Prolifics Corporation Limited (previously known as Sementic Space Technologies Limited), Hyderabad V. Dy.CIT., Circle-3(1), Hyderabad, Hyderabad

ITA 1646/HYD/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6193 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 27-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M JAGADISH BABU
• Assessee Lawyers: RAGHUNATHAN
• Keywords: Transfer pricing; International transaction; Retrospective amendment
• Section: 143(3); 92B; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NO.1646/HYD/2014 ASSESSMENT YEAR 2010-2011 PROLIFICS CORPORATION LTD., (PREVIOUSLY KNOWN AS SEMANTIC SPACE TECHNOLOGIES LTD.,) HYDERABAD 500 032. PAN AAGCS6868P VS. DCIT, CIRCLE-3(1), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. RAGHUNATHAN S. FOR REVENUE : MR. M. JAGADISH BABU DATE OF HEARING : 06.09.2016 DATE OF PRONOUNCEMENT : 28.09.2016 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y. 2010-2011. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRO UNDS OF APPEAL : 1. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN CONTRARY TO LAW, THE APPELLANT RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE DE PUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(L), HYDERABAD (HEREINAFTER REFERRED TO AS 'AO') IN PURSUANCE OF T HE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (HEREINA FTER REFERRED AS 'DRP'), HYDERABAD DATED 20 AUGUST 2014 UNDER SECTION 143(3) READ WITH SECTION 144C(5) OF T HE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'A CT'). 2. THE ASSESSMENT ORDER PASSED BY THE LEARNED AO UNDER SECTION 143(3) READ WITH SECTION 144C AND READ WITH THE 2 ITA.NO.1646/HYD/2014 PROLIFICS CORPORATION LTD., HYDERABAD. ORDER PASSED BY THE LEARNED TRANSFER PRICING OFFICE R (HEREINAFTER REFERRED TO AS 'TPO'), UNDER SECTION 9 2CA(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO A S 'THE ACT') IS BAD IN LAW AND VOID AB-INITIO. 3. THE LEARNED AO/DRP ERRED IN UPHOLDING THE TRANSFER PRICING ADJUSTMENT OF RS. 2,48,32,927 AS DETERMINED BY THE LEARNED TPO WITHOUT APPRECIATING THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISK ASSUMED BY THE APPELLANT WITH REGARD TO THE INTERNATIONAL TRANSACT IONS. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, THE LEARNED AO/DRP ERRED IN CONFIR MING THE TPO'S STAND WITH REGARD TO THE CORPORATE GUARAN TEE GIVEN BY THE APPELLANT. 4.1. IN NOT APPRECIATING THE FACT THAT THE TRANSACTION O F CORPORATE GUARANTEE GIVEN AS A SHAREHOLDER IS NOT I N THE NATURE OF 'INTERNATIONAL TRANSACTION' AS DEFINE D IN SECTION 92B AND HENCE IS OUTSIDE THE PURVIEW AND SCOPE OF CHAPTER X OF THE ACT. 4.2. IN MAKING A TRANSFER PRICING ADJUSTMENT FOR THE CORPORATE GUARANTEES GIVEN BY THE APPELLANT TO VARI OUS THIRD PARTIES ON BEHALF OF ITS ASSOCIATED ENTERPRIS E (' AE') WHICH IS CONTINUING FROM PRIOR YEARS AND WAS A LSO SUBJECTED TO TRANSFER PRICING ADJUSTMENT IN A.Y. 20 09- 10. 4.3. IN NOT APPRECIATING THE FACT THAT AS PER THE LOAN AGREEMENT BETWEEN ICICI BANK AND THE AE FOR WHICH THE CORPORATE GUARANTEE WAS PROVIDED BY THE APPELLA NT, THE APPELLANT WAS COMMERCIALLY RESTRICTED FROM CHARGING ANY GUARANTEE FEE TO THE A.E. 4.4. IN NOT APPRECIATING THE CONCEPT OF SHAREHOLDER SERV ICES AS CONTAINED IN THE TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS RELEASED BY THE ORGANISATION FOR ECONOMIC COOPERATI ON AND DEVELOPMENT ('OECD GUIDELINES'). 4.5. IN ADOPTING CORPORATE GUARANTEE RATE OF @ 2% IN AN AD- HOC MANNER WITHOUT FOLLOWING ONE OF THE PRESCRIBED 3 ITA.NO.1646/HYD/2014 PROLIFICS CORPORATION LTD., HYDERABAD. METHODS AS PROVIDED UNDER RULE 10B OF THE INCOME-TA X RULES, 1962. 5. WITHOUT PREJUDICE TO THE GROUND NOS. 4.1,4.2,4.3 4. 4 AND 4.5, ON FACTS AND CIRCUMSTANCES OF THE CASE, THE HO N'BLE DRP/LD.TPO OUGHT TO HAVE CONSIDERED THE CORPORATE GUARANTEE FEES @ 0.5% INSTEAD OF 2% BY FOLLOWING VA RIOUS JUDICIAL PRECEDENTS. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, THE LEARNED AO/DRP ERRED IN CONFIR MING THE TPO'S STAND WITH REGARD TO LOANS & ADVANCES GIV EN BY THE APPELLANT. 6.1. IN MAKING A TRANSFER PRICING ADJUSTMENT OF INR. 1,22,65,874/- (INR. 98,67,002 ON ACCOUNT OF LOAN + INR. 23,98,872 ON ACCOUNT OF REIMBURSEMENTS) BY DETERMINING THE INTEREST RATE @ 6 MONTH LIBOR PLUS 4.75% ON LOANS & ADVANCES GIVEN BY THE APPELLANT TO ITS AE. 6.2. IN NOT APPRECIATING THE FACT THAT THE LOAN & ADVANC ES GIVEN BY THE APPELLANT TO THE AE IS FOR THE BUSINES S AND COMMERCIAL EXIGENCY AND THEREBY NOT APPRECIATING TH E CONCEPT OF SHAREHOLDERS ACTIVITY AS GIVEN IN THE OE CD GUIDELINES. 6.3. IN CONSIDERING THE PROMISSORY NOTE ENTERED INTO BETWEEN SST NORTH AMERICA AND THE APPELLANT AS INTERNAL COMPARABLE UNCONTROLLED PRICE FOR ARRIVING AT THE ALP OF INTEREST ON LOANS & ADVANCES PROVIDED BY THE APPELLANT TO ITS AE; AND 7. WITHOUT PREJUDICE TO THE GROUND NOS. 6.1, 6.2 AND 6 .3, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BL E DRP/LD.TPO OUGHT TO HAVE CONSIDERED ONLY LIBOR AS T HE MAXIMUM RATE OF INTEREST ON THE LOANS & ADVANCES GI VEN BY THE APPELLANT TO ITS AE. 8. THE APPELLANT CRAVES LEAVE TO ADD TO/ALTER/AMEND/ SUBSTITUTE ANY OF THE ABOVE GROUNDS OF APPEAL, AT T HE TIME, BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE APPELLATE AUTHORITY TO DECIDE THIS APPEA L ACCORDING TO LAW. 4 ITA.NO.1646/HYD/2014 PROLIFICS CORPORATION LTD., HYDERABAD. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPAN Y, ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE DEVEL OPMENT AND SUPPORT SERVICES, HAS FILED ITS RETURN OF INCOME FOR TH E A.Y. 2010- 2011 ON 11.10.2010 ADMITTING TOTAL INCOME OF RS.11,41,1 4,552 UNDER NORMAL PROVISIONS AND BOOK PROFIT OF RS.18,28, 79,806 UNDER SECTION S.115JB OF THE I.T. ACT, 1961. DURING TH E ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE AC T, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS ENTER ED INTO INTERNATIONAL TRANSACTIONS WITH ITS A.E. THEREFORE, THE DETERMINATION OF THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS WAS REFERRED TO THE TPO UNDER SECTION 92CA OF THE ACT. THE TPO, BY ORDER DATED 28.08.2013, C OMPUTED THE ALP ADJUSTMENT AT RS.2,48,32,927. THE ASSESSING OFF ICER ACCORDINGLY, PROPOSED DRAFT ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE PREFERRED ITS OBJECTIONS BEFORE THE DRP. THE DRP, VIDE ORDERS DATED 28.07.2014, REJECTED THE OBJECTIONS 1 A ND 2 OF THE ASSESSEE AND ALLOWED THE OBJECTIONS 3 AND 4. IN CONSO NANCE WITH THE DIRECTIONS OF THE DRP, FINAL ASSESSMENT ORDER IS PA SSED AND AGGRIEVED BY THE DENIAL OF THE RELIEF TO THE ASSESSEE BY THE DRP, THE ASSESSEE IS IN APPEAL BEFORE US. 3. WE FIND THAT GROUND NOS. 1 TO 3 AND 8 ARE GENERAL IN NATURE WHICH NEED NO ADJUDICATION. 4. AS REGARDS GROUND NO.4, BRIEF FACTS OF THE CASE A RE THAT DURING THE F.Y. 2008-09, THE ASSESSEE HAD PROVIDE D BANK GUARANTEE TO THE EXTENT OF RS.62,83,52,637 TO ITS A.E. T HE BANK GUARANTEE PROVIDED BY THE ASSESSEE TO ITS A.E. IS ABSO LUTE, IRREVOCABLE AND CONTINUED GUARANTEE. THEREFORE, ACCOR DING TO THE TPO, THIS IS AN INTERNATIONAL TRANSACTION AND THE FEE OF 2% 5 ITA.NO.1646/HYD/2014 PROLIFICS CORPORATION LTD., HYDERABAD. THEREON WAS FOUND TO BE REASONABLE BY THE TPO. THE DRP ACCEPTED THE FINDING OF THE TPO AND HELD THE ISSUE AGA INST THE ASSESSEE. AGAINST THE SAME, THE ASSESSEE HAS PREFERRE D THIS APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE, SUBMITTED THA T SIMILAR ISSUE HAD ARISEN IN THE ASSESSEES OWN CASE FOR THE EARLIER A.Y. 2009-2010 WHEREIN THE TRIBUNAL HAS HELD THE CORP ORATE GUARANTEE TO BE AN INTERNATIONAL TRANSACTION AND THEREFO RE, THIS ISSUE IS COVERED AGAINST THE ASSESSEE. HOWEVER, HE S UBMITTED THAT THE TRIBUNAL HAD DIRECTED THE ASSESSING OFFICER TO RE- WORK-OUT THE CORPORATE GUARANTEE FEE AT 0.53% AS AN ARMS LENGTH ADJ USTMENT. HE PRAYED FOR SIMILAR DIRECTIONS IN THE RELEVANT ASSES SMENT YEAR ALSO. 6. THE LD. D.R. SUPPORTED THE ORDERS OF THE AUTHORITIE S BELOW. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE TRIBUNAL VIDE ORD ERS DATED 31.12.2014 IN ASSESSEES OWN CASE FOR THE A.Y. 2009- 2010 HAS CONSIDERED THE ISSUE AT LENGTH AT PARAS 6 TO 8 WHICH AR E REPRODUCED HEREUNDER FOR READY REFERENCE : 6. COMING TO THE ISSUE OF GUARANTEE FEE, ONE OF T HE FUNDAMENTAL FACT PATTERNS IN THE EVOLUTION OF INTERNATIONAL TRANSFER PRICING CONCEPTS AND RULES INVOLVES AN ENTERPRISE'S USE OF A FINANCIAL RESOURC E BELONGING TO AN ASSOCIATED ENTERPRISE. AN ASPECT OF THE USE OF MONEY RELATES TO THE USE OF A CREDIT ENHANCE MENT INSTRUMENT, WHICH TYPICALLY ARISES IN THE CONTEXT O F GUARANTEES OF THE OBLIGATIONS OF ONE CONTROLLED ENT ITY BY ANOTHER. ALTHOUGH THE GECD TRANSFER PRICING GUIDELINES, 2010 ACKNOWLEDGE THE ROLE OF THE USE OF 6 ITA.NO.1646/HYD/2014 PROLIFICS CORPORATION LTD., HYDERABAD. MONEY IN TRANSFER PRICING MATTERS, THEY DO NOT YET PROVIDE SPECIFIC GUIDELINES REGARDING HOW SUCH ISSU ES ARE TO BE ADDRESSED AND RESOLVED. NONETHELESS, THE ELEMENTS THAT ARE TYPICALLY IMPORTANT IN EVALUATING TRANSFER PRICING ISSUES INVOLVING THE USE OF MONEY WITHIN MULTINATIONAL ENTERPRISE GROUPS CAN BE OUTLI NED BY DRAWING ON GENERAL ARM'S LENGTH PRINCIPLES. WHET HER THE MERE PRESENCE OF A GUARANTEE SUPPORT TO AN A.E. IS SUBJECT TO T.P. PROVISIONS HAS BEEN A CONTENTIOUS I SSUE IN THE INDIAN CONTEXT. HOWEVER, THE ISSUE OF WHETHE R A CHARGE SHOULD BE IMPOSED FOR PROVISION OF A GUARANT EE IS PRIMARILY A FACTUAL INQUIRY. THE ASSESSEE ARGUED THAT THE CORPORATE GUARANTEE IS AN ADDITIONAL GUARANTEE PROVIDED BY THE PARENT COMPANY AND IT DOES NOT INVO LVE ANY COST OR RISK TO THE SHAREHOLDERS. THE ASSESSEE ALSO ARGUED THAT THE RETROSPECTIVE AMENDMENT TO SECTION 928 OF THE ITL, BY FINANCE ACT, 2012 DOES NOT ENLAR GE THE SCOPE OF THE TERM 'INTERNATIONAL TRANSACTION' T O INCLUDE THE CORPORATE GUARANTEE IN THE NATURE PROVI DED BY ASSESSEE. DR ON THE OTHER HAND, CONTENDED THAT T HE TRANSACTION OF PROVIDING THE CORPORATE GUARANTEE IS COVERED BY THE DEFINITION OF INTERNATIONAL TRANSACT ION AFTER THE RETROSPECTIVE AMENDMENT MADE BY FINANCE ACT, 2012. THEREFORE, THE TRANSACTION WAS SUBJECT T O T.P. PROVISIONS AND NEEDED ALP DETERMINATION. IT WA S THE SUBMISSION THAT THERE IS NO SERVICE RENDERED BY ASSESSEE TO THE A.E. ASSESSEE RELIED ON THE VIEWS EXPRESSED BY AUSTRALIAN TAX OFFICER PLACING RELEVAN T COPY BEFORE US WHICH WAS ISSUED IN 2008. LAW HAS CHANGED SUBSEQUENTLY AND PROVISIONS OF INCOME TAX ALSO WERE AMENDED SO AS TO INCLUDE PROVIDING GUARANTEES AS SERVICE TO THE A.E. HOWEVER GUARANTEE S INVOLVE EXPRESS GUARANTEE OR IMPLIED GUARANTEE WHIC H INCREASES CREDIT WORTHINESS OF AES, IF PROVIDED BY MAIN COMPANY. IN CASE OF DEFAULT GUARANTOR HAS TO FULFIL L THE LIABILITY. THEREFORE, THERE IS ALWAYS AN INHERENT R ISK IN PROVIDING GUARANTEES. THAT MAY BE A REASON THAT FINANCE PROVIDER INSIST ON NON CHARGING ANY COMMISSION FROM AE AS A COMMERCIAL PRINCIPLE. THIS INDICATES THAT, PROVISION OF GUARANTEE ALWAYS INVOL VE RISK AND THERE IS A SERVICE PROVIDED TO AE IN INCRE ASING IS CREDITWORTHINESS IN OBTAINING LOANS IN MARKET, B E FROM FINANCIAL INSTITUTIONS OR FROM OTHERS. THERE M AY 7 ITA.NO.1646/HYD/2014 PROLIFICS CORPORATION LTD., HYDERABAD. NOT BE IMMEDIATE CHARGE ON P& L ACCOUNT BUT INHEREN T RISK CAN NOT BE RULED OUT IN PROVIDING GUARANTEES. 7. CONSIDERING THE ABOVE, WE ARE OF THE OPINION TH AT THERE IS SERVICE RENDERED TO A.E. BY PROVIDING GUARANTEES AND THEREFORE, INVOKING PROVISIONS OF T.P. DOES ARISE O N THE FACTS OF THE CASE. THE COORDINATE BENCH OF HYDERABA D TRIBUNAL HAS ALREADY CONSIDERED SIMILAR ISSUES IN T HE CASE OF FOUR SOFT P. LTD., REPORTED AT 44 TAXMANN.C OM 479 (WHEREIN ONE OF US A MEMBER] AND HELD AS UNDER: '25.2. HAVING CONSIDERED THE SUBMISSIONS OF THE PAR TIES, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE LEARNED AR THAT CORPORATE GUARANTEE OF THE NATURE PROVIDED BY THE ASSESSEE WILL NOT COME WITHIN THE MEANING OF INTERNATIONAL TRANSACTION IN TERMS WITH SECTION 92B OF THE ACT. IT IS NOT DISPUTED THAT SECTION 92B OF THE ACT HAS BEEN AMENDED BY THE FINANCE ACT, 2012 WITH THE INSERTION OF EXPLANATION I (C) WITH RETROSPECTIVE E FFECT FROM 01/04/2002. EXPLANATION (I)(C) TO SECTION 92B, READS AS UNDER: CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-TERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHAS E OR SALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADV ANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS. ' 25.3. A READING OF THE AFORESAID CLAUSE FROM THE EX PLANATION WOULD MAKE IT CLEAR THAT THE CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE COMES WITHIN THE SCOPE AND AMBIT OF 'INTERNATIONAL TRANSACTION' AS PER THE AFO RESAID CLAUSE. THEREFORE, THE CONTENTION OF THE LEARNED AR THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY V IRTUE OF THE ORDER PASSED IN ASSESSEE'S OWN CASE FOR AY 200607 NO LONGER HOLDS GOOD SINCE THE ORDER PASSED BY THE COORDINATE BENCH IS PRIOR TO THE AMENDMENT MADE TO PROVISION OF SECTION 92B OF THE ACT. IT WILL BE PER TINENT TO MENTION HERE THAT THIS ISSUE WAS ALSO CONSIDERED BY THE ITAT MUMBAI BENCH IN CASE OF MAHINDRA & MAHIN.DRA VS. DCIT IN ITA NO. 8597/MUM/2010, 54 SOT (UR) 146. THE COORDINATE BENCH OF THIS TRIBUNAL WHILE CONSIDERING SIMILAR ARGUMENT ADVANCED ON BEHA LF 8 ITA.NO.1646/HYD/2014 PROLIFICS CORPORATION LTD., HYDERABAD. OF THE ASSESSEE BY PLACING RELIANCE ON THE DECISION OF THE FOUR SOFT LTD. (SUPRA), HELD AS UNDER: '15.2. AFTER HEARING THE RIVAL SUBMISSIONS WE FEEL THAT ASSESSING OFFICER WILL HAVE TO FOLLOW THE DECISION OF THE ITAT HYDERABAD OR THE AMENDED PROVISION. OF THE ACT IN THIS REGARD. IF THE FINANCE BILL OF 2012 IS PASS ED BY THE PARLIAMENT AMENDING THE PROVISIONS OF SECTION 9 2B, WITH EFFECT FROM 1ST APRIL, 2002, HE WILL HAVE TO I GNORE THE DECISION OF THE ITAT HYDERABAD. IN CASE SECTION 92B IS NOT AMENDED WITH RETROSPECTIVE EFFECT, HE SH OULD GRANT RELIEF TO THE APPELLANT.' 25.4. IN THE AFORESAID VIEW OF THE MATTER, WE AGREE WITH THE TPO THAT ALP OF THE CORPORATE GUARANTEE HAS TO BE DETERMINED AS IT FALLS WITHIN THE SCOPE AND AMBIT O F ALL INTERNATIONAL TRANSACTION AFTER THE RETROSPECTIVE AMENDMENT TO SECTION 92B. HOWEVER, IT APPEARS THAT THE TPO HAS APPLIED THE RATE OF 3.75%, WHICH IS APPLICABLE TO BANK GUARANTEE ISSUED BY THE BANK. AS THE CORPORATE GUARANTEE IS NOT IN THE NATURE OF BAN K GUARANTEE, THE RATE APPLICABLE TO BANK GUARANTEE PROVIDED BY THE BANK CANNOT BE APPLIED TO CORPORATE GUARANTEE WHICH IS PROVIDED BY A GROUP COMPANY. IN CASE OF GLENMARK PHARMACEUTICALS VS. ACIT IN ITA NO . 5031/MUM/2012, DATED 13/11/2013, THE MUMBAI BENCH OF THE TRIBUNAL AFTER ANALYSING THE FACTS IN THAT CASE HAD HELD THAT 0.53% CORPORATE GUARANTEE RATE I N THAT CASE WAS APPROPRIATE. THE ITAT HYDERABAD BENCH IN CASE OF INFOTECH ENTERPRISES LTD. IN ITA NO. 115/HYD/2011 AND IN ITA NO. 2184/HYD/2011, DATED 16/01/2014 WHILE CONSIDERING IDENTICAL ISSUE OF DETERMINING ALP OF CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE TO ITS AE FOLLOWED THE RATIO LAID DOWN IN CASE OF GLENMARK PHARMACEUTICALS VS. ACIT (SUPRA) AND REMITTED THE ISSUE BACK TO THE TPO TO DECIDE TH E QUANTUM OF CORPORATE GUARANTEE RATE BY FOLLOWING TH E METHOD ADOPTED IN CASE OF GLENMARK PHARMACEUTICALS (SUPRA). 8. IN VIEW OF THIS, WE UPHOLD THE ADJUSTMENT MADE ON GUARANTEE COMMISSION BOTH ON THE GUARANTEE PROVIDED TO BANK DIRECTLY AND ALSO ON THE GUARANTEE PROVIDED TO THE ERSTWHILE SHAREHOLDERS OF JYACC FOR ASSURING TH E 9 ITA.NO.1646/HYD/2014 PROLIFICS CORPORATION LTD., HYDERABAD. PAYMENT BY AE. HOWEVER, WE DIRECT THE TPO TO ADOPT THE RATE TO 0.53% WHICH IS CONSIDERED AS ARMS LENGT H IN OTHER CASES. WITH THESE DIRECTIONS, GROUNDS ARE CONSIDERED PARTLY ALLOWED. 7.1. SINCE THE DRP HAS ALSO FOLLOWED ITS EARLIER ORD ER FOR THE A.Y. 2009-2010, WE UPHOLD THE FINDING OF THE DRP THAT THE CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION. TH EREAFTER, WE ALSO DIRECT THE ASSESSING OFFICER TO ADOPT RATE AS 0 .53% AS CORPORATE GUARANTEE COMMISSION AS DONE IN THE EARLIE R ASSESSMENT YEAR. THUS, GROUND OF APPEAL NO.4 IS REJE CTED AND GROUND OF APPEAL NO.5 IS TREATED AS ALLOWED FOR STATIS TICAL PURPOSES. 8. AS REGARDS GROUND NO.6, BRIEF FACTS OF THE CASE A RE THAT THE ASSESSEE HAD PROVIDED AN ADVANCE OF RS.9,28, 37,001 ON BEHALF OF ITS A.E., TO SST NORTH AMERICA INC., DUE TO BUSINESS AND COMMERCIAL EXIGENCIES FOR THE SOLE PURPOSE OF ACQUIS ITION OF JYACC INC, NEW YORK AND THE SAME WERE TO BE RECOVERE D FROM SST LATER ON COST-TO-COST BASIS. THE TPO OBSERVED THA T SST WAS A START-UP COMPANY WITH NO SIGNIFICANT BUSINESS ACTIVI TIES. THE TPO THEREFORE, TREATED THE SAME AS AN INTERNATIONAL TRAN SACTION AND CHARGED INTEREST ON THE SAME. THE DRP CONFIRMED THE CHARGEABILITY OF INTEREST THEREON BUT HOWEVER, DIRECTE D THE TPO TO ADOPT LIBOR+ 4.75% BASIS POINTS. FOR COMING TO THIS CO NCLUSION ALSO, THE DRP RELIED UPON ITS ORDER FOR THE A.Y. 2009 -2010. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSU E ALSO WAS DECIDED BY THE COORDINATE BENCH OF THIS TRIBUNAL F OR THE A.Y. 2009-2010 WHEREIN THE TRIBUNAL HAS DIRECTED THE ASSES SING OFFICER TO ADOPT LIBOR+ 2.75% ONLY AS AGAINST THE LIBOR + 4.75% CHARGED BY THE ASSESSING OFFICER/TPO. HE THEREFORE, P RAYED FOR SIMILAR DIRECTION FOR THE IMPUGNED A.Y. AS WELL. 10 ITA.NO.1646/HYD/2014 PROLIFICS CORPORATION LTD., HYDERABAD. 9. THE LD. D.R. WAS ALSO HEARD. 10. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE TRIBUNAL IN THE A. Y. 2009- 2010 HAS CONSIDERED THIS ISSUE AT PARA-5 WHICH IS RE PRODUCED HEREUNDER FOR READY REFERENCE. 5. WE HAVE CONSIDERED THE ISSUE AND PERUSED THE DOCUMENTS ON RECORD. THE TWO ISSUES TO BE CONSIDERE D ARE WHETHER THE INTEREST FREE LOANS AND GUARANTEES PROVIDED BY ASSESSEE TO AE CALLS FOR ANY ADJUSTMENT . AS FAR AS ADJUSTMENT OF INTEREST ON LOANS PROVIDED, ASSESSEE EVEN THOUGH IS OBJECTING TO ADJUSTMENT PER SE BUT MAIN THRUST IS ON RATE ON WHICH THE ADJUSTMENTS WERE MADE. THERE IS NO DISPUTE TO THE FACT THAT PROVIDING OF LOANS TO AE IS AN INTERNATIONAL TRANSA CTION AS PER THE TP PROVISIONS. THEREFORE, THE COMMERCIAL CONSIDERATIONS ADVANCED BY ASSESSEE CAN NOT BE CONSIDERED WHILE EXAMINING THE ALP OF THE TRANSACTIONS. WE ARE OF THE OPINION THAT THE TRANSA CTION OF PROVIDING LOANS TO SUBSIDIARY WHETHER A DIRECT L OAN OR PROVIDING CREDIT FOR INITIAL EXPENDITURE, WHICH IS STATED TO BE REIMBURSABLE, DO CALL FOR ADJUSTMENT. THEREFORE, IN PRINCIPLE WE APPROVE THE ADJUSTMENT MADE ON THESE TRANSACTIONS. AS FAR AS THE RATE OF INTEREST IS CONCERNED, THE A.O./TPO IN OUR OPINION, HAS CONSIDERED THE SUBSEQUENT COLLECTION OF INTEREST IN A.Y. 2012-2013 AT LIBOR + 4.75 BASIS POINTS AS AN INTERN AL CUP. THIS CANNOT BE ACCEPTED AS RATE OF INTEREST IN EACH YEAR IS A DYNAMIC FIGURE WHICH VARIES ACCORDING TO THE PERIOD, DEMAND AND SUPPLY. THE RATE AT WHICH ASSESSEE CHARGED INTEREST FROM THE SISTER CONCERN I N A.Y. 20122013 CANNOT BE ACCEPTED AS INTERNAL CUP IN AY. 2009-2010. A.O. HAS NOT ONLY WENT BEYOND THE RULES WHICH DOES NOT PROVIDE FOR LATER YEARS INFORM ATION TO BE ADOPTED, BUT ALSO IGNORED ASSESSEE'S OBJECTIO NS WHY A HIGHER RATE WAS CHARGED IN THOSE YEARS. SINCE , AE. BORROWED FUNDS FROM ICICI BANK, U.K. @ LIBOR + 2.75%, WE ARE OF THE OPINION THAT, THAT RATE SHOULD BE CONSIDERED AS ALP OF INTEREST AND AO. IS DIRECTED T O WORKOUT THE INTEREST AT THAT RATE ON THE LOAN PROVI DED TO SSTL NORTH AMERICA. ASSESSEE IS ALSO OBJECTING TO T HE 11 ITA.NO.1646/HYD/2014 PROLIFICS CORPORATION LTD., HYDERABAD. ADJUSTMENT ON LOAN GIVEN TO ARSIN CORPORATION, ANOT HER A.E. OF ASSESSEE. HERE, ASSESSEE HAS CHARGED INTERE ST AT LIBOR + 1.50 BPS. SINCE, WE HAVE APPROVED LIBOR + 2.75 POINTS ON THE LOAN GIVEN TO SST, NORTH AMERI CA (A.E.) WE DIRECT THE ASSESSING OFFICER TO RE-WORKOU T THE INTEREST ON THE LOAN PROVIDED TO THIS A.E. AT LIBOR + 2.75% ONLY AS AGAINST LIBOR + 4.75% CHARGED BY A.O./TPO. WITH THIS DIRECTION, THE GROUNDS RAISED B Y ASSESSEE IN GROUND NOS. 2 AND 3 ARE CONSIDERED AS ALLOWED PARTLY. 10.1. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE ASSESSING OFFICER TO RE-WORKOUT THE INTEREST ON THE LOA N BROUGHT BY THE ASSESSEE TO ITS A.E. AT LIBOR+ 2.75% AS AGAINS T LIBOR+ 4.75% CHARGED BY THE ASSESSING OFFICER/TPO. GROUNDS OF APPEAL NO.6 IS ACCORDINGLY REJECTED AND GROUNDS OF APPEAL NO.7 IS PARTLY ALLOWED. 11. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH SEPTEMBER, 2016. SD/- SD/- (S. RIFAUR RAHMAN) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 28 TH SEPTEMBER, 2016 VBP/- COPY TO : 1. PROLIFICS CORPORATION LIMITED (PREVIOUSLY KNOWN AS SEMANTICS SPACE TECHNOLOGIES LIMITED), PLOT NO.1, SURVEY # 14 , 5 TH FLOOR, DHLFVC SILICON TOWERS, MADHAPUR ROAD, KONDAPUR, HYDERABAD 500 032. 2. THE DCIT, CIRCLE-3(1), HYDERABAD. 3. THE DISPUTE RESOLUTION PANEL-1, HYDERABAD. 4. THE DCIT (TRANSFER PRICING)-II, HYDERABAD. 5. THE DIRECTOR OF INCOME TAX (IK.T. & T.P.) HYDERABAD . 6. THE COMMISSIONER OF INCOEM TAX-III, HYDERABAD. 7. D.R. ITAT A BENCH, HYDERABAD. 8. GUARD FILE.