NIMBUS COMMUNICAITONS LTD, MUMBAI V. ADDL CIT 11(1), MUMBAI

ITA 2359/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3418 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 12-03-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 25-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K JAIN; MRS SASMITA MISHRA
• Assessee Lawyers: S C TIWARI
• Keywords: Transfer pricing; International transaction; Commercial expediency
• Section: 143(3); 14A; 144; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI ., !' #$ #$ #$ #$ .#. %&', ( )*+ )' BEFORE SHRI D. MANMOHAN, V.P. AND SHRI P.M. JAGTAP, AM )./ I.T.A. NO. 3664/MUM/2010 ( - . $/. - . $/. - . $/. - . $/. / / / / ASSESSMENT YEAR : 2005-06) ASSTT. COMMISSIONER OF INCOME-TAX 11(1), ROOM NO. 439, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 400 053. / VS. M/S NIMBUS COMMUNICATIONS LTD., NIMBUS CENTRE, OBEROI COMPLEX, ANDHERI (W), MUMBAI 400 053. +0 ( )./ PAN : AAACLO864E ( 01 / // / APPELLANT ) .. ( 2301 / RESPONDENT ) )./ I.T.A. NO. 2359/MUM/2010 ( - . $/. - . $/. - . $/. - . $/. / / / / ASSESSMENT YEAR : 2005-06) M/S NIMBUS COMMUNICATIONS LTD., NIMBUS CENTRE, OBEROI COMPLEX, ANDHERI (W), MUMBAI 400 053. / VS. ASSTT. COMMISSIONER OF INCOME-TAX 11(1), ROOM NO. 439, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 400 053. +0 ( )./ PAN : AAACLO864E ASSESSEE BY : SHRI S.C. TIWARI REVENUE BY : SHRI A.K. JAIN & MRS. SASMITA MISHRA )$ 4 '( / // / DATE OF HEARING : 13-3-2013 5/ 4 '( / DATE OF PRONOUNCEMENT : 12-6-2013 ITA NOS. 3664/M/10 & 2359/M/10 2 *6 / O R D E R PER P.M. JAGTAP, A.M . . .. .# ## #. .. . %&' %&' %&' %&', ,, , ( )*+ ( )*+ ( )*+ ( )*+ : THESE TWO APPEALS, ONE FILED BY THE ASSESSEE BEING ITA NO. 2359/MUM/2010 AND THE OTHER FILED BY THE REVENUE BE ING ITA NO. 3664/MUM/2010 ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-15, MUMBAI DTD. 02-02-2010. 2. THE COMMON ISSUE RAISED IN GROUND NO. 1 OF THE REVENUES APPEAL AND GROUND NO. 2 OF THE ASSESSEES APPEAL RELATES TO THE ADDITION OF ` 1,18,27,350/- MADE BY THE A.O. BY WAY OF T.P. ADJUSTMENT ON ACCOUNT OF BANK GUARANTEE COMMISSION WHICH HAS BEEN SUSTAINED BY THE LD. CIT(A) TO THE EXTENT OF ` . 19,71,000/-. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF AIRTIME MARKETING AVAILABLE ON TELEVISI ON PROGRAMMES, CRICKET AND OTHER SPORTS EVENTS. IT IS ALSO ENGAGED IN THE BUSI NESS OF PRODUCTION, TELECASTING AND MARKETING OF T.V. SERIALS. THE RET URN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 29-10-2005 D ECLARING TOTAL INCOME OF ` . 3,57,32,785/-. SINCE THERE WERE CERTAIN INTERNATION AL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE S (AE) DURING THE YEAR UNDER CONSIDERATION, REFERENCE WAS MADE BY THE A.O. TO THE TPO FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE SAI D TRANSACTIONS. AS DIRECTED BY THE TPO, THE ASSESSEE HAD GIVEN CORPORATE GUARAN TEE OF US $ 30,00,000 THROUGH ICICI BANK, U.K. FOR A TERM LOAN GIVEN TO I TS AE NAMELY NIMBUS COMMUNICATION WORLDWIDE LTD. ANOTHER GUARANTEE OF US $ 1,50,00,000 WAS GIVEN BY THE ASSESSEE TO THE SAME BANK FOR THE FINA NCIAL FACILITY GIVEN TO ANOTHER AE NAMELY NIMBUS SPORTS INTERNATIONAL PTE L IMITED. BOTH THESE ITA NOS. 3664/M/10 & 2359/M/10 3 GUARANTEES WERE GIVEN BY THE ASSESSEE WITHOUT CHARG ING ANY COMMISSION ON THE GROUND OF COMMERCIAL EXPEDIENCY WHICH, ACCORDIN G TO THE ASSESSEE, WAS TO GO LONG WAY IN EFFICIENT CONDUCT OF BUSINESS OF THE SAID AE THEREBY RESULTING IN OTHER DIRECT AND INDIRECT BENEFITS TO THE ASSESS EE. IT WAS ALSO SUBMITTED THAT THERE WAS NO COST INCURRED BY THE ASSESSEE FOR GIVING THE SAID BANK GUARANTEE. THIS STAND OF THE ASSESSEE WAS NOT FOUN D ACCEPTABLE BY THE TPO. ACCORDING TO HIM, THE ASSESSEE WAS PROVIDING A GUAR ANTEE TO THE AES WHICH HAD A BENEVOLENT ADVANTAGE TO THE SAID AES IN OBTAI NING CREDIT FACILITY FROM BANK ON BETTER TERMS AND IN AN ARMS LENGTH SITUATI ON, COMMISSION WOULD HAVE BEEN CHARGED FOR PROVIDING A SIMILAR GUARANTEE TO THE BANK FOR THE CREDIT FACILITY. HE ACCORDINGLY PROCEEDED TO DETERMINE TH E ARMS LENGTH VALUE OF THE INTERNATIONAL TRANSACTION INVOLVING THE PROVISION O F GUARANTEE BY THE ASSESSEE TO ITS AES BY APPLYING THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD WHICH WAS CONSIDERED THE MOST APPROPRIATE METHOD. I N THIS REGARD, HE FOUND THAT THE HSBC BANK WAS CHARGING COMMISSION/FEES IN THE RANGE OF 0.15 TO 3 OF THE VALUE OF GUARANTEE GIVEN TO ITS CUSTOMER DEP ENDING UPON THE RISK INVOLVED. SINCE THE ASSESSEE HAD NOT GIVEN ANY DET AILS OF THE CREDITWORTHINESS OF THE AES, THE ARMS LENGTH RATE OF COMMISSION FOR PROVIDING GUARANTEE WAS TAKEN BY THE TPO AT 1.5% AND APPLYING THE SAID RATE , HE WORKED OUT THE ARMS LENGTH VALUE OF COMMISSION/FEES FOR PROVIDING GUARA NTEE BY THE ASSESSEE TO ITS ARS AT ` . 1,18,27,350/- AND HELD THAT THE TRANSFER PRICE A DJUSTMENT TO THAT EXTENT WAS REQUIRED TO BE MADE ON ACCOUNT OF GUARAN TEE COMMISSION/FEES. 4. THE MATTER WAS CARRIED BEFORE THE LD. CIT(A) AND IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE COMPANY THAT THE ASSESSEE NO T BEING IN THE BUSINESS OF EXTENDING GUARANTEE, NO ADJUSTMENT WAS CALLED FOR O N ACCOUNT OF GUARANTEE COMMISSION. IT WAS SUBMITTED THAT IN THE ABSENCE OF ANY COMPARABLE CASES OF A SIMILAR TYPE, QUANTIFICATION OF ADJUSTMENT WAS NO T POSSIBLE TO JUSTIFY ANY ADDITION. IT WAS REITERATED BEFORE THE LD. CIT(A) THAT THE GUARANTEE WAS GIVEN AS A PART OF COMMERCIAL EXPEDIENCY SINCE THE SAME W AS GOING TO FURTHER ITA NOS. 3664/M/10 & 2359/M/10 4 BUSINESS INTERESTS OF THE ASSESSEE IN FUTURE. IT WA S CONTENTED THAT THE ASSESSEES CASE WAS ENTIRELY DIFFERENT FROM THE CAS E OF H.S.B.C. BANK WHICH HAD GIVEN BANK GUARANTEE AS PART OF BANKING BUSINES S IN ORDER TO EARN PROFIT. IT WAS CONTENDED THAT THE GUARANTEE WAS GIVEN BY TH E ASSESSEE TO ITS AES AS A MEASURE OF COMMERCIAL EXPEDIENCY AND THEREFORE NO C OMMISSION WAS CHARGED FOR GIVING SUCH GUARANTEE. 5. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE AS SESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) DECIDE D THIS ISSUE VIDE PARA NO. 6 TO 6.7 OF HIS IMPUGNED ORDER WHICH READ AS UNDER:- 6. I HAVE CONSIDERED THE SUBMISSION AND PERUSED TH E ASSESSMENT ORDER AS WELL AS THE TPOS ORDER. GUARAN TEE FEES OR A FINANCIAL LOAN GUARANTEE IS A COMMITMENT ENTERED IN TO BY A PARENT CORPORATION WITH A THIRD PARTY LENDER OF THE PARENT COMPANYS SUBSIDIARY WHICH OBLIGES THE PARENT TO COVER THE RI SK OF DEFAULT FOR THE SUBSIDIARY SHOULD IT FAIL TO MEET :ITS FINANCIA L OBLIGATION TO THE THIRD PARTY LENDER. 6.1 AT TIMES THIS TRANSACTION IS LABELED AS GRATUIT OUS TRANSACTION BY THE TAXPAYER AND SO NO CONSIDERATION IS CHARGED. SOMETIMES TAX PAYERS TAKE THE POSITION THAT A PARENT COMPANYS SU PPORT FOR A SUBSIDIARY IS IMPLIED AND THEREFORE NO SPECIFIC GUA RANTEE FEE PAYMENT IS REQUIRED. HOWEVER, IT HAS TO BE ACCEPTED THAT THIS ACT DOES INVOLVE PERFORMANCE OR CARRYING OUT OF SERVICE TO COVER THE RISK OF DEFAULT AND SO PRICE HAS TO BE CHARGED. 6.2 THE TPO HAS COLLECTED DATA FROM HSBC BANK AND APPLIED THE RATE OF 1.5%. THIS MEANS THAT THE TPO HAS ADOPT ED A NAKED QUOTE WITHOUT FACTORING IN THE QUALITATIVE FACTORS WHICH DETERMINE THE FEES. IT IS PERTINENT TO NOTE FACTORS CONSIDERE D BY BANKS WHILE PROVIDING LOANS/BANK GUARANTEE THERE ARE VARIOUS AL TERNATIVE FACTORS CONSIDERED BY THE BANKS WHICH ARE AS BELOW :- O CREDIT RATING/RISK PROFILE OF THE RECIPIENT OF GU ARANTEE; O FINANCIAL POSITION OF THE ENTITY; O TERMS OF GUARANTEE LIKE PROVISION OF SECURITY, ET C; O AMOUNT OF GUARANTEE PROVIDED; O PERIOD OF GUARANTEE PROVIDED; O PAST HISTORY OF THE CUSTOMER I.E, WHETHER THE CUS TOMER HAS MADE ANY DEFAULT IN REPAYMENT OF PRINCIPLE/INTEREST EARLIER; O MARKET DYNAMICS AND COMPETITION; ITA NOS. 3664/M/10 & 2359/M/10 5 O MARGINS RECOVERED BY THE BANKS OVER ITS OWN OVERH EADS; AND O NEGOTIATION AND RELATIONSHIP WITH BANKS. 6.3. A QUOTATION GIVEN BY A THIRD PARTY E.G BANKER (HSBC IN THIS CASE) DOES NOT CONSTITUTE A CUP SINCE IT IS A MERE QUOTATION AND NOT AN ACTUAL UNCONTROLLED TRANSACTION. AN ACTUAL TRA NSACTION OF THIS NATURE TAKES PLACE AFTER THE EXAMINATION OF QUALITA TIVE FACTORS BY THE BANK AS LISTED IN THE PRECEDING PARA. 6.4 IT IS A COMMON FACT THAT A PARENT PROVIDE GUAR ANTEE TO ITS SUBSIDIARIES FOR LOAN TAKEN BY THEM. IT IS GENERALL Y ARGUED THAT HAVING OPTED IN ITS OWN INTEREST THE SERVICE RENDER ED COULD ONLY RESULT IN ENHANCING THE VALUE OF THE PARTICIPATOR I N THE SUBSIDIARIES OR INCREASED THE AMOUNT OF DIVIDENDS THEY PRODUCED. 6.5 IN THE CASE OF SOCIETY CARREFOUR (FRENCH CASE) SIMILAR SITUATION HAD ARISEN AND THE COURT AFTER INTO ACCOU NT ALL FACTS AND CIRCUMSTANCES HAS FOLLOWS :- THAT A MINIMUM COMPENSATION SHOULD HAVE BEEN CHAR GED TO THE SUBSIDIARIES. HOWEVER, THE COURT WAS ALSO PERSUADED BY THE TAX PAYER THAT THE, POSSIBLE ENHANCEMENT TO THE VALUE OF THIS PARTICIPA TION OR THE INCREASE IN ITS DIVIDENDS WERE SUFFICIENT JUSTIFICA TION FOR THE FREE SERVICES RENDERED. HOWEVER, THE COURT WAS ALSO PERSUADED BY THE TAX PAYER THAT THE, POSSIBLE ENHANCEMENT TO THE VALUE OF THIS PARTICIPA TION OR THE INCREASE IN ITS DIVIDENDS WERE SUFFICIENT JUSTIFICA TION FOR THE FREE SERVICES RENDERED. 6.6. THE COURT FINALLY FOUND THAT AN ADJUSTMENT TO THE TAXPAYERS PROFIT WAS NECESSARY. IT HOWEVER MODIFIED THE ADJUS TMENT ORIGINALLY MADE BY THE TAX AUTHORITIES AND FIND THE COMPENSAT ION TO 0.2 5% OF THE GUARANTEED AMOUNTS. 6.7 APPLYING THE ABOVE PRINCIPLES BY BALANCING THE DEMANDS OF NORMAL COMMERCIAL PRACTICE TO CHARGE FEES, FOR PROV IDING THE SERVICE OF A GUARANTEE WITH THE GENERAL RULE THAT A PARENT COMPANY MAY PROVIDE A FREE SERVICES AS LONG AS IT CAN JUSTIFY T HAT THE ACT WAS IN ITS OWN INTEREST. I MODIFY THE ADJUSTMENT ORIGINALL Y MADE AT 1.5% AND FIX THE COMPENSATION AT 0.25% ON THE GUARANTEED AMOUNTS. IN MONETARY TERMS THE AMOUNT AT THE RATE OF .25% COMES TO RS.19,71 LACS. THUS THE APPELLANT GET A RELIEF OF RS.98,56,3 50/-. THE LD. CIT(A) THUS HELD THAT THE TRANSACTION OF PR OVIDING BANK GUARANTEE TO ITS AES BY THE ASSESSEE WAS AN INTERNATIONAL TRANSA CTION FOR WHICH ITA NOS. 3664/M/10 & 2359/M/10 6 COMMISSION AT ARMS LENGTH RATE SHOULD HAVE BEEN CH ARGED BY THE ASSESSEE. AS REGARDS THE ARMS LENGTH RATE OF GUARANTEE COMMI SSION, HE RELIED ON THE DECISION OF SOCIETE CARREFOUR (FRENCH CASE) WHERE 0 .25% RATE FOR GUARANTEE COMMISSION WAS ACCEPTED BY THE COURT. ADOPTING THE SAID RATE AS ARMS LENGTH RATE OF GUARANTEE COMMISSION, THE LD. CIT(A) WORKED OUT THE COMMISSION FOR GUARANTEE GIVEN BY THE ASSESSEE TO I TS AES AT 19.71 LACS AND ACCORDINGLY SUSTAINED THE ADDITION MADE BY THE A.O. TO THAT EXTENT THEREBY GIVING RELIEF OF ` . 98,56,350/- TO THE ASSESSEE ON THIS ISSUE. AGGRI EVED BY THE SAME, THE REVENUE AND THE ASSESSEE BOTH HAVE RAISED THIS ISSUE IN THEIR RESPECTIVE APPEALS. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS NOT IN THE BUSINESS OF GIVING GUARANTEE AND THE TWO GUARANTEES WERE GIVEN BY IT TO ITS AES BECAUSE OF SPECIAL RELATIONSHIP WI TH THE SAID AES. HE CONTENDED THAT THE SAID AES WERE NOT BENEFITED BY T HE GUARANTEE GIVEN BY THE ASSESSEE AND IT IS THE ASSESSEE WHO WAS BENEFITED A S A RESULT OF COMMERCIAL BENEFITS SECURED FOR FUTURE. HE CONTENDED THAT BUS INESS STRATEGIES SHOULD BE TAKEN INTO CONSIDERATION WHILE MAKING ANY T.P. ADJU STMENT IN RESPECT OF SUCH TRANSACTION AND RELIED ON THE OECD TRANSFER PRICING GUIDELINES ISSUED IN 2010 WHEREIN IT WAS STATED THAT A TAXPAYER SEEKING TO PENETRATE A MARKET OR TO INCREASE ITS MARKET SHARE MIGHT TEMPORARILY CHAR GE A PRICE FOR ITS PRODUCT THAT IS LOWER THAN THE PRICE CHARGED FOR OTHERWISE COMPARABLE PRODUCTS IN THE SAME MARKET. HE SUBMITTED THAT THE ASSESSEE COMPAN Y IS MARKETING ITS PRODUCTS THROUGH AE WORLDWIDE AND THIS BUSINESS REL ATIONSHIP WAS THE CONSIDERATION FOR GIVING GUARANTEE IN THE INTEREST OF BUSINESS. AS REGARDS THE RATE OF 1.5% GUARANTEE COMMISSION ADOPTED BY THE TP O AS ALP ON THE BASIS OF GUARANTEE COMMISSION CHARGED BY HSBC BANK, HE SU BMITTED THAT THE HSBC IS IN THE BUSINESS OF GIVING GUARANTEE WHEREAS THE ASSESSEE IS NOT IN SUCH BUSINESS. HE CONTENDED THAT THE GUARANTEE COM MISSION CHARGED BY ITA NOS. 3664/M/10 & 2359/M/10 7 HSBC THUS IS NOT A COMPARABLE UNCONTROLLED PRICE WH ICH COULD BE RELIED UPON TO ADOPT THE RATE OF GUARANTEE COMMISSION AT 1.5%. 7. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT THE TRANSACTIONS OF GIVING GUARANTEE BY THE ASSESSEE TO ITS AES ARE UND OUBTEDLY INTERNATIONAL TRANSACTIONS AND SINCE THE SAME WERE NOT BENCHMARKE D BY THE ASSESSEE, THE TPO BENCHMARKED THE SAME BY APPLYING CUP METHOD WHI CH WAS FOUND TO BE THE MOST APPROPRIATE METHOD. AS REGARDS THE OECD TR ANSFER PRICING GUIDELINES ISSUED IN 2010 AND RELIED UPON BY THE LD . COUNSEL FOR THE ASSESSEE, HE SUBMITTED THAT THE SAID GUIDELINES CLEARLY SHOW THAT THERE WAS CLEAR BENEFIT ACCRUED TO THE AES BY THE GUARANTEE PROVIDE D BY THE ASSESSEE. HE CONTENDED THAT WHEN SUCH BENEFIT WAS PASSED ON BY T HE ASSESSEE TO ITS AES, THE ASSESSEE SHOULD HAVE CHARGED GUARANTEE COMMISSI ON AT ALP. HE SUBMITTED THAT THE COMMERCIAL RELATIONSHIP BETWEEN THE ASSESSEE AND ITS AES IS DIFFERENT FROM THE TRANSACTIONS OF GIVING GUARAN TEE AND THERE IS NO SET OFF OR ADJUSTMENT PERMISSIBLE ON THE BASIS OF COMMERCIAL R ELATIONSHIP OR EXPEDIENCY. HE CONTENDED THAT EVERY TRANSACTION HAS TO BE EXAMINED INDEPENDENTLY TO DETERMINE THE ALP. HE ALSO CONTEN DED THAT IF THE ASSESSEE IS NOT IN THE BUSINESS OF GUARANTEE, HIGHER FEES SHOUL D BE CHARGED AS THE ASSESSEE IS NOT EXPERT OR CONVERSANT WITH THE ACTIV ITY AND EVEN NO GUARANTEE WAS TAKEN BY IT FROM THE AE AS IT IS NORMALLY DONE BY THE BANKS ENGAGED IN THE BUSINESS OF GIVING GUARANTEE REGULARLY. 8. AS REGARDS THE RATE OF GUARANTEE COMMISSION, THE LD. D.R. SUBMITTED THAT THE TPO HAD TAKEN ARITHMETIC MEAN OF THE GUARA NTEE COMMISSION CHARGED BY THE HSBC BANK IN THE RATE OF 0.15% TO 3% WHILE THE LD. CIT(A) HAS ADOPTED THE RATE OF 0.25% AS ALP RELYING ON THE DEC ISION OF FRENCH COURT IN THE CASE OF SOCIETE CARREFOUR. HE RELIED ON THE DE CISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S EVEREST K ANTO CYLINDER LTD. VS. DCIT (ITA NO. 542/MUM/2012 FOR A.Y. 2007-08 ORDER D TD. 23-11-2012) ITA NOS. 3664/M/10 & 2359/M/10 8 WHEREIN THE GUARANTEE COMMISSION RATE CHARGED BY TH E HSBC BANK WAS ACCEPTED BY THE TRIBUNAL AS PER CUP METHOD. HE CON TENDED THAT THE DECISION OF FRENCH COURT IN THE CASE OF SOCIETE CARREFOUR RE LIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE IS ONLY OF PERSUASIVE VALUE WHILE THE DECISION RENDERED IN THE CASE OF M/S EVEREST KANTO CYLINDER LTD. (SUPRA) IS THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL, WHICH SHOULD BE PREFERRED. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. FOR THE GUAR ANTEE GIVEN TO THE BANK AGAINST THE FINANCIAL ASSISTANCE GIVEN TO ITS AES, NO COMMISSION WAS CHARGED BY THE ASSESSEE COMPANY ON THE GROUND THAT THE SAID AES WERE NOT BENEFITED BY THE GUARANTEE SO GIVEN AND IT WAS THE ASSESSEE W HO BENEFITED AS A RESULT OF COMMERCIAL BENEFITS SECURED FOR FUTURE. IN SUPPORT OF THIS STAND OF THE ASSESSEE, THE LD. COUNSEL FOR THE ASSESSEE HAS CONT ENDED THAT BUSINESS STRATEGY SHOULD BE TAKEN INTO CONSIDERATION WHILE M AKING ANY TP ADJUSTMENTS IN RESPECT OF SUCH TRANSACTIONS AND HAS RELIED ON T HE OECD TRANSFER PRICING GUIDELINES ISSUED IN 2010. AS STATED IN PARA 1.59 OF THE SAID GUIDELINES, THE BUSINESS STRATEGIES SHOULD ALSO BE EXAMINED IN DETE RMINING COMPARABILITY FOR TRANSFER PRICING PURPOSES AND CERTAIN ILLUSTRATIONS OF SUCH BUSINESS STRATEGIES ARE ALSO GIVEN THEREIN. AS STATED IN PARA 1.60 OF THE SAID GUIDELINES WHICH HAS BEEN RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSE E, BUSINESS STRATEGIES ALSO COULD INCLUDE MARKET PENETRATION SCHEMES AND TAXPAY ER SEEKING TO PENETRATE A MARKET OR TO INCREASE ITS MARKET SHARE MIGHT TEMP ORARILY CHARGE A PRICE FOR ITS PRODUCT THAT IS LOWER THAN THE PRICE CHARGED FO R OTHERWISE COMPARABLE PRODUCTS IN THE SAME MARKET. AS EXPLAINED FURTHER, A TAX PAYER SEEKING TO ENTER A NEW MARKET OR EXPAND (OR DEFEND) ITS MARKET SHARE MIGHT TEMPORARILY INCUR HIGHER COSTS AND HENCE ACHIEVE LOWER PROFIT L EVELS THAN OTHER TAXPAYERS OPERATING IN THE SAME MARKET. IN OUR OPINION, THE RELEVANT FACTS OF THE PRESENT CASE DO NOT INDICATE THAT THERE WAS ANY SUC H BUSINESS STRATEGY ADOPTED BY THE ASSESSEE IN NOT CHARGING COMMISSION IN RESPECT OF GUARANTEES ITA NOS. 3664/M/10 & 2359/M/10 9 ISSUED FOR ITS ASSOCIATED ENTERPRISES. AS A MATTER OF FACT, THERE IS NOTHING TO SUGGEST THAT ANY SUCH BUSINESS STRATEGY WAS ADOPTED BY THE ASSESSEE WITH SPECIFIC INTENTION OR MOTIVE AND THE CASE HAS BEEN SOUGHT TO BE MADE OUT MERELY ON THE BASIS OF COMMERCIAL EXPEDIENCY BY CLA IMING THAT THE ASSESSEE WAS BENEFITED AS A RESULT OF GIVING THE GUARANTEES IN THE FORM OF COMMERCIAL BENEFITS SECURED FOR FUTURE. IN OUR OPINION, SUCH C OMMERCIAL EXPEDIENCY CANNOT BE EQUATED WITH BUSINESS STRATEGY, WHICH IS SPECIFIC AND WELL LAID OUT. AS RIGHTLY HELD BY THE LD. CIT(A), A FINANCIAL LOAN GUARANTEE IS A COMMITMENT ENTERED INTO BY THE ASSESSEE COMPANY WITH A THIRD P ARTY LENDER OF ITS ASSOCIATED ENTERPRISES WHICH OBLIGES THE ASSESSEE C OMPANY TO COVER THE RISK OF DEFAULT BY ITS ASSOCIATED ENTERPRISE AND THIS AC T THUS INVOLVES PERFORMANCE OR CARRYING OUT OF SERVICE TO COVER THE RISK OF DEF AULT FOR WHICH PRICE HAS TO BE CHARGED. EVEN THE OECD TRANSFER PRICING GUIDELI NES 2010 SUPPORTS THIS VIEW IN PARA 7.13 WHERE IT IS EXPLAINED THAT WHERE HIGHER CREDIT RATING OF ASSOCIATED ENTERPRISE IS DUE TO A GUARANTEE BY ANOT HER GROUP MEMBER, SUCH ASSOCIATION POSITIVELY ENHANCES THE PROFIT MAKING P OTENTIAL OF THAT ASSOCIATED ENTERPRISE. WE, THEREFORE, FIND OURSELVES IN AGREE MENT WITH THE CONTENTION OF THE LD. D.R. THAT THERE WAS A CLEAR BENEFIT ACCRUED TO THE ASSOCIATED ENTERPRISES BY THE GUARANTEE PROVIDED BY THE ASSESS EE AND WHEN SUCH BENEFIT WAS PASSED ON BY THE ASSESSEE TO THE SAID ASSOCIATE D ENTERPRISES, GUARANTEE COMMISSION SHOULD HAVE BEEN CHARGED AT ARMS LENGTH PRICE. THE COMMERCIAL RELATIONSHIP BETWEEN THE ASSESSEE AND ITS ASSOCIATE D ENTERPRISES IS DISTINCT AND SEPARATE FROM THE TRANSACTIONS OF GIVING GUARAN TEE AND SUCH TRANSACTIONS HAVE TO BE CONSIDERED AND EXAMINED INDEPENDENTLY IN ORDER TO DETERMINE THE ARMS LENGTH PRICE. 10. AS REGARDS THE RATE OF GUARANTEE COMMISSION, IT IS NOTED THAT THE ARMS LENGTH PRICE OF GUARANTEE COMMISSION WAS DETERMINED BY THE TPO BY APPLYING CUP METHOD AND THE ARITHMETIC MEAN OF 1.5% OF THE G UARANTEE COMMISSION CHARGED BY THE HSBC BANK IN THE RANGE OF 0.15 TO 3% WAS TAKEN AS ARMS ITA NOS. 3664/M/10 & 2359/M/10 10 LENGTH PRICE. THE LD. CIT(A) UPHELD THE CUP METHOD APPLIED BY THE TPO BUT ADOPTED THE RATE OF 0.25% OF GUARANTEE FEE AS ARMS LENGTH PRICE RELYING ON THE DECISION OF FRENCH COURT IN THE CASE OF SOCIETE CAR REFOUR. THE LD. D.R., AT THE TIME OF HEARING BEFORE US HAS RELIED ON THE DECISIO N OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S EVEREST KANTO C YLINDER LTD. (SUPRA) WHEREIN WHILE ACCEPTING THE CUP METHOD AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE GUARANTEE FEE, THE TRIBUNAL ACCEPT ED 0.5% GUARANTEE FEE/COMMISSION TO BE AT ARMS LENGTH AFTER TAKING I NTO CONSIDERATION THE RATES OF GUARANTEE COMMISSION CHARGED BY VARIOUS BANKS IN CLUDING THE GUARANTEE COMMISSION CHARGED BY THE HSBC BANK IN THE RANGE OF 0.15% TO 3%. SINCE THE FACTS INVOLVED IN THE PRESENT CASE ARE MATERIAL LY SIMILAR TO THE FACTS INVOLVED IN THE CASE OF EVEREST KANTO CYLINDER LTD. (SUPRA), WE PREFER TO FOLLOW THE DECISION RENDERED BY THE CO-ORDINATE BENCH OF T HIS TRIBUNAL IN THE SAID CASE OVER THE DECISION OF FRENCH COURT IN THE CASE OF SOCIETE CARREFOUR (SUPRA). WE, ACCORDINGLY MODIFY THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE A.O. TO RECOMPUTE THE COMMISSI ON FOR GUARANTEE GIVEN BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES @ 0.5% B EING THE ARMS LENGTH PRICE. GROUND NO. 1 OF REVENUES APPEAL IS THUS PA RTLY ALLOWED WHEREAS GROUND NO. 2 OF ASSESSEES APPEAL IS DISMISSED. 11. IN GROUND NO. 2 OF ITS APPEAL, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS. 4,21 ,13,290/- MADE BY THE A.O. ON ACCOUNT OF SOFTWARE EXPENSES. 12. IN ITS BOOKS OF ACCOUNT, THE ASSESSEE HAD AMORT ISED THE ENTERTAINMENT SOFTWARE EXPENSES OF RS. 4,34,18,234/-. IN THE COM PUTATION OF TOTAL INCOME, THE ENTIRE AMOUNT OF ENTERTAINMENT SOFTWARE EXPENSE S WAS CLAIMED BY THE ASSESSEE AS DEDUCTION. ACCORDING TO THE A.O., THE A SSESSEE COULD NOT OFFER ANY EXPLANATION TO JUSTIFY ITS CLAIM FOR THE SAID DEDUC TION INSPITE OF SPECIFIC OPPORTUNITY AFFORDED TO IT. HE, THEREFORE, DISALLOW ED THE ENTIRE ENTERTAINMENT SOFTWARE EXPENDITURE CLAIMED BY THE ASSESSEE. BEFO RE THE LD. CIT(A), THE ITA NOS. 3664/M/10 & 2359/M/10 11 ASSESSEE FURNISHED THE DETAILS OF TELEVISION ENTERT AINMENT SOFTWARE PRODUCED DURING THE YEAR UNDER CONSIDERATION. IT WAS CONTEND ED ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(A) THAT THE ENTIRE COST OF THE PRODUCTION OF THE TELEVISION SERIALS WAS ALLOWABLE IN THE CASE OF THE ASSESSEE AS THE ASSESSEE WAS ENGAGED IN THE PRODUCTION OF TELEVISION SERIAL. IT WAS POINTED OUT THAT SIMILAR TELEVISION ENTERTAINMENT SOFTWARE WAS PRODU CED BY THE ASSESSEE IN THE EARLIER YEARS AND THE EXPENDITURE INCURRED FOR THE SAME WAS ENTIRELY ALLOWED BY THE A.O. HIMSELF. THE LD. CIT(A) FOUND MERIT IN THE CLAIM OF THE ASSESSEE ON THIS ISSUE AND DELETED THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF TELEVISION ENTERTAINMENT SOFTWARE EXPENDITURE FOR T HE FOLLOWING REASONS GIVEN IN PARA NO. 16 OF HIS IMPUGNED ORDER:- I HAVE PERUSED THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS. A PATTERN OF ARBITRARINESS AND WHIMSIC ALLY IS EVIDENT IN THIS ORDER, BE IT INVOKING SECTION 144 O R MAKING DISALLOWANCES. THE PRESENT DISALLOWANCE ALSO FITS INTO THIS PATTERN AND REFLECTS AS PRE-DETERMINED MIND SET OF THE ASSESSING OFFICER. THE APPELLANTS ACCOUNT ARE AUDITED U/S 44 AB AND NO DISCREPANCY HAS BEEN POINTED OUT BY THE AUDITORS. THE ASSESSING OFFICER TOO HAS FAILED TO UNEARTH ANY ANO MALY IN THE ACCOUNTS. THE PRESENT NATURE OF EXPENSES WAS INCUR RED IN THE PAST YEARS AND AFTER SCRUTINY WAS DULY ALLOWED AS B EING FOR THE PURPOSE OF BUSINESS. THE DISALLOWANCE MADE THIS YE AR IS PURELY WHIMSICAL AND THEREFORE CANNOT BE SUSTAINED ON FACT S. AS SUCH IT IS DELETED AND THE APPELLANT GETS A RELIEF OF ` 4,21,13,290/-. 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ONLY SUB MISSION MADE BY THE LD. D.R. ON THIS ISSUE BEFORE US IS THAT THE DETAILS OF TELEVISION ENTERTAINMENT SOFTWARE EXPENSES WERE FURNISHED BY THE ASSESSEE BE FORE THE LD. CIT(A) FOR THE FIRST TIME AND SINCE THE A.O. HAS NOT BEEN GIVEN AN OPPORTUNITY TO EXAMINE/VERIFY THE SAME, THE MATTER MAY BE SENT BAC K TO THE FILE OF THE A.O. FOR GIVING SUCH OPPORTUNITY. THE LD. COUNSEL FOR TH E ASSESSEE, ON THE OTHER HAND, HAS SUBMITTED THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE ON TELEVISION ENTERTAINMENT SOFTWARE WAS ALLOWED BY TH E LD. CIT(A) KEEPING IN VIEW THE NATURE OF THE ASSESSEES BUSINESS AS WELL AS THE FACT THAT SIMILAR ITA NOS. 3664/M/10 & 2359/M/10 12 EXPENDITURE WAS ALLOWED BY THE A.O. HIMSELF IN THE EARLIER YEARS. HE HAS ALSO FILED COPIES OF ASSESSMENT ORDERS PASSED IN THE CAS E OF THE ASSESSEE U/S 143(3) OF THE ACT FOR THE IMMEDIATELY PRECEDING FIV E YEARS I.E. ASSESSMENT YEARS 2000-01 TO 2004-05. A PERUSAL OF THE SAID ORD ER, HOWEVER, SHOWS THAT THE ISSUE RELATING TO ASSESSEES CLAIM FOR DEDUCTIO N ON ACCOUNT OF TELEVISION ENTERTAINMENT SOFTWARE HAS NOT BEEN SPECIFICALLY DI SCUSSED AND DEALT WITH BY THE A.O. IN THE SAID ORDERS. MOREOVER, IT APPEARS FROM THE ORDERS OF THE AUTHORITIES BELOW THAT THE DETAILS OF TELEVISION EN TERTAINMENT SOFTWARE EXPENSES WERE NOT FURNISHED BY THE ASSESSEE BEFORE THE A.O. AND THE SAME FURNISHED FOR THE FIRST TIME BEFORE HIM WERE RELIED UPON BY THE LD. CIT(A) TO GIVE RELIEF TO THE ASSESSEE ON THIS ISSUE WITHOUT G IVING ANY OPPORTUNITY TO THE A.O. TO VERIFY THE SAME. WE, THEREFORE, FIND MERIT IN THE CONTENTION OF THE LD. D.R. THAT THE A.O. HAS NOT BEEN GIVEN AN OPPORTUNIT Y TO VERIFY THE CLAIM OF THE ASSESSEE ON THIS ISSUE IN THE LIGHT OF THE SAID DET AILS AND THIS BEING SO, WE SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE A.O. TO DECIDE THE SAME A FRESH AFTER VERIFYING THE RELEVANT DETAILS. GROUND NO. 2 OF REVENUES APPEAL IS THUS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 14. THE ISSUE RAISED IN GROUND NO. 1 OF ASSESSEES APPEAL RELATES TO THE ADDITION OF RS. 3,20,288/- MADE BY THE A.O. AND CON FIRMED BY THE LD. CIT(A) BY WAY OF TRANSFER PRICING ADJUSTMENT BEING THE DIF FERENCE BETWEEN THE INTEREST ACTUALLY CHARGED BY THE ASSESSEE ON ITS LO AN TO ASSOCIATED ENTERPRISES AND THE INTEREST THAT WOULD HAVE BEEN RECEIVED BY I T AT ARMS LENGTH PRICE. 15. THE ASSESSEE HAD GRANTED A LOAN TO ITS ASSOCIAT ED ENTERPRISE M/S NIMBUS COMMUNICATION WORLDWIDE LTD. AND INTEREST ON THE SAID LOAN AMOUNTING TO RS. 5,57,944/- WAS CHARGED DURING THE YEAR UNDER CONSIDERATION AS CALCULATED @ 3.26% PER ANNUM. THIS TRANSACTION WAS CLAIMED TO BE BENCHMARKED BY THE ASSESSEE AGAINST S IX MONTHS LIBOR PLUS 100 BASIS POINTS. DURING THE COURSE OF PROCEEDINGS BEFORE THE TPO, IT WAS, ITA NOS. 3664/M/10 & 2359/M/10 13 HOWEVER, REVEALED THAT INTEREST @ 3.26% ACTUALLY WO RKED OUT TO ` 8,78,232/- AS AGAINST INTEREST OF ` 5,57,944/- CHARGED BY THE ASSESSEE. THE DIFFERENC E OF ` 3,20,288/-, THEREFORE, WAS ADDED TO THE TOTAL INCO ME OF THE ASSESSEE BEING INTEREST UNDERCHARGED TO ITS ASSOCIATED ENTERPRISE. ON APPEAL, THE LD. CIT(A) CONFIRMED THE SAID ADDITION. 16. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THERE IS NO DISPUTE ABOUT THE INTEREST RATE OF 3.26% CHARGED BY THE ASS ESSEE ON THE LOANS ADVANCED TO ITS ASSOCIATED ENTERPRISE BEING AT ARM S LENGTH. THERE WAS, HOWEVER, A CALCULATION MISTAKE INASMUCH AS INTEREST @ 3.26% ACTUALLY WORKED OUT TO ` 8,78,232/- AS AGAINST ` 5,57,944/- CHARGED BY THE ASSESSEE AND THIS MISTAKE WAS ACCEPTED EVEN BY THE ASSESSEE. WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE ADDITION MADE BY THE A.O. ON THIS ISSUE AND DISMISS GROUND NO. 2 OF ASSESSEES APPEAL. 17. THE ISSUE RAISED IN GROUND NO. 3 & 4 OF THE ASS ESSEES APPEAL RELATES TO THE ADDITION OF ` 12,98,048/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) BY WAY OF TRANSFER PRICING ADJUSTMENT FOR NO T CHARGING ANY INTEREST ON OUTSTANDING BALANCE WITH ASSOCIATED ENTERPRISE. 18. IT WAS NOTED BY THE TPO THAT THE ASSESSEE HAD C ERTAIN RECEIVABLES FROM ITS ASSOCIATED ENTERPRISE M/S NIMBUS SPORTS INTERNA TIONAL PTE. WHICH WAS OUTSTANDING FOR MORE THAN 30 DAYS. THE STAND OF TH E ASSESSEE AS TAKEN BEFORE THE TPO WAS THAT NO INTEREST WAS BEING CHARGED ON T HE DEBIT BALANCES EVEN WITH THE INDEPENDENT PARTIES. THIS STAND OF THE ASS ESSEE, HOWEVER, WAS NOT ACCEPTED BY THE TPO AND RELYING ON THE ASSESSMENTS IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 2003-04 AND 2004-05, HE WORKED OUT THE INTEREST THAT WOULD HAVE BEEN CHARGED AT 3.26% ON T HE OUTSTANDING BALANCES WITH THE ASSOCIATED ENTERPRISE EXCEEDING 30 DAYS AT ` 12,98,048/- AND MADE ITA NOS. 3664/M/10 & 2359/M/10 14 A TP ADJUSTMENT TO THAT EXTENT. BEFORE THE LD. CIT (A), IT WAS REITERATED ON BEHALF OF THE ASSESSEE THAT THERE BEING NO INTEREST CHARGED EVEN ON THE OUTSTANDING BALANCES FROM OTHER ENTITIES, INTERNAL CUP WAS AVAILABLE TO PROVE THAT INTEREST CHARGED AT NIL RATE WAS AT ARMS LENG TH. THE LD. CIT(A) DID NOT ACCEPT THIS STAND OF THE ASSESSEE AND RELYING ON TH E APPELLATE ORDERS IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2003-04 AN D 2004-05, HE CONFIRMED THE ADDITION MADE TO THE TOTAL INCOME OF THE ASSESSEE ON THIS ISSUE. 19. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. COUN SEL FOR THE ASSESSEE HAS SUBMITTED THAT SIMILAR ISSUE INVOLVED IN ASSESSEES OWN CASE FOR EARLIER YEARS I.E. ASSESSMENT YEARS 2003-04 AND 2004-05 HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. THE LD. D.R., HOWEVER, HAS SUBMITTED THAT SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE EARLIER YEARS HOLDING THAT THE CONTINUING DEBIT BALANCE WAS NOT AN INTERNATIONAL TRANSACTION. HE HAS CONTENDED THAT THE LAW ON THIS POINT, HOWEVER, HAS UNDERGONE A CHANGE BY INSERTION OF EXPLANATION TO S ECTION 92-B WITH RESTROSPECTIVE EFFECT FROM 1-4-1992 AND CLAUSE (I)( C) OF THE SAID EXPLANATION IS CLEARLY APPLICABLE IN THE PRESENT CASE. THE LD. CO UNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS CONTENDED THAT ALTHOUGH THE LAW HAS CHANGED ON THIS POINT AND CONTINUING DEBIT BALANCE IS NOW TREATED AS AN I NTERNATIONAL TRANSACTION AS PER THE RESTROSPECTIVE AMENDMENT, THE TRIBUNAL V IDE ITS ORDER DTD. 5-1- 2011 PASSED IN ITA NO. 6597/MUM/09 FOR A.Y. 2004-05 HAS GIVEN RELIEF TO THE ASSESSEE ON THIS ISSUE EVEN ON MERIT. IN THIS REGA RD, HE HAS REFERRED TO PARA 5 & 6 OF THE SAID ORDER WHICH IS REPRODUCED HEREUNDER :- 5. A CONTINUING DEBIT BALANCE, IN OUR HUMBLE UNDER STANDING, IS NOT AN INTERNATIONAL TRANSACTION PER SE, BUT IS A RESUL T OF THE INTERNATIONAL TRANSACTION. IN PLAIN WORDS, A CONTINUING DEBIT BA LANCE ONLY REFLECTS THAT THE PAYMENT, EVEN THOUGH DUE, HAS NOT BEEN MAD E BY THE DEBTOR. IT IS NOT, HOWEVER, NECESSARY THAT A PAYMENT IS TO BE MADE AS SOON AS IT BECOMES DUE. MANY FACTORS, INCLUDING TERMS OF PAYME NT AND NORMAL BUSINESS PRACTICES, INFLUENCE THE FACT OF PAYMENT IN RESPECT OF A COMMERCIAL TRANSACTION. UNLIKE A LOAN OR BORROWING, IT IS NOT AN ITA NOS. 3664/M/10 & 2359/M/10 15 INDEPENDENT TRANSACTION WHICH CAN BE VIEWED ON STA NDALONE BASIS. WHAT CAN BE EXAMINED ON THE TOUCHSTONE OF ARMS LEN GTH PRINCIPLES IS THE COMMERCIAL TRANSACTION ITSELF, AS A RESULT OF W HICH THE DEBIT BALANCE HAS COME INTO EXISTENCE, AND THE TERMS AND CONDITIO NS, INCLUDING TERMS OF PAYMENT, ON WHICH THE SAID COMMERCIAL TRANSACTIO N HAS BEEN ENTERED INTO. THE PAYMENT TERMS ARE AN INTEGRAL PAR T OF ANY COMMERCIAL TRANSACTION, AND THE TRANSACTION VALUE TAKES INTO A CCOUNT THE TERMS OF PAYMENT, SUCH AS PERMISSIBLE CREDIT PERIOD, AS WELL . THE RESIDUARY CLAUSE IN THE DEFINITION OF INTERNATIONAL TRANSACT ION, I.E. ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME S, LOSSES OR ASSETS OF SUCH ENTERPRISES, DOES NOT APPLY TO A CONTINUING DE BIT BALANCE, ON THE GIVEN FACTS OF THE CASE, FOR THE ELEMENTARY REASON THAT THERE IS NOTHING ON RECORD TO SHOW THAT AS A RESULT OF NOT REALIZING THE DEBTS FROM ASSOCIATED ENTERPRISES, THERE HAS BEEN ANY IMPACT O N PROFITS, INCOMES, LOSSES OR ASSETS OF THE ASSESSEE. IN VIEW OF THESE DISCUSSIONS, IN OUR CONSIDERED VIEW, A CONTINUING DEBIT BALANCE PERSE, IN THE ACCOUNT OF THE ASSOCIATED ENTERPRISES, DOES NOT AMOUNT TO AN INTER NATIONAL TRANSACTION UNDER SECTION 92 B IN RESPECT OF WHICH ALP ADJUSTME NTS CAN BE MADE. THE FACTUM OF PAYMENT HAS TO BE CONSIDERED VIS--VI S TERMS OF PAYMENT SET OUT IN THE TRANSACTION ARRANGEMENT, AND NOT IN ISOLATION WITH THE COMMERCIAL TERMS ON WHICH TRANSACTION IN RESPECT OF WHICH PAYMENT IS, ACCORDING TO THE REVENUE AUTHORITIES, DELAYED. IN A NY EVENT, EVEN WHEN AN ALP IS MADE IN RESPECT EXCESSIVE CREDIT PERIOD A LLOWED UNDER THE CUP METHOD, STATED BY THE TPO, THE COMPARABLE HAS T O BE DUES RECOVERABLE FROM A DEBTOR AND NOT A BORROWER. IT AP PEARS THAT THE TPO HAS ADOPTED INTEREST @ 2.19% LIBOR ON BALANCES WHIC H EXCEED 30 DAYS, BUT LIBOR RATE IS RELEVANT ONLY IN THE CASE O F LENDING OR BORROWING OF FUNDS, AND NOT IN THE CASE OF COMMERCI AL OVERDUES. EVEN ASSUMING THAT THE CONTINUING DEBIT BALANCES OF ASSO CIATED ENTERPRISES CAN BE TREATED AS INTERNATIONAL TRANSACTIONS UNDE R SECTION 92 B, THE RIGHT COURSE OF APPLYING THE CUP METHOD, IN THE CAS E OF NON CHARGING OF INTEREST ON OVERDUE BALANCES, WOULD HAVE BEEN BY CO MPARING THIS NOT CHARGING OF INTEREST WITH OTHER CASES IN WHICH THE ASSESSEE HAS CHARGED INTEREST ON OVERDUES WITH INDEPENDENT ENTERPRISES ( INTERNAL CUP) OR WITH THE CASES IN WHICH OTHER ENTERPRISES HAVE CHAR GED INTEREST, IN RESPECT OF OVERDUES IN RESPECT OF SIMILAR BUSINESS TRANSACTIONS, WITH INDEPENDENT ENTERPRISES (EXTERNAL CUP). NO SUCH EXE RCISE HAS BEEN CARRIED OUT IN THIS CASE, NOR IS IT SHOWN, AS IS TH E CONDITION PRECEDENT FOR BRINGING THIS CONTINUING DEBIT BALANCE IN THE A MBIT OF INTERNATIONAL TRANSACTION, THAT AS A RESULT OF NOT REALIZING THE DEBTS FROM ASSOCIATED ENTERPRISES, THERE HAS BEEN ANY IMPACT ON PROFITS, INCOMES, LOSSES OR ASSETS OF THE ASSESSEE. 6. FOR ALL THESE REASONS SET OUT ABOVE, AS ALSO RE SPECTFULLY FOLLOWING THE DECISION DATED 28TH JANUARY 2010 OF THE COORDIN ATE BENCH IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING YE AR, WE HOLD THAT THE IMPUGNED ADDITION OF RS 12,51,175 IS UNSUSTAINABLE IN LAW AND THAT THE CIT(A) OUGHT TO HAVE DELETED THE SAME. WE, ACCO RDINGLY, DIRECT THE ITA NOS. 3664/M/10 & 2359/M/10 16 ASSESSING OFFICER TO DELETE THE IMPUGNED ADJUSTMENT . THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 20. IT IS CLEARLY EVIDENT FROM THE RELEVANT PORTION OF THE TRIBUNALS ORDER AS REPRODUCED ABOVE THAT A SIMILAR ADDITION MADE IN AS SESSEES OWN CASE FOR THE EARLIER A.Y. I.E. 2004-05 HAS BEEN DELETED BY THE T RIBUNAL EVEN ON MERIT HOLDING THAT EVEN WHEN AN ALP IS MADE IN RESPECT EX CESSIVE CREDIT PERIOD ALLOWED UNDER THE CUP METHOD, THE COMPARABLE HAS TO BE DUES RECOVERABLE FROM A DEBTOR AND NOT A BORROWER. IT WAS HELD THAT THE TPO HAD ADOPTED INTEREST @ 2.19% LIBOR ON BALANCES WHICH EXCEEDED 3 0 DAYS, BUT LIBOR RATE WAS RELEVANT ONLY IN THE CASE OF LENDING OR BORROWI NG OF FUNDS AND NOT IN THE CASE OF COMMERCIAL OVERDUES. IT WAS HELD THAT EVEN IF THE CONTINUING DEBIT BALANCES OF ASSOCIATED ENTERPRISES COULD BE TREATED AS INTERNATIONAL TRANSACTIONS U/S 92-B, THE RIGHT COURSE OF APPLYIN G THE CUP METHOD, IN THE CASE OF NON-CHARGING OF INTEREST ON OVERDUE BALANCE S, WOULD HAVE BEEN BY COMPARING THIS NOT CHARGING OF INTEREST WITH OTHER CASES IN WHICH THE ASSESSEE HAD CHARGED INTEREST ON OVERDUES WITH INDEPENDENT E NTERPRISES (INTERNAL CUP) OR WITH THE CASES IN WHICH OTHER ENTERPRISES HAD CH ARGED INTEREST IN RESPECT OF OVERDUES IN RESPECT OF SIMILAR BUSINESS TRANSACT IONS WITH INDEPENDENT ENTERPRISES (EXTERNAL CUP). SINCE NO SUCH EXERCISE HAD BEEN CARRIED OUT IN THE CASE OF THE ASSESSEE FOR A.Y. 2004-05, THE TRIB UNAL HELD THAT THE IMPUGNED ADDITION WAS NOT SUSTAINABLE. IN THE YEAR UNDER CONSIDERATION ALSO, NO SUCH EXERCISE HAS BEEN CARRIED OUT BY THE TPO AND SINCE THE ADDITION WAS MADE BY ADOPTING INTEREST AT LIBOR RATE, WE HOL D, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FO R A.Y. 2004-05, THAT THE IMPUGNED ADDITION OF ` 12,98,048/- MADE ON THIS ISSUE IS NOT SUSTAINABLE. THE SAME IS ACCORDINGLY DELETED ALLOWING GROUND NO. 3 & 4 OF THE ASSESSEES APPEAL. ITA NOS. 3664/M/10 & 2359/M/10 17 21. THE ISSUE RAISED IN GROUND NO. 5 OF THE ASSESSE ES APPEAL RELATES TO THE DISALLOWANCE OF ` 25,07,118/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) U/S 14A OF THE ACT READ WITH RULE 8-D OF THE INCOME TAX RULES, 1962. 22. DURING THE COURSE OF ASSESSMENT PROCEEDING, IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAS MADE INVESTMENT OF MORE THAN ` 10 CRORES IN SHARES MOSTLY OF ITS SUBSIDIARY COMPANY. ACCORDING TO THE A.O., THE DIVIDEND INCOME ON THE SAID SHARES BEING EXEMPT FROM TAX, THE INTER EST AND OTHER EXPENSES ATTRIBUTABLE TO THE INVESTMENT MADE IN SHARES WAS L IABLE TO BE DISALLOWED U/S 14 OF THE ACT. ACCORDINGLY HE WORKED OUT SUCH EXPE NSES BY APPLYING RULE 8D AT ` 25,07,118/- AND MADE A DISALLOWANCE TO THAT EXTENT U/S 14A OF THE ACT. ON APPEAL, THE LD. CIT(A) CONFIRMED THE SAID DISALL OWANCE RELYING ON THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE O F DAGA CAPITAL MANAGEMENT PVT. LTD. ((2009)119 TTJ 289 (MUM.)[SB] WHEREIN IT WAS HELD THAT RULE 8-D IS APPLICABLE RESTROSPECTIVELY. 23. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES, THE ISSUE RELATING TO THE APPLICABI LITY OF RULE 8D HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF GODREJ AND BOYCE MFG.CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM.) WHER EIN IT WAS HELD THAT RULE 8D IS APPLICABLE ONLY PROSPECTIVELY I.E. FROM A.Y. 2008-09. AS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT, THE DISALLOWANCE U/S 14A FOR THE YEARS PRIOR TO A.Y. 2008-09 HAS TO BE MADE ON SOME REASON ABLE BASIS. WE THEREFORE RESTORE THIS ISSUE TO THE FILE OF THE A.O. WITH A D IRECTION TO RECOMPUTE THE DISALLOWANCE TO BE MADE U/S 14A OF THE ACT BY FOLLO WING SOME REASONABLE BASIS. AS POINTED OUT BY THE LD. COUNSEL FOR THE A SSESSEE IN THIS REGARD, SUBSTANTIAL INVESTMENT MADE BY THE ASSESSEE WAS IN THE SHARES OF FOREIGN COMPANIES, DIVIDEND INCOME OF WHICH IS NOT EXEMPT F ROM TAX. THE A.O. IS ACCORDINGLY DIRECTED TO CONSIDER THIS ASPECT ALSO W HILE COMPUTING THE ITA NOS. 3664/M/10 & 2359/M/10 18 DISALLOWANCE TO BE MADE U/S 14A OF THE ACT. GROUND NO. 5 OF ASSESSEES APPEAL IS ACCORDINGLY TREATED AS PARTLY ALLOWED. 24. IN THE RESULT, APPEAL OF THE ASSESSEE AS WELL A S THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12-6-13. . *6 4 5/ ( 7*8 12-6-13 4 & SD/- SD/- - (D. MANMOHAN) (P.M. JAGTAP ) !' /VICE PRESIDENT ( )*+ / ACCOUNTANT MEMBER MUMBAI ; 7* DATED 12-6-13 $.-.)./ RK , SR. PS *6 4 2-'CD ED/' *6 4 2-'CD ED/' *6 4 2-'CD ED/' *6 4 2-'CD ED/'/ COPY OF THE ORDER FORWARDED TO : 1. 01 / THE APPELLANT 2. 2301 / THE RESPONDENT. 3. F () / THE CIT(A)15, MUMBAI. 4. F / CIT -11 MUMBAI 5. D$I& 2-'- , , / DR, ITAT, MUMBAI K BENCH 6. &. J / GUARD FILE. *6) *6) *6) *6) / BY ORDER, )3D' 2-' //TRUE COPY// / // /) % ) % ) % ) % ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI