DDIT, New Delhi V. M/s. The Bank of Tokyo Mitsubishi UFJ Ltd., New Delhi

ITA 3754/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5283 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2002-2003
• Appeal Filed On: 26-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NISHANT
• Assessee Lawyers: H S CHOUDHARY
• Keywords: Transfer pricing; Business expenditure; Opportunity of being heard; Principle of natural justice; International transaction; Permanent establishment; Revised return
• Section: 143(3); 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I - 2 , NEW DELHI BEFORE SH. VIJAY PAL RAO, JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 3754 /DE L/ 2014 ASSESSMENT YEAR : 2002 - 03 DDIT, CIRCLE - 1(1), INTL. TAXATION, NEW DELHI VS. THE BANK OF TOKYO MITSUBISHI UFJ LTD., JEEVAN VIHAR BUILDING, 3, PARLIAMENT STREET, NEW DELHI PAN : AABCT3880D (APPELLANT) (RESPONDENT) APPELLANT BY MR. PERCY PARDIWALA, SR. ADV. & SH. NISHANT , ADV. RESPONDENT BY SH. H.S. CHOUDHARY, CIT(DR) DATE OF HEARING 27.07.2017 DATE OF PRONOUNCEMENT 03.08.2017 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE R EVENUE IS DIRECTED AGAINST ORDER DATED 31/03/2014 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) - XXV , NEW DELHI [FOR SHORT THE C IT (A) ] FOR ASSESSMENT YEAR 2002 - 03 , RAISING FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 17534052/ - MADE BY THE AO ON ACCOUNT OF DEFERRED BANK GUARANTEE COMMISSION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 2,76,749/ - ON ACCOUNT OF JAPANESE FOOD STUFF MADE BY THE AO, AS HE HAS IGNORED THE FACT THAT THE EXPENSES CLAIMED WAS IN THE NATURE OF FREIGHT AND CLEARING & FORWARDED CHARGES INCURRED BY THE BRANCHES ONLY. 2 ITA NO.3754/DEL/2014 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, LD. CIT(A) WAS CORRECT IN RESTORING BACK O THE TPO THE TRANSFER PRICING ADJUSTMENT MADE OF R S. 10652699/ - ON ACCOUNT OF MARKETING AND SUPPORT SERVICES FOR DECIDING THE ISSUE AFRESH, IGNORING THE FACT THE TPO IN HIS ORDER U/S 92CA(3) DATED 28.03.2005 HAD MADE AN ADJUSTMENT OF RS. 135589560/ - ON ACCOUNT OF EXPATRIATE SALARY' NOT DEBITED TO P&L ACCO UNT BUT CLAIMED IN THE RETURN OF INCOME AND RS. 10652699/ - ON ACCOUNT OF ECB TRANSACTION. 4. THE APPELLANT CRAVES TO ADD, AMEND, MODIFY, OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OR BEFORE THE HEARING OF THE APPEAL. 2. THE FACTS IN BRIEF OF THE CASE A S CULLED OUT FROM THE ORDER OF THE LOWER AUTHORITIES ARE THAT DURING THE YEAR UNDER CONSIDERATION B ANK OF TOKYO MITSUBISHI LTD . JAPAN (BOTM - GROUP) OPERATED IN INDIA THROUGH ITS BRANCHES AT NEW DELHI, MUMBAI , KOLKATA AND CHENNAI, WHICH CONSTITUTED THE PERMANENT ESTABLISHMENT (PE) OF BOTM GROUP IN INDIA AS PER ARTICLE 5 OF INDIA - JAPAN DOUBLE TAXATION AVOIDANCE A GREEMENT (DTAA). THIS PERMANENT ESTABLISHMENT IS THE ASSESSEE IN THE CASE. THE ASSESSEE I.E. BOTM - INDIA , WAS ENGAGED IN WHOLESALE BANKING OPERATION, CATERING MAINLY TO JAPAN - BASED CORPORATE AND INDIVIDUALS. THE RETAIL BANKING ACTIVITIES OF THE ASSESSEE WE RE CONFINED TO DEPOSITS, REMITTANCE AND OTHER ACTIVITIES LIKE CREDIT C ARD OPERATIONS, CONSUMER LOANS/F INANCE LEASING, PORTFOLIO MANAGEMENT, FOREX BROKING ETC. 2.1 THE ASSESSEE FILED ITS RETURN OF INCOME ON 20/10/2002 SHOWING NIL INCOME AFTER SETTING OF THE LOSSES CARRIED FORWARD FROM EARLIER YEARS. THE CASE WAS SELECTED FOR SCRUTI NY AND NOTICE UNDER SECTION 143 (2) OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT ) WAS ISSUED AND COMPLIED WITH. SUBSEQUENTLY , THE ASSESSEE REVISED ITS RETURN ON 19/02/2003 AND CLAIMED CARRY FORWARD OF LOSSES OF THE EARLIER YEARS AGAINST THE INCOME OF THE CURRENT YEAR, WHICH WAS NOT DO NE I N THE ORIGINAL RETURN OF INCOME . THIS WAS DONE IN PURSUANCE OF THE JUDGMENT OF THE SUPREME COURT IN THE 3 ITA NO.3754/DEL/2014 CASE OF KARNATAKA SMALL SCALE I NDUSTRIES LTD VERSUS CIT , 258 ITR 770 . THE REVISED RETURN FILED WAS PROCESSED ON 01/03/2004 AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS AGAIN ISSUED AND COMPLIED WITH. THE ASSESSING OFFICER OBSERVED THAT T HE ASSESSEE ENTERED INTO A NUMBER OF INTERNATIONAL TRANSACTIONS WITH I TS ASSOCIATED E NTERPRISES (AES) . THE ASSESSING OFFICER REFERRED THE COMPUTATION OF ARM S LENGT H PRICE OF THE INTERNATIONAL TRANSACTIONS TO THE TRANSFER PRICING O FFICER (TPO) , WHO PROPOSED CERTAIN ADJUSTMENTS TO THE INTERNATIONAL TRANSACTIONS . A COPY OF THE TRANSFER PRICING ORDER UNDER SECTION 92 CA(3) OF THE ACT WAS PROVIDED TO THE ASSESSEE AND AFT ER CONSIDERING THE OBJECTIONS OF THE ASSESSEE, THE ASSESSMENT OF INCOME WAS COMPLETED ON 30/03/2005 UNDER SECTION 143(3) OF THE ACT AFTER MAKING VARIOUS ADDITIONS TO THE RETURNED INCOME AS WELL AS TO TH E BOOK P ROFIT UNDER SECTION 115 JB OF THE ACT. AGGRIEVE D , THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT - A, WHO ALLOWED PART RELIEF TO THE ASSESSEE . AGGRIEVED , T HE R EVENUE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3 . THE GROUND NO. 1 OF THE AP PEAL RELATES TO ADDITION OF RS.1,75,34, 052/ - ON ACCOUNT OF DEFERRED BANK GUARANTEE COMMISSION, WHICH HAS BEEN DELETED BY THE LD. CIT - A. 3 .1 THE ASSESSING OFFICER OBSERVED GUARANTEE COMMISSION OF RS. 2,11,53, 402/ - RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION OUT OF WH ICH, A SUM OF RS.1,75,34, 052/ - WAS TAKEN TO UNEARNED INCOME I.E. AN ADVANCE . THE ASSESSEE EXPLAINED THAT THE COMMISSION RECEIVABLE ON GUARANTEES, IN RESPECT OF THE PERIOD WHICH IS NOT EXPIRED, IS NOT INCOME ACCRUED DURING THE YEAR AND SAME WAS TREATED AS ADVANCE IN ACCORDANCE WITH THE ACCOUNTING P OLICY FOLLOWED BY THE ASSESSEE B ANK. ACCORDING TO THE ASSESSING OFFICER, THE COMMISSION RECEIVED WAS LIKE A FEE FOR ISSUING GUARANTEE AND WAS NOT A CONTINGENT RECEIPT OR ADVANCE AND WHICH ACCRUED AT THE TIME OF BA NK ISSUES THE 4 ITA NO.3754/DEL/2014 GUARANTEE. ACCORDING TO THE ASSESSING OFFICER, T HE INCOME GETS ACCRUED TO THE ASSESSEE; THE MOMENT RIGHT TO RECEIVE HAS ARISEN. ACCORDINGLY, HE ADDED THE SUM OF RS.1,75,34, 052/ - TO THE INCOME OF THE ASSESSEE. 3 .2 T HE LD. CIT - ( A ) , FOLLOWING T HE ORDER OF THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 1981 - 82, ADJUDICATED THE ISSUE IN THE FAVOUR OF THE ASSESSEE. 3 .3 BEFORE US, THE LD. CIT ( DR ) SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT GUARANTEE COMMISSION ACCRUED TO THE ASSESSEE, THE MOMENT IT ISSUED GUARANTEE AND THUS THE ENTIRE GUARANTEE COMMISSION WAS LIABLE TO BE ASSESSED I N THE YEAR UNDER CONSIDERATION. WITHOUT PREJUD ICE TO ABOVE , HE ALSO SUBMITTED THAT FROM THE FACTS OF THE CASE IT WAS NOT CLEAR WHETHER THE ASSESSEE DECLARED ANY INCOME FOR GUARANTEE COMMISSION IN RESPECT OF THE GUARANTEES GRANTED IN EARLIER YEARS, BUT CONTINUED DURING THE YEAR UNDER CONSIDERATION. 3 .4 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ISSUE IN DISPUTE WAS COVERED BY THE DECISION OF THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 81 - 82. HE FURTHER SUBMITTED THAT DECISION OF THE HON BLE CAL CUTTA HIGH COURT HAS BEEN FOLLOWED BY THE HON BLE DELHI HIGH COURT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2007 - 08 IN ITA 604 AND 605 OF 2015. HE FURTHER REFERRED TO STATEMENT OF FACTS FILED BEFORE THE LD. CIT - A AND SUBMITTED THAT THOUGH THE ASSES S EE RECEIVED A TOTAL SUM OF RS.2,11,53, 402/ - BEING GUARANTEE COMMISSION DURING THE YEAR, HOWEVER AN AMOUNT OF RS.2,34,37, 053/ - WAS RECOGNIZED AS INCOME FOR RELEVANT YEAR ON ACCRUAL BASIS, IN RESPECT OF GUARANTEE ISSUED EARLIE R YEARS AS WELL AS IN THIS YEAR. 3 .5 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. A S PART OF THE BANKING ACTIVITIES, THE ASSESSEE GIVES GUARANTEE ON BEHALF OF ITS CUSTOMERS AND IN CONSIDERATION THEREOF, THE 5 ITA NO.3754/DEL/2014 ASSESSEE CHARGED COMMISSION FROM SUCH CUSTOMERS. T HE COMMISSION INCOME ARISING FROM THE GUARANTEE GIVEN ON BEHALF OF THE CUSTOMER HAS BEEN RECOGNIZED BY THE ASSESSEE OVER THE LIFE OF THE BANK GUARANTEE. THE LD. CIT - A ADJUDICATED THE ISSUE IN DISPUTE AS UNDER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE ALONG WITH THE SUBMISSIONS MADE ON BEHALF OF APPELLANT. IT IS PERTINENT TO NOTE THAT HON BLE CALCUTTA HIGH COURT IN THE CASE OF APPELLANT FOR A.Y. 1981 - 82 (SUPRA) DECIDED THE ISSUE IN FAVOUR OF APPELLANT AS UNDER: IN THE RESULT, THE TR IBUNAL WAS JUSTIFIED IN HOLDING THAT THE INCOME DEFERRED GUARANTEE COMMISSION DID NOT ACCRUE OR ARISE IN THE YEAR IN WHICH THE GUARANTEE AGREEMENTS WERE ENTERED, AND THAT THE SAME SHOULD BE SPREAD OVER THE PERIOD TO WHICH THE GUARANTEE COMMISSION RELATED A ND SHOULD BE ASSESSED PROPORTIONATELY. RESPECTFULLY FOLLOWING THE ORDER OF THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF THE APPELLANT ITSELF, THIS GROUND OF APPEAL IS ALLOWED AS INDICATED ABOVE. 4.6 W E FIND THAT THE LD. CIT - ( A ) HAS FOLLOWED THE FINDING OF THE HON BLE CALCUTTA HIGH COURT (SUPRA) IN THE CASE OF THE ASSESSEE ITSELF FOR ASSESSMENT YEAR 1981 - 82. THE DECISION OF THE HON BLE CALCUTTA HIGH COURT HAS FURTHER BEEN FOLLOWED BY HON BLE DELHI HIGH COURT IN THE CASE OF THE AS SESSEE FOR ASSESSMENT YEAR 2007 - 08. THE FINDING S OF THE HON BLE DELHI HIGH COURT ARE REPRODUCED AS UNDER: DEFERRED BANK GUARANTEE COMMISSION 16. THIS ISSUE APPEARS TO BE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CALCUTTA HIGH COURT IN CIT VS. BANK OF TOKYO LTD. (1993) 71 TAXMAN 85 (CAL). 17. ACCORDINGLY, THIS COURT DECLINES TO FRAME ANY QUESTION ON THIS ISSUE. 6 ITA NO.3754/DEL/2014 4.7 O N PERUSAL OF PAGE 11 & 12 THE STATEMENT OF FACTS FILED BEFORE THE LD. CIT - ( A ) , IT IS EVIDENT THAT ASSESSEE HAS FOLLOWED CONS ISTENT METHOD OF ACCOUNTING OF CREDITING INCOME OVER THE PERIOD OF LIFE OF THE BANK GUARANTEE, FOLLOWING THE DECISION OF THE HON BLE CALCUTTA HIGH COURT (SUPRA) IN ITS OWN CASE FOR ASSESSMENT YEAR 1981 - 82. THE LD. CIT - ( A ) HAS ALLOWED RELIEF TO THE ASSESSEE FOLLOWING THE ABOVE DECISION OF THE HON BLE CALCUTTA HIGH COURT. IN VIEW OF ABOVE, WE DO NOT FIND ANY ERROR IN THE FINDING OF THE LD. CIT - ( A ) ON TH E ISSUE IN DISPUTE, ACCORDINGLY, WE UPHOLD THE SAME AND THE GROUND NO. 1 OF THE APPEAL IS DISMISSED. 5. THE GROUND NO. 2 RELATES TO DISALLOWANCE OF RS.2,76, 749/ - ON ACCOUNT OF FREIGHT AND FORWARD ING & CLEARING CHARGES IN RESPECT OF JAPANESE FOOD STUFFS IMPORTED FOR THE EXPAT EMPLOYEES. THE ASSESSEE SUBMITTED THAT TO DEVELOP A CONGENIAL BUSINESS RELATIONS AND CREATE NEW BUSINESS OPPORTUNITIES SO AS TO EXPEND THE CLIENT BASE OF THE BANK , IT HAD TO SERVE CUSTOMARY FOODSTUFFS TO ENTERTAIN SUCH JAPANESE CUSTOMERS VISITING VARIOUS BRANCHES OF THE BANK AND FOR THE EXPAT OFFICERS WHO W ERE TO LOOK AFTER THE BUSINESS OF THE BANK AND THUS THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND ALLOWABLE AS BUSINESS EXPENDITURE. THE ASSESSING OFFICER DISALLOWED THE EXPENSES FOLLOWING HIS FINDING ON THE ISSUE IN DISPUT E IN EARLIER YEARS. THE LD. CIT - ( A ) FOLLOWING THE DECISION OF TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASS ESSMENT YEAR 1994 - 95 TO 1996 - 97 , DELETED THE ADDITION WITH FINDING AS UNDER: THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF APPELLANT BY HON BLE CALCUTTA ITAT FOR A.Y. 1994 - 95 TO 1996 - 97. SINCE THE FACTS AND CIRCUMSTANCES OF THE CASE ON THIS ISSUE IN THE YEARS UNDER CONSIDERATION WERE PARI MATERIAL AND WITH FACTS OF EARLIER ASSESSMENT YEARS, RESPECTFULLY FOLLOWING THE ORDER OF HON BLE ITAT, I AM OF THE CONSIDERED VIEW THAT AO WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF 7 ITA NO.3754/DEL/2014 DEDUCTION OF EXPENDITURE OF RS.271,749/ - . ACCORDINGLY, THE ADDITIONS MADE BY THE AO IS DELETED. THE GROUND OF APPEAL IS ALLOWED. 5.1 B EFORE US , THE LD. CIT (DR) RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE LD. CIT - ( A ) HAS NOT JUSTIFI ED HOW THE ISSUE IN DISPUTE IS P ARI MATERIA WITH THE ISSUE IN DISPUTE FOR ASSESSMENT YEAR 19 94 - 95 AND 19 96 - 97. 5.2 ON THE CONTRARY, THE LD. COUNSEL RELIED ON THE ORDER OF TH E LD. CIT - ( A ) AND SUBMITTED THAT THE EXPENDITURE INCURRED WAS AS A MEASURE OF STAFF WELFARE AND THUS CONSTITUTED ALLOWABLE BUSINESS EXPENDITURE. 5.3 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE TRIBUNAL IN ASSESSEE S OWN CASE , IN ITA NO. 564 AND 624 (C AL) OF 1999 AND 830 ( CAL) OF 2000 ADJUDICATED THE ISSUE AS UNDER: 18. GROUND NO. 6 IN ASSESSMENT YEAR 1994 - 95 [ITA NO.564(CAI )/99], GROUND NO.9 FOR ASSESSMENT YEAR 1995 - 96 [ITA NO.624(CAL)/99] AND GROUND NOS. 9(A) AND 9(B) FOR ASSESSMENT YEAR 1996 - 97 [ITA NO. &30(CAL)/00) RELATE TO DISALLOWANCE OF EXPENSES ON ACCOUNT OF FREIGHT AND CLEARING CHARGED ON IMPORT OF FOODSTUFF/CONSUMA BLES FOR THE EMPLOYEES OF THE ASSESSEE - COMPANY. IT HAS BEEN ARGUED BY THE ID. COUNSEL, APPEARING ON BEHALF OF THE ASSESSEE, THAT THE ASSESSEE - COMPANY HAS TO MAKE ARRANGEMENT FOR THE OFFICERS WHO ARE COMING FRONM JAPAN AND WHO COULD NOT AFFORD TO TAKE ANY K IND OF FOOD OTHER THAN THOSE WHICH THEY ARE USED TO AND WHICH ARE AVAILABLE ONLY IN JAPAN WHICH HAVE GOT TO BE IMPORTED FOR MAINTAINING THE HEALTH OF THE OFFICERS OF THE COMPANY. AS PRUDENT BUSINESS ORGANIZATION, THE ASSESSEE FOUND IT EXPEDIENT TO PAY FOR THE FREIGHT AND CLEARING CHARGES ON IMPORT OF FOOD STUFF FOR EMPLOYEES. THE AO, HOWEVER, DID NOT FIND IT INCIDENTAL TO THE RUNNING OF THE BUSINESS AND DISALLOWED THE SAME. THE CIT(A) ALSO DID NOT FIND ANY JUSTIFICATION IN THE EXPENDITURE INCURRED BY THE A SSESSEE WHILE CONFIRMING THE DISALLOWANCE. 19. AFTER CONSIDERING THE RIVAL SUBMISSIONS IN THIS REGARD, WE FIND THAT THE ASSESSEE - COMPANY, AS A BUSINESS ORGANIZATION, HAD TO BE 8 ITA NO.3754/DEL/2014 CAREFUL ABOUT THE HEALTH OF ITS OFFICERS FOR THE INTEREST OF THE BUSINESS AND, THEREFORE, WE DO NOT FIND ANYTHING WRONG IN THE ASSESSEE - COMPANY PAYING FOR THE FREIGHT AND CLEARING CHARGES OF THE IMPORT OF FOOD EXCLUSIVELY FOR THE OFFICIALS OF THE COMPANY WHO, OTHERWISE, COULD NOT HAVE PERFORMED TO THE LEVEL IT WAS DESIRED OF TH EM. WE CONSIDER THIS TO BE GENUINE BUSINESS EXPENDITURE AND IN REVERSING THE ORDER OF THE AUTHORITIES BELOW, WE ALLOW THIS GROUND OF THE ASSESSEE. 5.4 I N VIEW OF THE IDENTICAL ISSUE ADJUDICATED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF, RESPECT FULLY FOLLOWING THE SAME , WE CONSIDER THE EXPENDITURE IN DISPUTE AS ALLOWABLE BUSINESS EXPENDITURE. ACCORDINGLY, THE GROUND NO. 2 OF THE APPEAL IS DISMISSED. 6. IN GROUND NO. 3, THE R EVENUE IS AGGRIEVED WITH THE ACTION OF THE LD. CIT - ( A ) IN RESTORING THE ISSUE OF TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF MARKETING AND SUPPORT SERVICES AMOUNTING TO RS. 1,06,52,699/ - BACK TO THE TRANSFER PRICING O FFICER (TPO). 6.1 THE TPO NOTED THAT THE ASSESSEE PROVIDED MARKETING AND SUPPORT SERVICES OF CUSTOMER APPRAISALS INCLUDING CREDIT RATINGS ETC . TO INDIAN CUSTOMERS , WHO RAISED E XTERNAL C OMMERCIAL B ORROWINGS (ECB) FROM HEAD OFFICE OR FOREIGN BRANCHES OF THE BANK. THE ASSESSEE SUBMITTED THAT DURING THE YEAR NO INDIAN CUSTOMER HA D RAISED ECB , HOWEVER AFTER THE DISP ER SAL OF ECBS, THE ASSESSEE UNDERTOOK NORMAL MONITORING OF THE ACCOUNTS AND FOLLOW ED WITH THE CUSTOMERS. THE TPO OBSERVED THAT FOR THE SERVICES RENDERED, THE ASSESSEE DID NOT RECEIVE ANY COMPENSATION FROM THE FOREIG N BRANCHES WHO ADVANCED THE ECB S TO THE CUSTOM ER S OF INDIAN BRANCHES . IN VIEW OF THE TPO, THE ARM S LENGTH PRICE IN RESPECT OF THE SERVICES RENDERED FOR CONTINUING ECB TRANSACTION WAS REQUIRED TO BE BENCHMARKED BECAUSE THE LOCAL BRANCH CARRIED OUT WORKS LIKE DOCUMENTATION, COLLECTING FEES, ENSURING A SMOOTH AND TIMELY PAYMENT OF INTEREST ETC., CREDIT REVIEW AND MONITORING OF CREDIT FACILITIES, WHICH INVOLVES BALANCE SHEET ANALYSIS, MONITORING OF PERFORMANCE, MONITORING 9 ITA NO.3754/DEL/2014 OF BREACH OF CONVENTS, MONITORING OF ASSETS, COORDINATION WITH OTHER BANKS/LENDERS TO CLIENTS UNDER SYNDICATION AND PREPARATION OF WATCH LIST REPORT ETC. THE TPO USED CUP METHOD WITH CONTROL TRANSACTION FOR COMPUTING THE ARM S LENGTH OF THE TRANSACTION AS UNDER: AS DISCUSSED ABOVE, THE BANK HAS NEITHER PROVIDED THE DETAILS OF NET INTERE ST MARGIN OR THE FEE, WITH REGARD TO THE FIVE CONTINUING ECB TRANSACTIONS. DURING THE F.Y.2001 - 02 AND IN EARLIER YEARS, THE ECBS WERE BEING PROVIDED BY THE FOREIGN BRANCHES OF THE BANKS, AT INTEREST OF LIBOR PLUS 100 TO 300 BASIS POINTS. IN ABSENCE OF DETA ILS FILED BY THE BANK, THE SPREAD IS ADOPTED AT 200 BASIS POINTS. 25% OF THIS SPREAD (NET MARGIN), WORKS OUT TO 50 BASIS POINTS AND THE INTEREST CALCULATED @0.50% PER ANNUM ON ALL THE FIVE OUTSTANDING LOANS, IS CONSIDERED AS THE APPROPRIATE CONSIDERATION A T ARM'S LENGTH FOR THE SERVICES PROVIDED BY THE BANK TO THE FOREIGN BRANCHES. THE COMPENSATION IS COMPUTED AS BELOW: ________________________________ ______________ ____ S. NO. NAME OF CUSTOMER AMOUNT OF ECB LOAN INTEREST @0,5% PER ANNUM EXCHANGE RATE AS ON 31 - 3 - 02 AMOUNT AT ARM'S LENGTH 1 MARUTI UDYOQ US$30 MILLION US$150000 48.80 7,320,000 2 ASAHI INDIA GLASS JPY 163.7 MILLION JPY 818500 0.36807 301,265 3 ASAHI INDIA GLASS JPY 328 MILLION JPY 1640000 0.36807 603,634 4 AIR INDIA LTD US$7.5 MILLION US$37500 48.80 1,830,000 5 CHEMTEX ENQQ LTD US$2.45 MILLION US$12250 48.80 597,800 10,652,699 THEREFORE, THE COMPENSATION AT ARM'S LENGTH FOR THE SERVICES RENDERED WITH REGARD TO CONTINUED ECB TRANSACTIONS, WORKS OUT TO RS. 10,652,699/. THE SPREAD (NET INTEREST MARGIN) OF 200 BASIS POINTS IS ADOPTED IN THIS ORDER IN ABSENCE OF INFORMATION SUBMITTED BY THE ASSESSEE. THIS AMOUNT OF RS. 10,652,699/ - IS REQUIRED TO BE ADDED TO THE INCOME OF THE ASSESSEE. 6.2 THE LD. CIT - A OBSERVED THAT THE TPO VIOLATED THE PRINCIPLE OF NATURAL JUSTICE AND USE D THE DATA , WHICH WAS NOT AVAILABLE IN THE PUBLIC DOMAIN, SO HE RESTORED THE ISSUE THE TPO FOR DECIDING AFRESH IN ACCORDANCE WITH THE PRINCIPLE OF NATURAL JUSTICE. 6.3 BEFORE US THE LD. CIT ( DR ) SUBMITTED THAT THE LD. CIT - ( A ) WAS NOT EMPOWERED TO RESTORE T HE ISSUE TO THE TPO AND THEREFORE ACTION OF THE 10 ITA NO.3754/DEL/2014 LD. CIT - ( A ) IN RESTORING THE MATTER WAS NOT JUSTIFIED. HE ALSO SUBMITTED THAT THE ASSESSEE DID NOT PROVIDE ANY DATA FOR COMPUTATION OF ARM S LENGTH OF THE INTERNATIONAL TRANSACTION, AND THEREFORE ACTION OF TH E ASSESSING OFFICER WAS JUSTIFIED. 6.4 ON THE OTHER HAND, THE LD. COUNSEL SUBMITTED THAT THE TPO HAS NOT FOLLOWED THE METHOD OF COMPUTING ARM S LENGTH PRICE , PRESCRIBED UNDER THE PROVISIONS OF THE ACT AND THUS , THE LEARNED CIT - ( A ) SHOULD HAVE DELETED THE ADDITION RATHER THAN RESTORING THE MATTER TO THE TPO FOR COMPUTING THE ARM S LENGTH AFRESH. THE LD. COUNSEL ALSO RELIED ON THE DECISION OF THE TRIBUNAL DATED 30/09/2013 IN THE CA SE OF CREDIT LYONNAIS VS ADIT (I NTERNATION AL T AXATION), MUM BAI IN ITA NUMBER 1935 AND 2032/ MUM/2007 AND 2401 & 2384 /MUM/ 2009, WHEREIN IT IS HELD THAT NO ADJUSTMENT COULD BE MADE IN RESPECT OF THE INTEREST CHARGES RECEIVED BY THE FOREIGN BRANCHES. 6.5 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD . WE HAVE OBSERVED THAT THE LD. TPO HAS MADE ADJUSTMENT WITHOUT PROVIDING ANY OPPORTUNITY OF HEARING OR ISSUING ANY SHOW CAUSE TO THE ASSESSEE FOR PROPOSING THE ADJUSTMENT. THE ACTION OF THE TPO IS DEFINITELY IN VIOLATION OF THE PRINCIPLES OF THE NATURAL J USTICE. WE ARE ALSO EQUALLY AWARE OF THE FACT THAT THE LD. CIT - ( A ) WAS NOT EMPOWERED TO RESTORE THE ISSUE TO THE FILE OF THE TPO FOR DECIDING AFRESH. HE SHOULD HAVE CALLED FOR A REMAND REPORT FROM THE TPO AND SHOULD HAVE DECIDED THE ISSUE AFTER PROVIDING O PPORTUNITY OF BEING HEARD TO THE ASSESSEE. HOWEVER, DUE TO MISTAKE ON THE PART OF THE LD. CIT - ( A ) , THE ASSESSEE C ANNOT BE ALLOWED TO SUFFER THE J USTICE. FURTHER, WE NOTE THAT ISSUE IN DISPUTE IN THE CASE OF CREDIT LYONNAIS (SUPRA) WAS IN RESPECT OF INTERES T OF CHARGES RECEIVED FROM FOREIGN BRANCHES REGARDING SYNDICATING OF LOAN, WHEREAS THE ISSUE IN DISPUTE IN PRESENT CASE IS REGARDING FEE FROM FOREIGN BRANCHES IN RESPECT OF CONTINUED ECB. THE DECISION OF THE 11 ITA NO.3754/DEL/2014 SAID CASE IS DISTINGUISHABLE ON FACTS. IN VIEW OF THE ABOVE DISCUSSION AND IN THE INTEREST OF NATURAL J USTICE, WE RESTORE THE ISSUE OF COMPUTATION OF ARM S LENGTH PRICE IN RESPECT OF THE INTERNATIONAL TRANSACTION OF MARKETING AND SUPPO RT SERVICES FOR ECBS ISSUED BY HEAD O FFICE AND FOREIG N BRANCHES, TO THE FILE OF THE TRANSFER PRICING O FFICER (TPO)/ AO FOR DECIDING AFRESH IN ACCORDANCE WITH LAW. NEEDLESS TO MENTION THE ASSESSEE SHALL BE PROVIDED ADEQUATE OPPORTUNITY OF BEING HEARD. THE GROUND OF THE APPEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES . 7. IN THE RESULT, APPEAL OF THE R EVENUE IS ALLOWED PARTLY FOR STATISTICAL PURPOSES. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 3 R D AUGUST , 201 7 . S D / - S D / - ( VIJAY PAL RAO ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 3 R D AUGUST , 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI