TRICOM INDIA LTD, MUMBAI V. ITO 8(3)(3), MUMBAI

ITA 322/MUM/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83686 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 03-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 13-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJIV JAIN
• Assessee Lawyers: ANKIT VERENDRA SUD HA SHAH
• Keywords: Business income; Transfer pricing; Charitable institution; International transaction; Rule of consistency; Wholly owned subsidiary; Notional interest
• Section: 92C; 234B; 80G; 10B; 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K MUMBAI . . , , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.322/MUM/2014 (A.Y.2008-09) TRICOM INDIA LIMITED, GANDHI ESTATE, A.K.ROAD, SAFED POOL, SAKINAKA, ANDHERI KURLA ROAD, MUMBAI 400072 PAN: AAACT 2807R (APPELLANT ) VS. ITO-8(3)(3), 202, 2 ND FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400020 (RESPONDENT) ITA NO.70/MUM/2014 (A.Y.2008-09) ITO-8(3)(3), 202, 2 ND FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400020 (APPELLANT ) VS. TRICOM INDIA LIMITED, GANDHI ESTATE, A.K.ROAD, SAFED POOL, SAKINAKA, ANDHERI KURLA ROAD, MUMBAI 400072 PAN: AAACT 2807R (RESPONDENT) C.O.NO.27/MUM/2014 (ARISING OUT OF ITA NO. 70/MUM/2014 (A.Y.2008-09) TRICOM INDIA LIMITED, GANDHI ESTATE, A.K.ROAD, SAFED POOL, SAKINAKA, ANDHERI KURLA ROAD, MUMBAI 400072 PAN: AAACT 2807R (CROSS OBJECTOR ) VS. ITO-8(3)(3), 202, 2 ND FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400020 (APPELLANT IN APPEAL) ASSESSEE BY : SHRI ANKIT VERENDRA SUD HA SHAH REVENUE BY : SHRI SANJ IV JAIN DATE OF HEARING : 03/09/2014 DATE OF PRONOUNCEMENT : 03 /09/2014 ITA NO.322& 70/MUM/2014 (A.Y.2008-09) C.O.NO.27/MUM/2014 2 ORDER PER BENCH: THESE ARE CROSS APPEALS AND ASSESSEE HAS ALSO FILE D CROSS OBJECTION. ALL OF THEM ARE DIRECTED AGAINST ORDER PASSED BY LD. CIT( A)-15, MUMBAI DATED 07.10.2013 FOR ASSESSMENT YEAR 2008-09. GROUNDS OF APPEAL IN BOTH THE APPEALS AND CROSS OBJECTION READ AS UNDER: GROUNDS OF ASSESSEES APPEAL: GROUND I 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-15, MUMBAI [CIT(A)] ERRED IN UPHOLDING THE ORDER OF THE INCOME-TAX OFFICER 8(3)(3), MUMBAI (THE AO) TO DISALLOW THE DEDUCTION UNDER SECTION 10B OF THE INCOME-TAX ACT, 1961 (THE ACT) ON INTEREST INCOME OF RS. 3,47,77,584/- OF THE APPELLANT COMPANY SO RECEIVED FROM FIXED DEPOSITS WITH BANKS AND OTHER ENTITIES. 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD T HAT SECTION 1OB(1) READ WITH SECTION 1OB(4) OF THE ACT SPECIFICALLY PROVIDES FOR DEDUCTION FROM THE TOTAL INCOME OF AN ASSESSEE OF THE PROFITS AND GAINS DERIVED BY THE EXPORT ORIENTED UNDERTAKING IN THE PREVIOUS YEAR, WHICH IM PLIES THAT ANY INCOME RECEIVED BY THE UNDERTAKING SHALL BE ENTITLED FOR DEDUCTION UND ER SECTION 1OB OF THE ACT; II. THAT THE EXPRESSION DERIVED BY USED IN SECTIO N 1OB OF THE ACT IMPLIES THAT THE SAID UNDERTAKING SHOULD BE RECIPIENT OF SAID PROFIT AND GAINS AS AGAINST THE EXPRESSION DERIVED FROM THE UNDERTAKING, WHICH MEANS THAT TH E PROFIT AND GAINS SHOULD HAVE DIRECT SOURCE FROM THE ACTIVITIES OF THE SAID UNDER TAKING TO BECOME ELIGIBLE FOR THE DEDUCTION; III. THE DECISIONS IN APPELLANTS OWN CASE FOR EARL IER AYS INCLUDING OTHER LEGAL PRECEDENTS SO SOUGHT TO BE RELIED TO HOLD THIS GROUND AGAINST THE APPELLANT COMPANY HAVE FAILED TO APPRECIATE THAT EITHER THE SAID DECISIONS HAVE BEEN DELIVERED IN CONTEXT OF PROVISIONS OTHER THAN SECTION 1O OF THE ACT WHICH HAVE USED TH E EXPRESSION DERIVED FROM AS AGAINST DERIVED BY IN SECTION 1OB AND/OR IN CASE IF SOME OF THE DECISION SO RELIED WHICH HAVE CONSIDERED PROVISIONS USING EXPRESSION S IMILAR TO SECTION 1OB HAVE EITHER BEEN SET ASIDE BY THE APEX COURT OR AFORESAID AVERM ENTS HAVE NOT BEEN RELIED AND/OR CONSIDERED BY THEM; IV. IT IS AN UNDISPUTED FACT WHICH HAS BEEN ACCEPTE D BY THE RESPONDENT OVER THE YEARS, THAT INTEREST INCOME AS DERIVED FROM FIXED DEPOSIT WITH BANKS AND OTHER ENTITIES HAVE BEEN RECEIVED AND UTILIZED IN THE BUSINESS OF SAID UNDERTAKING AS THE APPELLANT COMPANY IS 100% EXPORT ORIENTED UNDERTAKING; WHICH OTHERWISE SUBSTANTIATES THE ELIGIBILITY OF THE SAID INTEREST INCOME FOR DEDUCTI ON UNDER SECTION 1OB OF THE ACT; AND ITA NO.322& 70/MUM/2014 (A.Y.2008-09) C.O.NO.27/MUM/2014 3 V. UNLIKE DEDUCTION UNDER CHAPTER VI-A OF THE ACT, SECTION 1OB DOES NOT PROVIDE FOR PROVISIONS THAT INCOME DERIVED FROM PROFITS AND GAI NS OF ELIGIBLE BUSINESS SHOULD BE CONSIDERED AS THE ONLY SOURCE OF INCOME FOR THE PUR POSE OF DEDUCTION. THE ABSENCE OF SUCH PROVISIONS UNDER SECTION 1OB CORROBORATES THE INTENTION OF THE LEGISLATURE TO PROVIDE FOR DEDUCTION ON OTHER INCOME VIZ, INTEREST INCOME IN THE PRESENT CASE WHICH IS RECEIVED BY THE BUSINESS OF UNDERTAKING FOR DEDUCTI ON UNDER SECTION 1OB OF THE ACT. 3. IN VIEW OF ABOVE AVERMENTS, THE APPELLANT THEREF ORE HUMBLY PRAYS BEFORE YOUR HONOURS TO KINDLY DIRECT THE AO TO ALLOW DEDUCTION OF SECTION 1OB ON THE AFORESAID IMPUGNED INTEREST INCOME RECEIVED BY THE BUSINESS O F THE UNDERTAKING GROUND II 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF THE AO TO ASSESS THE AFORESAID IMPUGNE D INTEREST INCOME OF RS. 3,47,77,584/- UNDER THE HEAD INCOME FROM OTHER SOU RCES 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD T HAT I. THE APPELLANT COMPANY HAD BEEN CONSISTENTLY OFFE RING THE AFORESAID INCOMES AS BUSINESS INCOME OVER THE YEARS, WHICH WAS DULY ACCE PTED BY THE INCOME-TAX AUTHORITIES EARLIER; II. THE PRINCIPLE OF CONSISTENCY REQUIRED THE AC TO ASSESS THE AFORESAID INCOMES AS BUSINESS INCOME, INSTEAD OF INCOME FROM OTHER SOURC ES; III. INTEREST INCOME HAVE ARISEN IN THE COURSE OF A CHIEVING THE BUSINESS ACTIVITY OF THE APPELLANT COMPANY OF EXPORT OF SOFTWARE; AND IV. THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF T HE APPELLANT COMPANY AUTHORIZE THE APPELLANT TO UNDERTAKE BUSINESS OF PROVIDING INTERE ST BEARING LOANS TO DOMESTIC PARTIES AND AES; 3. IN VIEW OF THE ABOVE AVERMENTS, THE APPELLANT CO MPANY HUMBLY PRAYS BEFORE YOUR HONOURS TO KINDLY DIRECT THE AC TO ASSESS THE INTE REST INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. GROUND III 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD. CIT(A) ERRED IN REJECTING THE ARMS LENGTH PRICE (ALP) DETERMINED BY THE AP PELLANT COMPANY BY BENCHMARKING THE INTERNATIONAL TRANSACTION OF INTEREST INCOME RE CEIVED BY THE APPELLANT COMPANY ON LOANS ADVANCED TO TRICOM DOCUMENT MANAGEMENT MC, AN US BASED WHOLLY OWNED SUBSIDIARY AND THEREBY ASSOCIATED ENTERPRISE (AE) OF THE APPELLANT COMPANY; 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD T HAT: I. THE RATE OF INTEREST OF LIBOR + 300 BASIS POINT AS DETERMINED AS ALP BY THE LD. CIT(A) WAS NOT CORRECT AND IN VIOLATION OF THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD AS PROVIDED IN SECTION 92C READ WITH RULE 1OB OF THE I NCOME-TAX RULES, 1962; II. THE CUP METHOD REQUIRES THAT THE CONTROLLED TRA NSACTION OF RATE OF INTEREST CHARGED ON LOAN ADVANCED BY THE APPELLANT TO ITS AE SHOULD BE COMPARED WITH THE RATE OF INTEREST ON LOAN ADVANCED AMONG INDEPENDENT PARTIES IN COMPARAB LE CIRCUMSTANCES; ITA NO.322& 70/MUM/2014 (A.Y.2008-09) C.O.NO.27/MUM/2014 4 III. THE COMPARISON MADE BY THE LD. CIT(A) TO BENCH MARK THE AFORESAID INTERNATIONAL TRANSACTION BY CONSIDERING THE RATE OF INTEREST ON A TRANSACTION OF LOAN AVAILED IN LONDON MARKETS WAS UNJUSTIFIED; IV. THE LOAN WAS ADVANCED BY THE APPELLANT COMPANY TO AE IN USA AND IN US CURRENCY THEREFORE, IT WAS NECESSARY TO BENCHMARK THE RATE O F INTEREST WITH RATES PREVAILING IN USA. THE US FED RATES ALSO REFERRED TO AS FED FUND TARGET RATE (FFTR) IS AMERICAS MOST IMPORTANT AND MOST INFLUENTIAL BENCHMARK INTER EST RATE. THE FFTR CAN BE DESCRIBED AS THE MAIN OR KEY INTEREST RATE FOR THE UNITED STATES. THE INTEREST RATE-SETTING FEDERAL OPEN MARKET COMMITTEE (FOMC) USES THE FFTR AS ITS MOST POTENT TOOL FOR REGULATING THE US ECONOMY; AND V. THE US FED AND LIBOR RATES ARE REFLECTIVE OF THE FACT OF RATE OF INTEREST PREVAILING IN DIFFERENT COUNTRIES AT DIFFERENT POINTS IN TIME AND THEREFORE, SINCE THE TRANSACTION WAS UNDERTAKEN IN US MARKETS, SO THE US FED RATE WAS RE FLECTIVE OF BENCHMARK RATE OF INTEREST TO BE CONSIDERED IN LIGHT OF PRINCIPLES OF THE TRANSFER PRICING PROVISIONS OF THE ACT 3. IN VIEW OF THE ABOVE AVERMENTS, THE APPELLANT CO MPANY THEREFORE PRAYS THAT THE ALP AS DETERMINED BY THE APPELLANT BY BENCHMARKING THE AFORESAID IMPUGNED INTERNATIONAL TRANSACTION AT US FED RATE + 250 BASIS POINT SHOU LD BE ACCEPTED. WITHOUT PREJUDICE TO ABOVE, EVEN THE AMOUNT OF UPWA RD ADJUSTMENT OF RS. 22,99,574/- DETERMINED BY THE AO W.R.T. AFORESAID ISSUE IS NOT PROPERLY COMPUTED AND THERE ARE VARIOUS CLERICAL! ARITHMETIC ERRORS MADE IN THE SAI D COMPUTATION AND THEREFORE, THE APPELLANT PRAYS THAT AO BE DIRECTED TO RECTIFY THE SAME. GROUND IV 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN NOT ASSESSING THE CORRECT TOTAL INCOME OF THE APPELLANT COMPANY AS PER THE PROVISIONS OF THE ACT BY NOT PROVIDING THE RELIEF OF TOLERANCE BAND U NDER THE PROVISIONS OF SECTION 92C(2) OF THE ACT WHILE EFFECTING TRANSFER PRICING ADJUSTMENT TO THE ALP COMPUTED FOR IMPUGNED INTERNATIONAL TRANSACTION OF LOAN ADVANCED BY THE A PPELLANT TO ITS AE; 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD T HAT I. THE TOTAL INCOME OF THE APPELLANT INCLUDING THE IMPUGNED TRANSFER PRICING ADJUSTMENT SHOULD HAVE BEEN ASSESSED AFTER PROVIDING ALL DUE R ELIEFS, DEDUCTIONS, ETC IRRESPECTIVE OF WHETHER CLAIMED OR OTHERWISE, AS AVAILABLE UNDER TH E PROVISIONS OF THE ACT AND IN LAW; II. AS PER THE FIRST PROVISO TO SECTION 92C(2) OF T HE ACT, IF THERE ARE MORE THAN ONE PRICE DETERMINED BY THE MOST APPROPRIATE METHOD, THEN THE ALP SHALL BE CONSIDERED AFTER PROVIDING RELIEF OF TOLERANCE BAND TO THE ARITHMETI CAL MEAN OF SUCH PRICES; AND III. THE US FED AND LIBOR RATE OF INTEREST CONSIDER ED FOR BENCHMARKING THE AFORESAID INTERNATIONAL TRANSACTION IS ALSO AN AVERAGE RATE O F COMPARABLE UNCONTROLLED INTEREST AT WHICH VARIOUS PANEL BANKS ARE WILLING TO BORROW OR LEND INTERBANK OFFERS; 3. IN VIEW OF THE ABOVE, THE APPELLANT COMPANY PRAY S THAT THE AD BE DIRECTED TO PROVIDE RELIEF UNDER SECTION 92C (2) OF THE ACT BEFORE MAKI NG ANY TRANSFER PRICING ADJUSTMENT IN DETERMINATION OF ALP FOR THE IMPUGNED INTERNATIONAL TRANSACTION. ITA NO.322& 70/MUM/2014 (A.Y.2008-09) C.O.NO.27/MUM/2014 5 GROUND V 1. WITHOUT PREJUDICE TO GROUNDS REFERRED IN ABOVE, ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT COMPUT ING THE CORRECT TOTAL INCOME BY NOT PROVIDING DEDUCTION OF DONATION PAID OF RS.10,48,8 37 UNDER SECTION 80G OF THE ACT, UNDER NORMAL PROVISIONS OF THE ACT. 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD T HAT: I. DEDUCTION UNDER SECTION 80G WAS RESTRICTED TO ON LY RS. 25,525/-, AS AGAINST THE APPELLANT COMPANY IS ENTITLED TO DEDUCTION OF RS. 5 ,10,500/-; II. WITHOUT DOUBTING THE AUTHENTICITY OF THE DONATI ON SO MADE BY THE APPELLANT COMPANY; THE DEDUCTION UNDER SECTION 80G WAS RESTRICTED TO R S 25,525/-; AND III. THE NECESSARY SUPPORTING DOCUMENTS VIZ, DONATI ON RECEIPTS, CONFIRMATION, AND/OR CERTIFICATE OF REGISTRATION OF THE AFORESAID TRUST, ETC, AS AVAILABLE WITH THE APPELLANT COMPANY SHALL BE SUBMITTED DURING THE COURSE OF HEA RING; 3. IN VIEW OF ABOVE, THE APPELLANT COMPANY PRAYS TH AT THE AC BE DIRECTED TO PROVIDE DEDUCTION UNDER SECTION 80G WHILE COMPUTING TOTAL I NCOME UNDER THE NORMAL PROVISIONS OF THE ACT. GROUND VI THE APPELLANT COMPANY PRAYS THAT THE LD. CIT (A) ER RED IN NOT DIRECTING THE AC TO LEVY INTEREST UNDER SECTION 234B AND SECTION 234C OF THE ACT TO THE EXTENT DISCLOSED IN THE RETURN OF INCOME. WITHOUT PREJUDICE, THE APPELLANT COMPANY PRAYS THAT THE AC BE DIRECTED TO RECOMPUTE THE INTEREST U/S. 234C CORRECTLY, SINCE BASED ON TH E FACTS ON THE CASE AND IN LAW, THE PRESENT INTEREST CHARGED BY THE AC IS EXCESSIVE AND NOT CORRECT. GROUND VII THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER AND/OR AMEND THE ABOVE GROUNDS OF APPEAL AT THE TIME OF HEARING. GROUNDS OF REVENUES APPEAL: I. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN NOT UPHOLDING THE ACTION OF THE TRANSFER P RICING OFFICER OF APPLYING THE AVERAGE DOMESTIC BORROWING RATE TO COMPUTE THE ARMS LENGTH PRICE RATE CHARGEABLE BY THE ASSESSEE FROM ITS ASSOCIATE ENTERPRISES, WITHOUT AP PRECIATING THAT BY CHARGING THE AE INTEREST @ 7.5%, THE ASSESSEE HAD NOT EVEN RECOVERE D ITS COST OF BORROWING WHICH RANGED FROM 15% TO 18%? II. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN APPLYING LIBOR SINCE LIBOR IS NOT THE RATE OF CONSIDERATION FOR LOANS WHERE CURRENCY IS TO BE BOUGHT AND THE RATE OF INTEREST T O BE CHARGED FROM THE ASSOCIATE ITA NO.322& 70/MUM/2014 (A.Y.2008-09) C.O.NO.27/MUM/2014 6 ENTERPRISES SHOULD HAVE FACTORED RISK ELEMENTS SUCH AS EXCHANGE RATE FLUCTUATION RISK, COUNTRY SPECIFIC RISK AND ENTITY RISK? III. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN NOT APPRECIATING THAT THE LIBOR RATE IS SE T UP USING A BASKET OF FOREIGN CURRENCIES AND THE INR IS NOT A PART OF IT? IV. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN IGNORING THAT IN THE CASE OF AURION PRO SO LUTIONS LTD., THE K-BENCH OF HONBLE ITAT, MUMBAI [TS-75.ITAT-2013(MUM).TP, ORDER DATED 21.04.2013] HAD OPINED THAT THE INTEREST THAT WOULD HAVE BEEN EARNED BY THE ASSESSE E IN ADVANCING OR PLACING THE SAID AMOUNT WITH UNRELATED PARTIES WOULD BE THE ARMS LE NGTH INTEREST IN RELATION TO THE INTEREST FREE LOANS I ADVANCED TO THE AE AND THAT T HE SAFEST COMPARABLES, WHICH CAN BE TAKEN AS ARMS LENGTH INTEREST RATE IN SUCH A CASE WOULD BE THE INTEREST ON FD WITH THE BANK FOR A TERM EQUIVALENT TO THE TERM FOR WHICH TH E LOANS GIVEN TO THE AES? V. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT ( A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. GROUNDS OF ASSESSEES CROSS OBJECTIONS: WITHOUT PREJUDICE TO GROUNDS OF APPEAL AS FILED ON 13 JANUARY 2014, WITH THE REGISTRAR, ITAT IN THE RESPONDENTS APPEAL NO. 322/M/2014 FOR THE CAPTIONED ASSESSMENT YEAR GROUND I 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD. CIT(A) AS WELL AS AO ERRED IN DETERMINING THE ARMS LENGTH PRICE (ALP) OF TH E INTERNATIONAL TRANSACTION OF INTEREST INCOME RECEIVED BY THE RESPONDENT COMPANY ON LOANS ADVANCED TO TRICOM DOCUMENT MANAGEMENT INC, AN US BASED WHOLLY OWNED SUBSIDIARY AND THEREBY ASSOCIATED ENTERPRISE (AE) OF THE RESPONDENT COMPANY, BY BEN CHMARKING THE SAID INTERNATIONAL TRANSACTION WITH A RATE OF INTEREST OF LIBOR + 300 BASIS POINTS AND AVERAGE DOMESTIC RATE OF INTEREST OF AROUND 16%, RESPECTIVELY, WITH OUT APPRECIATING THE PROVISIONS OF SECTION 92C OF THE INCOME-TAX ACT READ WITH RULE 1O B AND RULE 10C OF THE INCOME-TAX RULES 1962 2. THEY FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT: I. THE RESPONDENT COMPANY WAS DEPENDENT UPON ITS SA ID AE FOR WANT OF ITES SERVICES EFFECTED IN US THROUGH THE SAID AE AND IN TURN THE AE WAS DEPENDENT UPON THE RESPONDENT COMPANY FOR WANT OF ITS FINANCIAL SUPPOR T; II. THE SAID AE WAS A MAJOR VENDOR OF THE ITES SERV ICES FOR THE RESPONDENT COMPANY AND THEREFORE IS SIGNIFICANTLY DEPENDENT UPON ITS A E FOR REVENUES AND VICE-VERSA, THE AE WAS SIGNIFICANTLY DEPENDENT UPON ITS RESPONDENT HOL DING COMPANY FOR ITS FINANCES; III. THE CUP METHOD REQUIRES THAT THE CONTROLLED TR ANSACTION OF RATE OF INTEREST CHARGED ON LOAN ADVANCED BY THE APPELLANT TO ITS AE SHOULD BE COMPARED WITH THE RATE OF INTEREST ON LOAN ADVANCED AMONG INDEPENDENT PARTIES IN COMPARAB LE CIRCUMSTANCES; ITA NO.322& 70/MUM/2014 (A.Y.2008-09) C.O.NO.27/MUM/2014 7 IV. THE COMPARISON MADE BY THE LD. CIT(A) AND AO TO BENCHMARK THE AFORESAID INTERNATIONAL TRANSACTION BY CONSIDERING THE RATE O F INTEREST ON A TRANSACTION OF LOAN AVAILED IN LONDON MARKETS AND INDIAN MARKETS THEREF ORE ARE UNJUSTIFIED; AND V. THEREFORE, IN LIGHT OF THE PROVISIONS OF SECTION 92C READ WITH RULE 1OB AND RULE 1OC AND LEGAL PRECEDENTS THEREOF ON THE SUBJECT AS WELL AS FOR THE FACT THAT BOTH THE PARTIES ARE DEPENDENT UPON EACH OTHER, THE ALP FOR THE IMPU GNED INTERNATIONAL TRANSACTION SHOULD HAVE BEEN BENCHMARKED AT NIL RATE OF INTERES T. 3. IN VIEW OF THE ABOVE AVERMENTS, THE APPELLANT CO MPANY THEREFORE PRAYS THAT THE ALP AS DETERMINED BY THE LD. CIT(A) AND AO BY BENCHMARK ING THE SAID INTERNATIONAL TRANSACTION WITH RESPECTIVE RATES OF INTEREST REFER RED IN ABOVE SHOULD BE REJECTED. 2. DURING THE COURSE OF HEARING IT WAS POINTED OUT BY LD. AR THAT ALL THE ABOVE ISSUES ARE COVERED BY THE EARLIER DECISIONS OF THE TRIBUNAL. HE HAS SUBMITTED A CHART WHICH WAS TAKEN INTO CONSIDERATION AND BOTH THE PAR TIES WERE HEARD ON THE BASIS OF THE SAID CHART WHICH IS PLACED ON RECORD. 3. GROUND NO.I, RAISED IN THE APPEAL FILED BY THE A SSESSEE RELATES TO ELIGIBILITY OR OTHERWISE OF INTEREST INCOME EARNED BY THE ASSESSEE UNDER SECTION 10B OF THE INCOME TAX ACT, 196(THE ACT). THIS ISSUE IS COVERED AGAIN ST THE ASSESSEE BY THE EARLIER ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y 2007 -08. REFERENCE IN THIS CASE WAS MADE TO THE DECISION OF THE TRIBUNAL DATED 3/05/201 3 IN ITA NO.8058/MUM/2011, ITA NO.8540/MUM/2011, ITA NO.8597/MUM/2011 & CO NO. 225/MUM/2012. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER: 5. THE SECOND DISPUTE WHICH IS RELEVANT ONLY TO THE APPEAL FILED BY THE ASSESSEE IS REGARDING THE ALLOWABILITY OF DEDUCTION U/S 10B IN RESPECT OF INTEREST INCOME. THE ASSESSEE IS A 100% EXPORT ORIENTED UNIT (EOU) REGIS TERED UNDER SOFTWARE TECHNOLOGY PARK SCHEME FOR THE DEVELOPMENT AND EXPORT OF COMPU TER SOFTWARE. THE ASSESSEE HAD EARNED INTEREST INCOME OF RS. 2,89,29,208/- AND HAD ALSO CLAIMED DEDUCTION U/S 10B IN RESPECT OF INTEREST INCOME. THE ASSESSEE HAD SUBMIT TED THAT THE INTEREST INCOME WAS DERIVED FROM THE BUSINESS ACTIVITY OF THE ELIGIBLE UNIT AND THAT IT HAD CONSISTENTLY OFFERED SUCH INCOME AS PROFIT AND GAINS OF BUSINESS AND PRO FESSION. THE AO, HOWEVER, DID NOT ACCEPT THE CONTENTIONS RAISED. IT WAS OBSERVED BY H IM THAT DEDUCTION U/S 10B WAS ALLOWABLE IN RESPECT OF PROFIT AND GAINS DERIVED FR OM A 100% EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLE OR THINGS OR COMPUTER SO FTWARE. BUT IN THIS CASE INTEREST INCOME HAD NOT BEEN DERIVED FROM EXPORT OF ARTICLE OR THIN GS OR COMPUTER SOFTWARE. THE AO PLACED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF PANDIAN CHEMICALS LTD ( 262 ITR 278). ACCORDINGLY THE AO ASSESSED THE INCOME AS INCOME FROM OTHER ITA NO.322& 70/MUM/2014 (A.Y.2008-09) C.O.NO.27/MUM/2014 8 SOURCES AND DENIED THE CLAIM OF DEDUCTION U/S 10B. THE ASSESSEE ALSO MADE AN ALTERNATIVE CLAIM THAT ONLY THE NET INTEREST INCOME AFTER EXCLUDING THE EXPENSES INCURRED FOR THE PURPOSE OF EARNING INTEREST INCOME SHOULD B E EXCLUDED WHILE COMPUTING THE DEDUCTION U/S 10B. THE AO HOWEVER, DID NOT ACCEPT T HE CLAIM FOLLOWING THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF CIT VS. ASI AN STAR CO. (326 ITR 56) IN WHICH IT HAS BEEN HELD THAT THE GROSS RECEIPTS AND NOT THE N ET RECEIPTS ARE REQUIRED TO BE EXCLUDED WHILE COMPUTING THE DEDUCTION. THE AO, THE REFORE, REJECTED THE CLAIM OF NETTING ALSO AND REFUSED THE GROSS INTEREST WHILE COMPUTING DEDUCTION U/S 10B. 6.IN APPEAL CIT (A) FOLLOWING THE DECISION OF TRIBU NAL IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006-07 IN ITA NO. 4316/MUM/2009 HE LD THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S 10B IN RESPECT OF INTERES T INCOME. CIT (A) ALSO REJECTED THE CLAIM OF THE ASSESSEE OF NETTING OF INTEREST AGAINST THE INTEREST PAID OF RS. 1,28,80,668/-. AGGRIEVED BY THE DECISION OF CIT (A), THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL IN WHICH THE ISSUE OF ALLOWABILITY OF DEDUCTION U/S 10B IN RESPECT OF INTEREST INCOME, NETTING OF INTEREST INCOME AND NATURE OF INTEREST INCOME HAS B EEN DISPUTED. 7.WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECOR DS AND CONSIDERED MATTER CAREFULLY. IN SO FAR AS ALLOWABILITY OF DEDUCTION U/S 10B IN R ESPECT OF INTEREST INCOME IS CONCERNED, THE LEARNED AR FOR THE ASSESSEE FAIRLY CONCEDED THA T THE ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006-07 (SUPRA). THEREFORE, FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OW N CASE IN THE YEAR 2006-07 (SUPRA), WE CONFIRM THE ORDER OF CIT (A) DENYING THE CLAIM O F DEDUCTION U/S 10B IN RESPECT OF INTEREST INCOME. ACCORDINGLY AFTER HEARING BOTH THE PARTIES, RESPECT FULLY FOLLOWING THE AFOREMENTIONED DECISION IN ASSESSEES OWN CASE WE DISMISS THIS GRO UND. 4. GROUND NO.II IN ASSESSEES APPEAL IS REGARDING A SSESSABILITY OF THE AFOREMENTIONED INTEREST UNDER THE HEAD INCOME FRO M OTHER SOURCES. ACCORDING TO ASSESSEE THE INTEREST EARNED BY IT SHOULD BE ASSESS ED UNDER THE HEAD BUSINESS. AS AGAINST THAT IT IS THE CLAIM OF THE DEPARTMENT THA T THE INTEREST IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THIS ISSUE I S ALSO STATED TO BE COVERED BY THE AFOREMENTIONED DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE, WHEREIN IT HAS BEEN HELD THAT INTEREST INCOME HAS RIGHTLY BEEN ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, TRIBUNAL HAS DIRECTED THE AO TO ALLOW THE EXPENSES INCURRED FOR EARNING INTEREST INCOME AND REFERENCE CAN BE MADE TO THE FOLLOWING OBSERVATIONS OF THE TRIBUNAL. ITA NO.322& 70/MUM/2014 (A.Y.2008-09) C.O.NO.27/MUM/2014 9 7.1 AS REGARDS THE NETTING OF INCOME THE AO HAD DE NIED THE CLAIM OF NETTING FOLLOWING THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CAS E OF CIT (A) VS. ASIAN STAR CO.( 326 ITR 56) IN WHICH IT HAS BEEN HELD THAT WHILE COMPUT ING DEDUCTION, THE GROSS RECEIPTS AND NOT THE NET RECEIPTS ARE REQUIRED TO BE TAKEN I NTO ACCOUNT. HOWEVER, THE SAID DECISION OF HIGH COURT HAS NOT BEEN HELD BY THE HON BLE SUPREME COURT IN CASE OF ASSOCIATED CAPSULES LTD. (343 ITR 89) IN WHICH IT H AS BEEN HELD THAT THE NET RECEIPTS ARE REQUIRED TO BE ADOPTED. THE ASSESSEE HAS ALSO RAISE D DISPUTE ABOUT THE NATURE OF INTEREST INCOME WHICH IT HAD NOT DECLARED AS BUSINE SS INCOME AND WHICH HAS BEEN ASSESSED BY AO AS INCOME FROM OTHER SOURCES. WE FIN D, FROM PERUSAL OF PARA 5 OF THE ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2006-07 (SUPRA ) IN WHICH THE ASSESSEE ITSELF SUBMITTED THAT THE INTEREST HAD BEEN EARNED FROM SU RPLUS FUNDS GENERATED WHICH HAD BEEN DEPOSITED IN SORT TERM DEPOSITS WITH BANKS. TH EREFORE, SINCE THE INTEREST HAD BEEN EARNED FROM THE SURPLUS FUNDS, IN OUR VIEW, THE AO ASSESSING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES IS JUSTIFIED. HOWEVER, WH ILE COMPUTING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES ALL EXPENSES INCURRED FOR EARNING OF INTEREST INCOME HAVE TO BE DEDUCTED. THIS ASPECT HAS NOT BEEN EXAMINED EITH ER BY THE AO OR BY THE CIT (A). IT IS REQUESTED TO BE EXAMINED IF ANY BORROWED FUNDS HAVE BEEN USED FOR MAKING THE FIXED DEPOSITS. THEREFORE, NETTING OF INTEREST INCOME IS RESTORED TO AO FOR FRESH DECISION AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 4.1 ACCORDINGLY, AFTER HEARING BOTH THE PARTIES, RE SPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION OF TRIBUNAL WE DECIDE THIS ISSUE IN SIMILAR MANNER AND THIS GROUND IS CONSIDERED TO BE PARTLY ALLOWED FOR STATI STICAL PURPOSES IN THE MANNER AFORESAID. 5. APROPOS GROUND NO.III OF ASSESSEES APPEAL, THI S GROUND IS COMMON WITH THE SOLE ISSUE RAISED BY THE REVENUE IN ITS APPEAL, WH ICH IS DETERMINATION OF THE ARMS LENGTH PRICE BASED ON LIBOR. THIS ISSUE IS ALSO ST ATED TO BE COVERED BY THE AFOREMENTIONED DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE AND REFERENCE WAS MADE TO THE FOLLOWING OBSERVATIONS: 2. WE FIRST TAKE UP THE DISPUTE RELATING TO TP ADJUSTM ENT TO WHICH BOTH THE PARTIES ARE IN APPEAL. THE ASSESSING OFFICER DURING THE ASS ESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD ADVANCED LOAN TO THE OVERSEAS SUBSIDIA RY LOCATED IN THE U.S. ON WHICH INTEREST HAD BEEN CHARGED AT THE RATE OF 7.5% PER A NNUM. SINCE, THERE WAS AN INTERNATIONAL TRANSACTION WITH AE, THE AO REFERRED THE ISSUE OF TP ADJUSTMENT TO THE TPO. THE TPO, ASKED THE ASSESSEE TO SUBMIT THE RELEVANT MATERIALS INCLUDING TP STUDY FOR MAKING TRANSFER PRICING ADJUSTMENT. THE ASSESSEE ST ATED THAT THE ASSOCIATE ENTERPRISE (AE) HAD NOT BORROWED FROM ANY PARTY INCLUDING BANK S AND, THEREFORE, NO INTERNAL COMPARABLES WERE AVAILABLE. SINCE, THE AE WAS SITUA TED IN THE U.S THE ASSESSEE APPLIED THE U.S. FEDERAL RATE FOR BENCH MARKING THE TRANSAC TION. IT WAS POINTED OUT THAT THE U.S. FEDERAL INTEREST RATE IN MAY 2006 WHEN THE ASSESSEE HAD GIVEN LOAN WAS 5% PER ITA NO.322& 70/MUM/2014 (A.Y.2008-09) C.O.NO.27/MUM/2014 10 ANNUM. THE ASSESSEE ALSO POINTED OUT THAT CONSIDERI NG THE SIZE OF BUSINESS AND CREDIBILITY OF THE AE THE LOANS WERE AVAILABLE AT M ARK UP OF 200 TO 250 BASIS POINT OVER THE BENCH MARK FEDERAL RATE WHICH TRANSLATED INTO I NTEREST RATE OF 7 TO 7.5% PER ANNUM. THEREFORE, IT WAS SUBMITTED THAT APPLYING CUP METHO D WHICH WAS MOST APPROPRIATE IN THE SITUATION, THE INTEREST BORROWED BY THE ASSESSE E AT THE RATE OF 7.5% PER ANNUM WAS AT ARMS LENGTH. THE TPO, HOWEVER, DID NOT ACCEPT TH E CONTENTIONS RAISED. IT WAS OBSERVED BY HIM THAT UNDER THE CUP METHOD THE INTER EST CHARGED FROM UNRELATED PARTY IN SIMILAR SITUATION WOULD BE THE ARMS LENGTH INTEREST AND, THEREFORE THE ISSUE WAS THE INTEREST SET AT WHICH THE ASSESSEE WOULD HAVE ADVAN CED MONEY TO INDEPENDENT 3 RD PARTY IN INDIA BY LENDING SUCH SURPLUS MONEY. THE TPO NOT ED THAT THE ASSESSEE HAD CHARGED INTEREST AT THE RATE OF 15 TO 18% FROM OTHER PARTIE S WITHIN INDIA AND, THEREFORE, THE ASSESSEE WOULD HAVE EARNED MORE INTEREST HAD IT NOT ADVANCED MONEY TO THE SUBSIDIARY BUT TO AN INDEPENDENT 3 RD PARTY. TPO, THEREFORE, HELD THAT THE AVERAGE RATE OF INTEREST CHARGED FROM THE OTHER PARTIES I.E. 16.5% WOULD BE THE ARMS LENGTH INTEREST RATE IN THIS CASE AND ACCORDINGLY MADE ADJUSTMENT OF RS. 26,61,2 67/-. THE AO FOLLOWING THE ORDER OF TPO MADE AN ADDITION OF RS. 26,61,267/- TO THE T OTAL INCOME OF THE ASSESSEE IN THE ASSESSMENT ORDER PASSED U/S 143 DATED 17.1.2011 2.1 THE ASSESSEE DISPUTED THE DECISION OF AO/TPO AN D SUBMITTED BEFORE CIT(A) THAT IN THE U.S. MARKET WHERE THE AE WAS SITUATED RATE OF INTEREST ON BORROWINGS WAS AROUND 2 TO 3%. THE ASSESSEE CHARGED 200 BASIS POIN T ABOVE THE LIBOR RATE I.E. @ 7.5%. THEREFORE, THE AE HAD PAID MORE INTEREST TO T HE ASSESSEE COMPANY WHICH HAD BEEN TAXED IN INDIA. IT WAS ALSO ARGUED THAT THE TP O COULD NOT MAKE ADJUSTMENT ON THE BASIS OF NOTIONAL INTEREST. CIT (A) AFTER CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT RATE OF INTEREST ADOPTED BY AO RELATE D TO THE DOMESTIC BORROWINGS WHEREAS LOAN GIVEN BY THE ASSESSEE WAS FOREIGN CURR ENCY LOAN. HE, THEREFORE, HELD THAT INTEREST RATE AND ALL-IN-COST CEILING PRESCRIBED BY RBI TO EXTERNAL COMMERCIAL BORROWINGS (ECB) WOULD BE MORE RELEVANT IN THIS CASE. HE REFER RED TO THE CIRCULAR NO. 60 DATED 31.3.2004 AND CIRCULAR NO. 5 DATED 1.8.2005 OF RBI AS PER WHICH ALL-IN-COST CEILING OVER SIX MONTHS LIBOR RATE WAS 200 BASIS POINT IN RESPEC T OF BORROWINGS BETWEEN 3 TO 5 YEARS AND 350 BASIS POINT IN RESPECT OF BORROWINGS FOR MORE THAN 5 YEARS. CIT (A) OBSERVED THAT THE LOAN TO THE AE WAS A LONG TERM LO AN AND, THEREFORE, HELD THAT THE APPROPRIATE RATE IN THIS CASE WHICH WOULD BE AT AR MS LENGTH SHOULD BE LIBOR RATE PLUS 350 BASIS POINT. CIT (A) ACCORDINGLY DIRECTED THE A O/TPO TO WORK OUT THE TP ADJUSTMENT IN RESPECT OF INTEREST INCOME ADOPTING THE RATE OF INTEREST AT LIBOR + 350 BASIS POINT. AGGRIEVED BY THE DECISION OF CIT (A) BOTH THE PARTI ES ARE IN APPEAL. REVENUE IS AGGRIEVED WITH THE ORDER OF CIT (A) ALLOWING RELIEF TO THE AS SESSEE WHEREAS THE ASSESSEE HAS DISPUTED THE CONFIRMATION OF PART OF THE ADJUSTMENT MADE BY AO. 3. BEFORE US, THE LEARNED AR FOR THE ASSESSEE SUBMITTE D THAT SINCE THE LOAN GIVEN BY THE ASSESSEE WAS A FOREIGN CURRENCY LOAN TO THE SUB SIDIARY LOCATED IN USA, THE DOMESTIC PRIME LENDING RATE WOULD HAVE NO APPLICABILITY AND THAT INTERNATIONAL RATE BEING THE LIBOR RATE WOULD BE APPROPRIATE IN THIS CASE. RELIA NCE FOR THE SAID PROPOSITION WAS PLACED ON THE DECISION OF CHENNAI BENCH OF TRIBUNAL IN CASE OF SHIVA INDUSTRIES & HOLDINGS LTD. VS. ACIT (54 SOT 49). IT WAS ALSO POI NTED OUT THAT SAME VIEW HAD BEEN TAKEN BY THE DELHI BENCH OF TRIBUNAL IN CASE OF COT TON NATURALS (I) PVT. LTD. VS. DCIT IN 5855/DEL/2012 IN WHICH THE TRIBUNAL ACCEPTED THE PL EA OF THE ASSESSEE THAT LIBOR RATE WAS THE MOST SUITABLE BENCH MARK FOR JUDGING THE AR MS LENGTH PRICE OF INTEREST. THE LEARNED CIT (DR) ON THE OTHER HAND REFERRED TO THE DECISION OF TRIBUNAL IN CASE OF AURION PRO. SOLUTIONS LTD. VS. ACIT IN ITA NO. 7892/M/2011 IN WHICH THE TRIBUNAL IN PARA 8.11 OBSERVED THAT THE INTEREST EARNED BY THE ASSESSEE B Y ADVANCING THE SAID AMOUNT TO ITA NO.322& 70/MUM/2014 (A.Y.2008-09) C.O.NO.27/MUM/2014 11 UNRELATED PARTIES WOULD BE THE ARMS LENGTH INTERES T. IN RELATION TO THE ADVANCES GIVEN TO THE AE THE TRIBUNAL OBSERVED THAT ARMS LENGTH INTE REST RATE IN SUCH A CASE WOULD BE THE INTEREST RATE ON FD WITH THE BANKS FOR A TERM EQUI VALENT TO THE TERM FOR WHICH THE LOANS WERE GIVEN TO THE AE. THE LEARNED AR FOR THE ASSESS EE IN THE REPLY POINTED OUT THAT THE TRIBUNAL IN CASE OF AURION PRO SOLUTIONS. LTD. VS. ACIT (SUPRA) HAD FINALLY IN PARA 8.13 FOLLOWED THE VIEW TAKEN BY THE OTHER BENCH OF TRIBU NAL THAT LIBOR RATE WAS MOST SUITABLE FOR BENCH MARKING THE INTEREST ON LOANS TO THE AE. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVA L CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING TRANSFER PRICING ADJUSTMENT MA DE BY THE AO ON ACCOUNT OF FUNDS ADVANCED BY THE ASSESSEE TO THE AE LOCATED IN U.S. AT THE RATE OF 7.5% WHICH WAS 250 BASIS POINTS ABOVE THE LIBOR (LONDON INTER BANK OFF ER RATE). THE ASSESSEE FOLLOWED THE CUP METHOD FOR ACCOUNTING THE TP ADJUSTMENT WHICH H AS BEEN ACCEPTED BY THE AO /TPO. THE ASSESSEE HAD NOT GIVEN FOREIGN CURRENCY L OAN TO ANY OTHER 3 RD PARTY IN THE U.S. THE ASSESSEE HAD, HOWEVER, GIVEN LOANS TO THE DOMESTIC PARTIES AT INTEREST RATE VARYING FROM 15% TO 18%. THE AO /TPO HAVE TREATED A VERAGE RATE OF INTEREST AT WHICH THE COMPANY HAD ADVANCED TO THE DOMESTIC INDEPENDEN T PARTIES FOR BENCH MARKING THE INTERNATIONAL TRANSACTION AND ACCORDINGLY ADOPTED T HE INTEREST RATE OF 16.5% FOR MAKING THE TP ADJUSTMENT. THERE ARE HOWEVER, SEVERAL DECIS IONS OF TRIBUNAL IN WHICH IT HAS BEEN HELD THAT IN CASE OF FOREIGN CURRENCY LOANS, THE DO MESTIC PRIME LENDING RATE WOULD HAVE NO APPLICATION AND THAT THE INTERNATIONAL RATE FIXE D I.E. LIBOR WOULD BE RELEVANT. THOUGH, THE TRIBUNAL IN CASE OF AURION PRO. SOLUTIO NS. LTD. VS. ACIT (SUPRA) HAD EXPRESSED THE OPINION THAT FOR THE PURPOSE OF COMPU TATION OF ARMS LENGTH INTEREST RATES, THE INTEREST ON FD WITH THE DOMESTIC BANK FOR A TER M EQUIVALENT TO THE TERM FOR WHICH THE LOANS WERE GIVEN TO THE AE WOULD BE RELEVANT. BUT U LTIMATELY THE TRIBUNAL FOLLOWED THE DECISION OF THE OTHER COORDINATE BENCHES TO ACCEPT THE LIBOR FOR BENCH MARKING INTEREST ON LOANS TO THE AES. WE THEREFORE, FOLLOWING THES E DECISIONS HOLD THAT THE LIBOR HAS TO BE ACCEPTED AS THE BASIC RATE FOR BENCH MARKING THE INTEREST TO THE AES. THE ASSESSEE HAS ADOPTED THE INTEREST RATE OF 250 BASIS POINT AB OVE THE LIBOR FOR MAKING THE TP ADJUSTMENT. CIT (A) HAS FOLLOWED THE RBI CIRCULAR A S PER WHICH ALL-IN-COST CEILING OF 350 BASIS POINT OVER THE LIBOR HAS BEEN PRESCRIBED IN R ESPECT OF LOANS OF MATURITY PERIOD FOR MORE THAN 5 YEARS. CIT (A), HAS THEREFORE, HELD THA T THE ARMS LENGTH INTEREST RATE WOULD BE AT LIBOR + 350 BASIS POINT. WE HOWEVER NOTE THAT 350 BASIS POINT IN THE CEILING PROVIDED IN THE RBI CIRCULAR. THE ITAT IN THE CASE OF AURION PRO SOLUTIONS PVT. LTD. (SUPRA) IN THE SAME YEAR HAD UPHELD THE RATE OF LIB OR PLUS 200 BASIS POINT. BUT LOANS IN THAT CASE HAD BEEN TO AES LOCATED IN USA, SINGA PORE AND BAHRAIN. CONSIDERING THE FACTS OF THE CASE IT WILL BE APPROPRIATE TO ADOPT T HE RATE OF LIBOR + 300 BASIS POINT. WE ORDER ACCORDINGLY. 5.1 AFTER HEARING BOTH THE PARTIES, WE FIND THAT LD . CIT(A) HAS JUST REFERRED AND FOLLOWED THE AFOREMENTIONED DECISION OF THE TRIB UNAL WHICH HAS ALREADY BEEN REPRODUCED ABOVE. IN THIS VIEW OF THE SITUATION, I T IS FOUND THAT THE ISSUE HAS BEEN DECIDED BY LD. CIT(A) IN ACCORDANCE WITH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR IMMEDIATE PRECEDING ASSESSMENT YEAR. THE REFORE, RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION OF TRIBUNAL, WE DECLINE TO INTERFERE IN THE FINDINGS RECORDED ITA NO.322& 70/MUM/2014 (A.Y.2008-09) C.O.NO.27/MUM/2014 12 BY LD. CIT(A) AND THIS GROUND OF THE REVENUE AS WE LL AS ASSESSEE ARE DISMISSED. IT MAY ALSO BE MENTIONED HERE THAT THE DECISION REFERR ED TO IN THE GROUNDS OF APPEAL FILED BY THE REVENUE WAS DULY CONSIDERED BY THE TRI BUNAL IN ITS EARLIER ORDER. 6. APROPOS GROUND NO.IV OF ASSESSEES APPEAL, IT WA S SUBMITTED BY LD. AR THAT AO MAY BE DIRECTED TO GIVE APPROPRIATE RELIEF AS PE R THE FIRST PROVISO TO SECTION 92C(2) IN CASE THE RECOMPUTED ADJUSTMENT FALLS WITHIN THE SAFE HARBOUR. IN THIS VIEW OF THE SITUATION AFTER HEARING BOTH THE PARTIES, WE DIRECT THE AO TO CONSIDER THIS RELIEF TO THE ASSESSEE AS PER LAW AFTER RECOMPUTING THE TP ADJUS TMENT IN ACCORDANCE WITH DECISION OF LD. CIT(A), WHICH HAS BEEN CONFIRMED I N RESPECT OF GROUND NO.III. WE DIRECT ACCORDINGLY. THIS GROUND IS CONSIDERED TO B E ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 7. APROPOS GROUND NO.V, DURING THE COURSE OF HEARIN G IT WAS FOUND THAT THIS ISSUE WAS NOT RAISED BY THE ASSESSEE BEFORE LD. CIT(A). THE FACTS RELATING TO THIS GROUND AS SUBMITTED BY LD. AR ARE THAT THE ASSESSEE HAD MADE A DONATION OF RS.10.00 LACS TO GIAN SAGAR EDUCATIONAL CHARITABLE TRUST AND A SUM O F RS.21,000/- TO SHRI VEDMATA GAYATRI TRUST AND CLAIMED DEDUCTION UNDER SECTION 80G OF THE ACT OF A SUM OF RS.25,525/-, WHICH WAS ALLOWED BY THE AO IN THE ASS ESSMENT ORDER. THE ASSESSEE DID NOT RAISE ANY ISSUE REGARDING GRANTING OF DEDU CTION UNDER SECTION 80G BEFORE LD. CIT(A). HOWEVER, A GROUND HAS BEEN TAKEN BEFORE US CLAIMING THAT THE ASSESSEE IS ELIGIBLE FOR GRANT OF DEDUCTION TO THE EXTENT OF 50 % OF THE DONATION MADE I.E. A SUM OF RS.5,10,500/-. IT WAS THE CASE OF LD. AR THAT SINC E DEDUCTION UNDER SECTION 10B(4) HAS BEEN REDUCED AND TP ADJUSTMENT IS MADE, THE ASS ESSABLE INCOME OF THE ASSESSEE HAS BEEN INCREASED AND CORRESPONDINGLY DEDUCTION UN DER SECTION 80G SHOULD ALSO BE INCREASED AS THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80G TO THE EXTENT OF 10% OF THE GROSS TOTAL INCOME. 7.1 ON THIS ISSUE WE HAVE HEARD BOTH THE PARTIES. THIS GROUND DOES NOT ARISE OUT OF THE ORDER OF LD.CIT(A) . MOREOVER, AO HAS NOT R EFUSED TO GRANT DEDUCTION TO THE ASSESSEE. THE GRIEVANCE OF THE ASSESSEE IS ONLY WI TH REGARD TO QUANTUM OF DEDUCTION. ITA NO.322& 70/MUM/2014 (A.Y.2008-09) C.O.NO.27/MUM/2014 13 FOR SUCH RELIEF , UNLESS AN ADDITIONAL GROUND IS RA ISED BEFORE US, REMEDY LIES SOMEWHERE ELSE AND NOT IN THIS APPEAL. THE ASSESS EE, IF SO ADVISED, MAY FILE AN APPLICATION BEFORE AO FOR RECTIFICATION TO GET AN E NHANCED BENEFIT OF DEDUCTION UNDER SECTION 80G. HOWEVER, SINCE THIS GROUND DOES NOT A RISE OUT OF ORDER OF LD. CIT(A), WE DECLINE TO ENTERTAIN THIS GROUND AND THIS GROUND IS DISMISSED. 8. APROPOS GROUND NO.VI OF ASSESSEES APPEAL, IT WA S SUBMITTED BY LD. AR THAT THE SAME IS CONSEQUENTIAL AND AO MAY BE DIRECTED TO RECOMPUTE THE INTEREST UNDER SECTION 234B AND 234C OF THE ACT AFTER GIVING EFFEC T TO THE ORDER OF THE TRIBUNAL. ACCORDINGLY, WE DIRECT THE AO TO RECOMPUTE INTEREST UNDER SECTION 234B & 234C OF THE ACT AFTER GIVING EFFECT TO THIS ORDER OF THE TR IBUNAL. THIS GROUND IS CONSIDERED TO BE PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 9. SO FAR AS IT RELATES TO CROSS OBJECTIONS FILED B Y THE ASSESSEE, IT WAS SUBMITTED BY LD. AR THAT IF GROUND NO.III OF THE ASSESSEES APPEAL IS DECIDED ACCORDING TO THE EARLIER ORDER OF THE TRIBUNAL WHICH HAS BEEN FOLLO WED BY LD. CIT(A), THEN THE CROSS OBJECTIONS FILED BY THE ASSESSEE WILL BECOME INFRU CTUIOUS. SINCE WE HAVE UPHELD THE ORDER PASSED BY LD. CIT(A) ON GROUND NO.III OF ASSE SSEES APPEAL, IN VIEW OF SUBMISSIONS OF LD. AR, THE CROSS OBJECTIONS FILED BY THE ASSESSEE HAS COME BECOME INFRUCTUOUS, ACCORDINGLY DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED AND DEPARTMENT APPEAL AS WELL AS CROSS OBJECTIONS FILE D BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/09/2 014 ! ' #$ % &'( 03/09/2014 ' ) SD/- SD/- ( /SANJAY ARORA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; &' DATED 03/09/2014 ITA NO.322& 70/MUM/2014 (A.Y.2008-09) C.O.NO.27/MUM/2014 14 ! ! ! ! ' '' ' *+, *+, *+, *+, -,$+ -,$+ -,$+ -,$+ / COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. *0./ / THE RESPONDENT. 3. 1 ( ) / THE CIT(A)- 4. 1 / CIT 5. ,2) *+' , , / DR, ITAT, MUMBAI 6. )3 4 / GUARD FILE. !' !' !' !' / BY ORDER, 0,+ *+ //TRUE COPY// 5 55 5 / 6 6 6 6 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ' . ./ VM , SR. PS