUARANTEE BY THE APPELLANT TO ITS A SSOCIATED ENTERPRISE ('AE') IS NOT AT ARM'S LENGTH. 1.2. THE LEARNED ASSESSING OFFICER/DISPUTE RESOLUTI ON PANEL/TRANSFER PRICING OFFICER ERRED IN NOT APPRECIATING THAT, CON SIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE, PROVISION OF CORPORATE G UARANTEE AND THE PERFORMANCE GUARANTEE CANNOT BE CONSIDERED AS AN 'I NTERNATIONAL TRANSACTION' WHICH CAN BE BENCHMARKED. 1.3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AS SESSING OFFICER / DISPUTE RESOLUTION PANEL/ TRANSFER PRICING OFFICER HAS ERRED IN ALLEGING THAT GUARANTEES EXTENDED BY THE APPELLANT SHOULD BE COMP ENSATED BY WAY OF GUARANTEE COMMISSION AND THEREBY ALLEGING A GUARANT EE FEE @ 1.25% FOR PROVISION FOR CORPORATE GUARANTEE AND 1.50% FOR PRO VISION OF PERFORMANCE GUARANTEE BY SIMPLY RELYING ON THE DRP DIRECTIONS O F THE PRIOR YEAR I.E. AY 2009-10. 1.4. THE APPELLANT SUBMITS THAT THE ASSESSING OFFIC ER BE DIRECTED TO DELETE THE UPWARD ADJUSTMENT OF RS. 2,70,65,250/- MADE BY HIM TO THE APPELLANT'S TOTAL INCOME AND TO RE-COMPUTE ITS TOTAL INCOME AND TAX LIABILITY ACCORDINGLY. 2.0 RE: ADJUSTMENT OF RS. 22,60,391/- AS REGARDS PR OVISION OF LOANS: 2.1. THE LEARNED ASSESSING OFFICER/DISPUTE RESOLUTI ON PANEL/TRANSFER PRICING OFFICER HAVE ERRED IN MAKING AN UPWARD ADJU STMENT OF RS. 22,60,391/- TO THE TOTAL INCOME OF THE APPELLANT BY HOLDING THA T INTERNATIONAL TRANSACTION RELATING TO INTEREST RECEIVED ON LOANS GRANTED BY T HE APPELLANT TO ITS AES IS NOT AT ARM'S LENGTH. 2.2. THE LEARNED ASSESSING OFFICER/THE DISPUTE RESO LUTION PANEL/ THE TRANSFER PRICING OFFICER ERRED IN APPRECIATING THAT UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF ITS CASE AND THE VARIOUS JUDICIAL PRECEDENTS AND LAW PREVAILING ON THE SUBJECT, THE INTEREST RECEIVED BY IT FROM IT S AES ON THE LOANS GRANTED BY IT IS AT ARM'S LENGTH AND HENCE NO ADJUSTMENT IN RE SPECT THEREOF WAS CALLED FOR. 2.3. THE APPELLANT SUBMITS THAT THE ASSESSING OFFIC ER BE DIRECTED TO DELETE THE UPWARD ADJUSTMENT OF RS. 22,60,391/- MADE BY HI M TO THE APPELLANT'S TOTAL INCOME AND TO RE-COMPUTE ITS TOTAL INCOME AND TAX L IABILITY ACCORDINGLY. ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 4 3.0 SHORT CREDIT OF TDS HAS BEEN ALLOWED TO THE EXT ENT OF RS. 16,801,746/- 3.1. THE LEARNED ASSESSING OFFICER HAS ERRED IN ALL OWING TDS CREDIT OF RS. 43,458,009/- INSTEAD OF RS.60,259,755/- WHILE COMPU TING THE TOTAL TAX PAYABLE UNDER MINIMUM ALTERNATE TAX (MAT). 3.2. THE APPELLANT SUBMITS THAT, IT HAS GOT IN ITS POSSESSION THE TDS CERTIFICATES TO SUPPORT ITS CLAIM THAT THE TOTAL TD S FOR THE AY 2010-11 IS WORTH RS. 60,259,755/-. THE APPELLANT FURTHER SUBMITS THA T OPPORTUNITY OF BEING HEARD WAS NOT GIVEN TO PRODUCE THE TDS CERTIFICATES DURING THE ASSESSMENT PROCEEDINGS. 3.3. THE APPELLANT SUBMITS THAT THE ASSESSING OFFIC ER BE DIRECTED TO ALLOW THE TDS CREDIT OF RS.60,259,755/- AND TO RE-COMPUTE ITS TAX LIABILITY ACCORDINGLY. 4.0 ERROR IN COMPUTING THE TAX PAYABLE UNDER MINIMU M ALTERNATE TAX (MAT) TO THE EXTENT OF RS.39,930,634/- 4.1 THE LEARNED ASSESSING OFFICER HAS ERRED IN COMP UTING THE TAX PAYABLE AT 18% INSTEAD OF 15% ON THE BOOK PROFIT UNDER MINI MUM ALTERNATE TAX (MAT). 4.2 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICE R BE DIRECTED TO RE- COMPUTE THE TAX PAYABLE AT 15% INSTEAD OF 18% ON TH E BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN BUSINESS OF PROVIDING WEB ENABLED CUSTOMER CARE SERVICES, BU SINESS PROCESS OUTSOURCES SERVICES, AND INFORMATION TECHNOLOGY ENA BLED SERVICES (ITES). THE ASSESSEE-COMPANY FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2010- 11 ON 05.10.2010 DECLARING TOTAL INCOME AT RS. NILL AFTER CLAIMING DEDUCTION UNDER SECTION 10A. ALONG WITH THE RETURN OF INCOME, THE ASSESSEE FURNISHED REPORT UNDER FORM 3CEB, REPORTING CERTAIN INTERNATI ONAL TRANSACTION WITH ITS ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 5 ASSOCIATED ENTERPRISES (AES). THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER CONSEQUENT ON REPORTING INTERNATI ONAL TRANSACTION MADE REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTION. THE TPO O N RECEIPT OF REFERENCE AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE S UGGESTED FOLLOWING ADJUSTMENT IN ITS ORDER DATED 23.01.2014; PARTICULARS OF ADJUSTMENTS AMOUNT RS. 1 INTEREST ON LOANS TO AES 22,60,391/- 2 CORPORATE GUARANTEE 240,72,000/- 3 PERFORMANCE GUARANTEE 29,93250/- 4 INVESTMENT IN SHARES IN ITELNET GLOBAL PHILIPPINES 40,34,245 4. ON RECEIPT OF REPORT OF TPO, THE AO MADE ADJUSTMEN T/ ADDITIONS IN THE DRAFT ASSESSMENT ORDER PASSED UNDER SECTION 143(3) READ W ITH SECTION 144C. THE ASSESSEE WAS SERVED WITH THE COPY OF THE DRAFT ASSE SSMENT ORDER. THE ASSESSEE EXERCISED ITS OPTION TO FILE OBJECTION BEFORE DISPU TE RESOLUTION PENAL (DRP). THE LD. DRP UPHELD THE ADJUSTMENTS ON ITEM NO. 1 TO 3(SHOWN IN TABLE ABOVE), HOWEVER, ON ACCOUNT OF ADJUSTMENT FOR INVES TMENTS IN SHARES IN AE, WAS DELETED BY FOLLOWING THE ORDER OF BOMBAY HIGH C OURT IN VODAFONE INDIA SERVICES PVT LTD (2014) 368 ITR 1. THE DRP WHILE U PHOLDING THE ADJUSTMENTS ON ITEM NO. 1 TO 3 FOLLOWED THE DIRECTI ONS OF THEIR PREDECESSOR IN ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 6 AY 2008-09 AND 2009-10. FURTHER AGGRIEVED BOTH THE PARTIES HAVE FILED THEIR RESPECTIVE APPEAL. 5. WE HAVE HEARD THE SUBMISSIONS OF SH. J.D. MISTRY L EARNED SENIOR ADVOCATE (LD. AR) FOR THE ASSESSEE AND SH. ANAND MOHAN LEARN ED COMMISSIONER OF INCOME TAX/ DEPARTMENTAL REPRESENTATIVE ( CIT- DR) FOR THE REVENUE AND PERUSED THE RECORD CAREFULLY. AT THE OUTSET THE LD. SENIOR COUNSEL (LD. AR) FOR THE ASSESSEE SUBMITS THAT THE APPEAL FILED BY THE R EVENUE IS LIABLE TO BE DISMISSED AS THE TAX EFFECT IS LESS THAN THE MONETA RY LIMIT OF RS. 50 LAKHS. THE LD. DR FOR THE REVENUE ACCEPTED THAT THE MONETARY L IMIT OF TAX EFFECT IN THE APPEAL OF REVENUE IS BELOW THE MONITORY LIMIT OF TA X EFFECT. CONSIDERING THE SUBMISSION OF THE PARTIES THAT THE ADJUSTMENT DELET ED BY THE LD DRP WAS ONLY OF RS. 40,34,245/-, WHICH IS ADMITTEDLY BELOW THE P RESCRIBED LIMIT OF RS. 50 LAKHS FIXED BY CBDT IN ITS CIRCULAR FOR FILING APPE AL BY THE REVENUE BEFORE THE TRIBUNAL. THUS, THE APPEAL FILED BY THE REVENUE IS DISMISSED DUE TO LOW TAX EFFECT. 6. NOW, TURNING THE VARIOUS GROUNDS OF APPEAL RAISED B Y THE ASSESSEE, THE GROUND NO. 1 RELATES TO ADJUSTMENT ON ACCOUNT OF CO RPORATE AND PERFORMANCE GUARANTEE. THE LD. AR FOR THE ASSESSEE SUBMITS THAT PROVISION OF CORPORATE GUARANTEE DOES NOT LEAD TO ANY INCOME GENERATION FO R THE ASSESSEE AND DOES NOT FALL WITHIN THE AMBIT OF SECTION 92C OF THE ACT . THE DETERMINATION OF ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 7 GUARANTEE FEE OF 1.25% P.A. IS ARBITRARY AND INCORR ECT. THE TRIBUNAL IN VARIOUS DECISION HELD THAT GUARANTEE IS NOT AN INTERNATIONA L TRANSACTION. 7. IN ALTERNATIVE SUBMISSIONS THE LD. AR FOR THE ASSES SEE SUBMITS THAT THE DRP CONFIRMED THE ACTION OF TPO BY FOLLOWING THE ORDER OF THEIR PREDECESSOR FOR AY 2008-09 AND 2009-10. IN APPEAL FOR AY 2008-09 & 2009-10 THE TRIBUNAL IN ITA NO. 483/MUM/2013 AND 1808/MUM/2014 DATED 16 TH JUNE 2020, BY FOLLOWING THE DECISION OF BOMBAY HIGH COURT IN EVER EST KENTO CYLINDERS LTD [2015] 58 TAXMANN.COM 254 (BOMBAY), RESTRICTED THE GUARANTEE COMMISSION FEE @0.5%. THUS, THE GROUND OF APPEAL RA ISED BY THE ASSESSEE IS COVERED BY THE DECISION OF TRIBUNAL FOR AY 2008-09 & 2009-10. 8. SO FAR AS PERFORMANCE GUARANTEE IS CONCERNED THE LD . AR FOR THE ASSESSEE SUBMITS THAT IN AY 2008-09 & 2009-10, THE ASSESSEE HAS NOT ARGUED AGAINST CHARGING THE PERFORMANCE GUARANTEE DUE TO SMALLNESS OF THE AMOUNT. THE LD. AR FOR THE ASSESSEE FURTHER SUBMITS THAT THE PERFOR MANCE OF THE CONTRACT AGAINST WHICH SAID PERFORMANCE GUARANTEE WAS EXTE NDED, WAS EXECUTED BY THE ASSESSEE ITSELF. THE TPO AND THE DRP HAS NOT AP PRECIATED THE FACT THAT ENTIRE REVENUE FROM THE PERFORMANCE OF THE CONTRACT FLOWS TO THE ASSESSEE. THERE WAS NO RISK AS REGARD THE PERFORMANCE GUARANT EE AND IT IS THE ASSESSEE WHO GUARANTEED FOR ITS OWN PERFORMANCE. THUS, THERE IS NO QUESTION OF DETERMINATION OF ARMS LENGTH PRICE. THE LD. AR FOR THE ASSESSEE SUBMITS THAT ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 8 THE COPY OF THE LETTER OF GUARANTEE ISSUED BY HSBC BANK DATED 21 JULY 2009 AND ITS EXTENSION OF VALIDITY DATED 30.09.2009 IS P LACED ON RECORD. IN WITHOUT PREJUDICE SUBMISSION THE LD. AR FOR THE ASSESSEE SU BMITS THAT BY FOLLOWING THE ORDER OF AY 2008-09 & 2009-10, THE TPO MAY BE D IRECTED TO ADOPT THE RATE OF 0.5% FOR THE PURPOSE OF DETERMINING THE ARM S LENGTH PRICE OF GUARANTEE. 9. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF TPO/DRP. THE LD. DR FURTHER SUBMITS THAT HE HAS NO ISSUE IF THE ORDER OF TRIBUNAL FOR AY 2008-09 & 2009-10 IS FOLLOWED IN DE CIDING THIS GROUND OF APPEAL. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER TAX AUTHORITIES. WE HAVE NOTED THAT ON IDENTICAL GROUNDS OF APPEAL, THE COORDINATE BENCH O F THE TRIBUNAL IN APPEAL FOR AY 2008-09 & 2010-11(AUTHORED BY JM) PASSED THE FOLLOWING ORDER; 16.WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. WE HAV E ALSO DELIBERATED ON THE VARIOUS CASE LAWS RELIED BY THE ASSESSEE. THE LD. A R FOR THE ASSESSEE VEHEMENTLY SUBMITTED THAT MERE EXTENDING CORPORATE AND PERFORMANCE GUARANTEE DOES NOT LEAD TO ANY INCOME GENERATION FO R THE ASSESSEE AND HENCE, DOES NOT FALL WITHIN THE AMBIT IF SECTION 92OF THE ACT AND RELIED ON THE DECISIONS OF COORDINATE BENCH(SUPRA). HOWEVER, THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF EVEREST KENTO CYLINDERS L TD. VS DCIT (SUPRA), WHILE CONSIDERING A SIMILAR SITUATION, WHERE IN THE MATTER OF GUARANTEE COMMISSION FEE THE ADJUSTMENT MADE BY THE INCOME-TA X AUTHORITIES WAS ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 9 BASED ON INSTANCES OF COMMERCIAL BANKS PROVIDING GU ARANTEES. THE HONBLE HIGH COURT HAS EXPLAINED THAT INSTANCES OF COMMERCI AL BANKS PROVIDING GUARANTEES COULD NOT BE COMPARED TO INSTANCES OF IS SUANCE OF CORPORATE GUARANTEE. AS PER BOMBAY HIGH COURT, WHEN COMMERCIA L BANKS ISSUE BANK GUARANTEES, THE SAME IS QUITE DISTINCT IN CHARACTER THAN THE SITUATION WHERE A CORPORATE ISSUES GUARANTEE TO THE EFFECT THAT, IF A SUBSIDIARY ASSOCIATED ENTERPRISE DOES NOT REPAY A LOAN, THE SAME WOULD BE MADE GOOD BY SUCH CORPORATE. KEEPING THE AFORESAID RATIO OF THE BOMBA Y HIGH COURT, IT IS QUITE CLEAR THAT THE MANNER IN WHICH THE TRANSFER PRICING OFFICER HAS PROCEEDED TO DETERMINE THE ARM'S LENGTH RATE BASED ON THE PROBAB LE RATE BEING CHARGED BY THE COMMERCIAL BANKS IS NOT JUSTIFIED. IN THIS VIEW OF THE MATTER, THREE PER CENT RATE OF GUARANTEE COMMISSION FEE DETERMINED AS ARM'S LENGTH RATE BY THE INCOME-TAX AUTHORITIES CANNOT BE APPROVED, THOUGH T HE LD. DRP IN ITS DIRECTION HAS ALREADY RESTRICTED IT TO 1.5%. IN TH E ALTERNATIVE, THE ADDITION THAT IS REQUIRED TO BE SUSTAINED IS THE POSITION CANVASS ED BY THE ASSESSEE BEFORE THE TRANSFER PRICING OFFICER I.E. ADOPTION OF 0.50 PER CENT AS ARM'S LENGTH RATE FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH INC OME ON ACCOUNT OF GUARANTEE COMMISSION FEE IN THE INSTANT CASE. CONSI DERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE AND ON THE BASI S OF THE MATERIAL AVAILABLE ON RECORD, THE RATE OF 0.50 PER CENT IS TO BE UPHEL D FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH RATE OF THE GUARANTEE COMMISSION FEE. IN THE RESULT THIS GROUND OF APPEAL IS PARTLY ALLOWED. 11. CONSIDERING THE ORDER OF THE TRIBUNAL FOR EARLIER YEARS, WE DIRECT THE AO/TPO TO COMPUTE THE CORPORATE GUARANTEE @0.5%. SO FAR AS CHARGING THE PERFORMANCE GUARANTEE IS CONCERNED, THE LD. AR FOR THE ASSESSEE VEHEMENTLY SUBMITTED THAT THE LOWER AUTHORITIES HAVE NOT APPRE CIATED THE FACT THAT ENTIRE REVENUE FROM THE PERFORMANCE OF THE CONTRACT FLOWS TO THE ASSESSEE GUARANTEED FOR ITS OWN PERFORMANCE AND THERE WAS NO RISK AS REGARD THE ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 10 PERFORMANCE GUARANTEE AND IT IS THE ASSESSEE WHO GU ARANTEED FOR ITS OWN PERFORMANCE. WE HAVE SEEN THAT THE ASSESSEE IN ITS STATEMENT OF FACTS BEFORE LD DRP HAS SPECIFICALLY PLEADED THAT IN CASE OF PER FORMANCE GUARANTEE EXTENDED BY THE ASSESSEE, THE CONTRACT ENTERED BY T HE ITELNET UK LTD (ON BEHALF OF WHICH THE ASSESSEE HAS PROVIDED PERFORMAN CE GUARANTEE) WITH THIRD PARTY CUSTOMERS, IT WAS ACTUALLY THE ASSESSEE WHO I S UNDERTAKEN THEY WERE AS ITELNET UK LTD SUBCONTRACTS THE WORK BACK TO THE AS SESSEE. THE ASSESSEE IS NOT EXPOSED TO ANY DEFAULT RISK ON ACCOUNT OF PERFO RMANCE GUARANTEE AS IT IS THE ASSESSEE ITSELF WHO PERFORMS THE WORK FOR THE C USTOMER. THUS, THE PROVISION OF PERFORMANCE GUARANTEE BY ASSESSEE WITH THIRD PARTY ON BEHALF OF ITS AE, ITELNET UK LTD, HAS BENEFITED THE ASSESSEE ITSELF SINCE THE ACTUAL SERVICE TO BE PROVIDED TO THIRD PARTY WAS OUTSOURCE D BY THE ASSESSEE BY ITS AE. IT IS FURTHER PLEADED THAT ENTIRE COMPENSATION RECEIVED FROM THE CUSTOMER BACK TO THE ASSESSEE. WE HAVE NOTED THAT THERE IS NO FINDING OF TPO ON THESE FACTS. THE TPO WHILE MAKING ADJUSTMENT SIMPLY FOLLO WS THE ADJUSTMENT MADE IN EARLIER YEARS. SIMILARLY, THIS ASPECT IS NO T CONSIDERED BY THE LEARNED DRP. CONSIDERING THE AFORESAID FACTUAL ASPECTS THIS PART OF GROUND OF APPEAL RELATED WITH PERFORMANCE GUARANTEE IS RESTORED TO T HE FILE OF ASSESSING OFFICER/TPO TO EXAMINE THE EFFECT AND PASS THE ORDE R A FRESH IN ACCORDANCE WITH LAW. ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 11 12. IN THE RESULT THIS PART OF GROUNDS OF APPEAL RELATE D WITH PERFORMANCE GUARANTEE IS ALLOWED FOR STATISTICAL PURPOSE. 13. GROUND NO. 2 RELATES TO ADJUSTMENT OF INTEREST REC EIVED FROM LOANS TO AES. THE LD. AR FOR THE ASSESSEE SUBMITS THAT THE ASSESS EE PROVIDED LOANS TO ITS FOUR AES. THE TPO MADE ADJUSTMENT OF RS. 22,60,391/ - BASED ON DOMESTIC COST OF BORROWING I.E. STATE BANK OF INDIA (SBI) R ATE + 3% MARKUP RESULTING IN TO A TOTAL RATE OF 9% FOR ALL THE LOANS. WHILE M AKING ADJUSTMENT THE TPO FOLLOWED THE ORDER OF DRP FOR AY 2008-09 AND 2009-1 0. THE DRP AFFIRMED THE ACTION BY FOLLOWING THE ORDER OF THEIR PREDECES SOR FOR AY 2008-09 AND 2009-10. THE LD. AR FOR THE ASSESSEE SUBMITS THAT T HE ASSESSEE HAD CORRECTLY CHARGED AND BENCHMARKED INTEREST RECEIVED ON LOANS ADVANCED TO AES AT LIBOR PLUS 2%. THE LD AR FOR THE ASSESSEE SUBMITS THAT RATE OF INTEREST ON LOANS ADVANCED TO FOREIGN COMPANY SHOULD BE COMPUTE D BASED ON THE MARKET DETERMINED INTEREST RATE APPLICABLE TO CURRENCY AND THE COUNTRY IN WHICH LOAN IS TO BE REPAID AND HENCE RATE OF SBI FIXED DEPOSIT RATE CANNOT BE APPLIED FOR THE PURPOSE OF BENCHMARKING. THE LD AR FOR THE ASS ESSEE ALSO RELIED ON THE FOLLOWING CASE LAWS; CIT VS COTTON NATURALS (P) LTD [2015] 55 TAXMANN.CO M 523 (DELHI), ION EXCHANGE (I) LTD (ITA NO. 5109/MUM/2013) HINDUJA GLOBAL SOLUTION LTD (2013) TAXMANN.COM 348 (MUM TRI), AURINPRO SOLUTION LTD [2013] 33TAXMANN.COM 187(MUM TRIB), ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 12 TATA AUTOCOMP SYSTEM LTD ( ITA NO. 7354/MUM/2011) 14. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF THE TPO/DRP. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PAR TIES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER TAX AUTHORITIES. WE HAVE NOTED THAT ON IDENTICAL GROUNDS OF APPEAL, THE COORDINATE BENCH O F THE TRIBUNAL IN APPEAL FOR AY 2008-09 & 2010-11(AUTHORED BY JM) PASSED THE FOLLOWING ORDER; 19.WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. WE HAV E ALSO DELIBERATED ON THE VARIOUS CASE LAWS RELIED BY THE ASSESSEE. THE TPO M ADE ADJUSTMENT ON ACCOUNT OF LOAN BASED ON THIRD PARTY DOMESTIC RATE I.E. CRISIL TAKING THE RATE @ 14.39%. THE DRP AFTER CONSIDERING THE SUBMISSIONS ON THE OBJECTIONS OF THE ASSESSEE AND DIRECTED TO MADE ADJUSTMENT BASED ON DOMESTIC COST OF BORROWING + 3% MARKUP. THE LD. AR FOR THE ASSESSEE VEHEMENTLY SUBMITTED THAT DIRECTION OF LD. DRP RESULTED IN TO TOTAL RATE OF INTEREST AT 8.8%. THE HONBLE DELHI HIGH COURT IN CIT VS COTTON NATURALS (I) (P) LTD (SUPRA) WHILE CONSIDERING THE QUESTION OF LAW WHETHER THE INCOME-TAX APPELLATE TRIBUNAL WAS RIGHT IN HOLDING THAT THE INTEREST @ 4 % P.A. CHARGED BY THE RESPONDENT ASSESSEE FROM ITS SUBSIDIARY I.E. THE AS SOCIATED ENTERPRISE WAS ARM'S LENGTH RATE OF INTEREST AND THE ADJUSTMENT MA DE IN THE ASSESSMENT ORDER DETERMINING THE ARMS' LENGTH RATE OF INTEREST AT 12.20% WAS UNWARRANTED, HELD THAT ARM'S LENGTH INTEREST RATE F OR LOAN ADVANCED TO FOREIGN SUBSIDIARY BY INDIAN COMPANY SHOULD BE COMP UTED BASED ON MARKET DETERMINED INTEREST RATE APPLICABLE TO CURRENCY IN WHICH LOAN HAS TO BE REPAID. 20. FURTHER, THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS TATA AUTOCOMP SYSTEM LTD (SUPRA) ALSO HELD THAT WHERE AS SESSEE ADVANCED LOANS TO ITS AE SITUATED IN GERMANY, RATE OF INTEREST WAS TO BE DETERMINED ON BASIS ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 13 OF RATE PREVAILING IN GERMANY WHERE LOAN HAD BEEN C ONSUMED. CONSIDERING THE AFORESAID DECISIONS OF HONBLE HIGH COURTS, WE DIRECT THE AO/TPO TO RECOMPUTE THE ADJUSTMENT OF INTEREST ON LOAN BY FOL LOWING THE DECISION OF CIT VS TATA AUTOCOMP SYSTEM LTD (SUPRA). THE ASSESS EE IS DIRECTED TO PROVIDE NECESSARY DETAILS TO AO/TPO. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 16. CONSIDERING THE ORDER OF THE TRIBUNAL FOR EARLIER YEARS, WE DIRECT THE AO/TPO TO COMPUTE THE INTEREST BY FOLLOWING THE ORD ER OF TRIBUNAL IN AY 2008-09 AND 2009-10 DATED 16.06.2020. IN THE RESULT THIS GROUND OF APPEAL IS PARTLY ALLOWED. 17. GROUND NO. 3 RELATES TO SHORT DEDUCTION OF TDS OF RS. 168,01,746/- THE LD AR FOR THE ASSESSEE SUBMITS THAT WHILE FILING RETUR N OF INCOME THE ASSESSEE CLAIMED TAX CREDIT OF RS. 6,02,59,755/-. THE AO WHI LE PASSING THE ASSESSMENT ORDER AND COMPUTING TAX LIABILITY GRANTED CREDIT TO THE EXTENT OF RS. 4,3458,009/-, WITHOUT ASSIGNING ANY REASONS. THE LD AR FOR THE ASSESSEE PRAYED FOR PASSING APPROPRIATE DIRECTION TO THE AO. 18. THE LD. DR FOR THE REVENUE FAIRLY SUBMITS THAT TH IS ISSUE MAY BE RESTORED TO AO TO VERIFY THE FACTS AND TO GRANT THE APPROPRIATE CREDIT OF TAX TO THE ASSESSEE. 19. CONSIDERING THE SUBMISSIONS OF THE LD. REPRESENTA TIVE OF THE PARTIES THE AO IS DIRECTED TO VERIFY THE FACT AND GRANT APPROPRIAT E RELIEF TO THE ASSESSEE. NEEDLESS TO DIRECT THAT AT THE TIME OF VERIFICATION OF TDS CREDIT THE AO SHALL ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 14 GRANT OPPORTUNITY OF HEARING TO THE ASSESSEE. IN TH E RESULT THIS GROUND OF APPEAL IS ALSO ALLOWED FOR STATISTICAL PURPOSE. 20. GROUND NO. 4 RELATES TO ERROR IN COMPUTING THE TAX PAYABLE IN TERMS OF SECTION 115JB. THE LD. AR FOR THE ASSESSEE SUBMITS THAT THE AO COMPUTED THE TAX LIABILITY IN TERMS OF SECTION 115 JB BY APP LYING MINIMUM ALTERNATE TAX RATE OF 18% INSTEAD OF CORRECT RATE OF 15%. THE ASSESSEE HAS ALREADY FILED AN APPLICATION FOR RECTIFICATION ON 29 TH JANUARY 2015, WHICH HAS NOT YET BEEN DISPOSED BY AO. THE LD. AR PRAYED FOR APPROPRIATE D IRECTIONS TO THE AO. 21. THE LD. DR SUBMITS THAT THE TRIBUNAL MAY PASS NECE SSARY DIRECTION TO THE AO. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES. CONSIDERING THE SUBMISSIONS OF THE LD. AR FOR THE ASSESSEE THAT THE RECTIFICATION APPLICATION OF THE ASSESSEE IS PENDING DISPOSAL FROM THE YEAR 2015 , WE DIRECT THE AO COMPUTE THE TAX LIABILITY IN TERMS OF THE PROVISION S OF SECTION 115JB AS AMENDED UP TO DATE. 23. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED SUE TO LOW TAX EFFECT. ITA NO. 5828/MUM/2015 FOR AY 2011-12 BY ASSESSEE 24. THE ASSESSEE IN ITS APPEAL FOR AY 2011-12 HAS RAISE D FOLLOWING GROUNDS OF APPEAL; ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 15 1.0 RE: ADJUSTMENT OF RS. 2,53,51,510/- AS REGARDS PROVISION OF GUARANTEE: 1.1. THE LEARNED ASSESSING OFFICER/ DISPUTE RESOLUT ION PANEL/ TRANSFER PRICING OFFICER HAVE ERRED IN MAKING AN UPWARD ADJU STMENT OF RS. 2,53,51,510/- TO THE TOTAL INCOME OF THE APPELLANT BY HOLDING THAT TRANSACTION OF PROVISION OF GUARANTEE BY THE APPELLANT TO ITS A SSOCIATED ENTERPRISE ('AE') IS NOT AT ARM'S LENGTH. 1.2. THE LEARNED ASSESSING OFFICER/DISPUTE RESOLUTI ON PANEL/ TRANSFER PRICING OFFICER ERRED IN NOT APPRECIATING THAT, CON SIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE, PROVISION OF CORPORATE G UARANTEE AND THE PERFORMANCE GUARANTEE CANNOT BE CONSIDERED AS AN 'I NTERNATIONAL TRANSACTION' WHICH CAN BE BENCHMARKED. 1.3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AS SESSING OFFICER/DISPUTE RESOLUTION PANEL/TRANSFER PRICING OFFICER HAS ERRED IN ALLEGING THAT GUARANTEES EXTENDED BY THE APPELLANT SHOULD BE COMPENSATED BY WAY OF GUARANTEE COMMISSION AND THEREBY ALLEGING A GUARANTEE FEE @ 1 .25% FOR PROVISION FOR CORPORATE GUARANTEE AND 1.50% FOR PROVISION OF PERF ORMANCE GUARANTEE BY SIMPLY RELYING ON THE DRP DIRECTIONS OF THE PRIOR Y EAR I.E. AY 2010-11. 1.4. THE APPELLANT SUBMITS THAT THE ASSESSING OFFIC ER BE DIRECTED TO DELETE THE UPWARD ADJUSTMENT OF RS. 2,53,51,510/- MADE BY HIM TO THE APPELLANT'S TOTAL INCOME AND TO RE-COMPUTE ITS TOTAL INCOME AND TAX LIABILITY ACCORDINGLY. 2.0 RE: ADJUSTMENT OF RS. 1,20,03,931/- AS REGARDS PROVISION OF LOANS: 2.1. THE LEARNED ASSESSING OFFICER/ DISPUTE RESOLUT ION PANEL/TRANSFER PRICING OFFICER HAVE ERRED IN MAKING AN UPWARD ADJU STMENT OF RS. 1,20,03,931/- TO THE TOTAL INCOME OF THE APPELLANT BY HOLDING THAT INTERNATIONAL TRANSACTION RELATING TO INTEREST RECEIVED ON LOANS GRANTED BY THE APPELLANT TO ITS AES IS NOT AT ARM'S LENGTH. 2.2. THE LEARNED ASSESSING OFFICER/THE DISPUTE RESO LUTION PANEL/THE TRANSFER PRICING OFFICER ERRED IN APPRECIATING THAT UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF ITS CASE AND THE VARIOUS JUDICIAL PRECEDENTS AND LAW PREVAILING ON THE SUBJECT, THE INTEREST RECEIVED BY IT FROM ITS AES ON THE LOANS GRANTED BY IT IS AT ARM'S LENGTH AND HENCE NO ADJUS TMENT IN RESPECT THEREOF WAS CALLED FOR. 2.3. THE APPELLANT SUBMITS THAT THE ASSESSING OFFIC ER BE DIRECTED TO DELETE THE UPWARD ADJUSTMENT OF RS. 1,20,03,931/- MADE BY HIM TO THE APPELLANT'S TOTAL INCOME AND TO RE-COMPUTE ITS TOTAL INCOME AND TAX LIABILITY ACCORDINGLY. ITA NO. 1560,1664 &5828/M/2015 (AY 2010-11 & 2011-1 2) TELEPERFORMANCE GLOBAL SERVICES PVT LTD 16 25. GROUND NO. 1 OF THE APPEAL IS IDENTICAL TO THE GROU ND NO. 1 IN APPEAL FOR 2010-11, WHEREIN WE HAVE RESTRICTED THE ADJUSTMENT OF CORPORATE GUARANTEE AT THE RATE OF 0.5%, HOWEVER, THE PART OF THE GROUN D RELATED WITH THE PERFORMANCE GUARANTEE IS RESTORED BACK TO THE FILE OF AO/TPO THEREFORE, PART OF THIS GROUND OF APPEAL IS ALSO RESTORED TO T HE FILE OF AO WITH SIMILAR DIRECTION. IN THE RESULT THIS GROUND OF APPEAL IS P ARTLY ALLOWED. 26. GROUND NO. 2 OF THE APPEAL IS IDENTICAL TO THE GRO UND NO. 2 IN APPEAL FOR 2010-11, WHICH WE HAVE ALLOWED, CONSIDERING THE PRI NCIPLES OF CONSISTENCY THIS GROUND OF APPEAL IS ALSO PARTLY ALLOWED WITH S IMILAR OBSERVATION. 27. IN THE RESULT THE APPEAL FOR AY 2011-12 IS PARTLY A LLOWED. ORDER PRONOUNCED IN OPEN COURT ON 17 TH AUGUST 2020. SD/- SD/- M. BALAGANESH PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 17.08.2020 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR K BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI
