Bilakhia Holding P Ltd, Vapi V. The Jt.CIT.,Vapi Range, Vapi

ITA 507/AHD/2013

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6093 (ITAT-SURAT)
• Duration Of Justice: 6 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 26-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: A GOPALAKRISHNAN
• Keywords: Gift; Depreciation; Transfer pricing; International transaction; Retrospective amendment; Wholly owned subsidiary; Assessment record; Set aside; Capital Gains
• Section: 92C; 143(3); 92B; 115JB; 10B; 144C; 251; 64; 113; 43; 48; 13; 22; 145; 263; 92

Judgement Text

BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 1 OF 66 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH SURAT BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUTANT MEMBER . . /. I.T.A NO.507/AHD/2013 : / ASSESSMENT YEAR: 2008-09 . . /. I.T.A.NO.1415AHD/2015: / ASSESSMENT YEAR: 2009-10 . . /. I.T.A NO.1416/AHD/2015: / ASSESSMENT YEAR: 2010-11 . . /. I.T.A NO.795/AHD/2016: / ASSESSMENT YEAR: 2011-12 M/S. BIALKHIA HOLDINGS PVT. LTD., BILAKHIA HOUSE, MUKTANAND MARG, CHALA VAPI, GUJARAT. [PAN: AADCS 4420 J] VS. ADDL.CIT RANGE - VAPI / ASSISTANT COMMISSIONER OF INCOME TAX VAPI CIRCLE VAPI, SHIVAM COMMERCIAL COMPLEX, NATIONAL HIGHWAY NO.8, VAPI. APPELLANT / RESPONDENT /ASSESSEE BY SHRI A. GOPALAKRISHNAN, CA /REVENUE BY SHRI O. P. SINGH CIT (D.R.) / DATE OF HEARING: 12.12.2019 /PRONOUNCEMENT ON: 04 .02.2020 /O R D E R PER O. P. MEENA, AM: 1. THE ABOVE CAPTIONED FOUR APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-VALSAD (IN SHORT THE CIT (A)) DATED 26.11.2012, 27.03.2015, 27.03.2015 AND 08.02.2016 PERTAINING TO ASSESSMENT YEARS 2008-09, 2009-10, 2010-11 AND 2011-12 RESPECTIVELY WHICH IN TURN HAS ARISEN FROM THE ASSESSMENT ORDERS PASSED UNDER SECTION 143(3) READ WITH SECTION 144C OF INCOME TAX ACT, 1961 (IN SHORT THE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 2 OF 66 ACT) BY THE JOINT COMMISSIONER OF INCOME-TAX- RANGE VAPI/ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -VAPI (IN SHORT THE AO). 2. THE ABOVE CAPTIONED FOUR APPEALS OF THE ASSESSEE WERE HEARD TOGETHER HENCE, CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF BREVITY AND CONVENIENCE. I.T.A.NO.507/AHD/2013/A.Y. 2008-09/ BY THE ASSESSEE: 3. GROUND NO. 1 & 2: ARE GENERAL IN NATURE; HENCE, DOES NOT REQUIRE OUR SEPARATE ADJUDICATION . 4. GROUND NO.3: STATES THAT ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER TO THE TUNE OF RS.38,36,27,838/- BEING SURPLUS ON SALE OF SHARES RECEIVED AS GIFT TO THE BOOK PROFIT FOR TAXATION UNDER SECTION 115JB. THE ACTION OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS CONTRARY TO FACTS AND LAW AND DESERVE TO BE DELETED. 5. SUCCINCT FACTS ARE THAT THE ASSESSEE COMPANY HAS DISCLOSED INCOME BY WAY OF LONG-TERM CAPITAL GAIN FROM SALE OF SHARES. THE SAID SHARES WERE CLAIMED BY THE ASSESSEE COMPANY TO HAVE BEEN RECEIVED AS GIFT FROM BILAKHIA FAMILY MEMBERS, WHO ARE THE PROMOTERS, BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 3 OF 66 DIRECTORS OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAD COMPUTED THE HOLDING PERIOD OF THE SAID SHARES AS THE PERIOD HELD BY THE PREVIOUS OWNERS AS WELL AS THE ASSESSEE COMPANY. SINCE THE HOLDING PERIOD IS MORE THAN ONE YEAR THE APPELLANT COMPANY TREATED THE CAPITAL GAINS AS LONG-TERM CAPITAL GAIN IN NATURE. THE APPELLANT COMPANY CREDITED THE PROCEEDS THEREOF TO THE RESERVE ACCOUNT SINCE THE PROMOTERS HAD CONTRIBUTED IT AS GIFT. THE AO HAS ARRIVED AT A CONCLUSION THAT AS HELD BY HIS PREDECESSOR THAT THE ACT OF TRANSFER OF SHARES, WAS NOT VOLUNTARY, MOREOVER, THERE CANNOT BE AN LOVE AND AFFECTION BETWEEN THE ASSESSEE AND THE COMPANY AND HENCE THE PERQUISITES OF THE GIFT I.E. IT SHOULD BE VOLUNTARY, AND OUT OF NATURAL LOVE AND AFFECTION AND WITHOUT ANY CONSIDERATION HAVE NOT BEEN FULFILLED. IN VIEW OF THESE FACTS, THE AO HAS ALSO CONSIDERED THE SAID RECEIPTS OF SHARES AS PURCHASE AT A DISCOUNTED PRICE AND OTHER GIFTS AS IN INCOME AS HELD BY HIS PREDECESSOR FOR THE ASSESSMENT YEARS 2002- 03, 2003-04 AND 2004-05 RESPECTFULLY. WHILE DOING SO, THE AO REPRODUCED THE OBSERVATIONS AND CONCLUSIONS OF HIS PREDECESSOR ASSESSING OFFICER FOR ASSESSMENT YEAR 2003-04 IN TOTO IN THE ASSESSMENT YEAR UNDER CONSIDERATION, AND ACCORDINGLY, TREATED THAT LONG-TERM CAPITAL GAIN AS AN ADDITION UNDER SECTION 115JB OF THE ACT. BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 4 OF 66 6. BEING, AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A). BEFORE WHOM, IT WAS SUBMITTED THAT THE ASSESSMENT HAS BEEN FINALISED SOLELY BASED ON THE OBSERVATION OF HIS PREDECESSOR AO FOR ASSESSMENT YEAR 2003-04. THE ASSESSEE HAS ALSO RELIED ON THE SUBMISSION AS MADE BEFORE THE THEN COMMISSIONER OF INCOME-TAX (APPEALS) FOR ASSESSMENT YEARS 2002-03, 2003-04. IN VIEW OF THESE FACTS, THE LD. CIT(A) HELD THAT THE HONOURABLE MADRAS HIGH COURT IN THE CASE OF KAY ARR ENTERPRISE 279 ITR 163 (MAD) HELD THAT REARRANGEMENT OF SHARE HOLDING IN A COMPANY BETWEEN MEMBERS OF THE FAMILY WERE HAD TO BE GENUINE AND IT WAS STATED THAT SUCH AS MADE CANNOT BE DOUBTED. FAMILY ARRANGEMENT WHEN FOUND GENUINE AND ACTED UPON HAS BEEN ACCEPTED BY THE COURTS. THE EFFECT OF FAMILY ARRANGEMENT HAS BEEN HELD TO BE RECOGNITION OF ECONOMIC INTEREST OF THE VARIOUS MEMBERS OF THE FAMILY AS IT ALWAYS EXISTED IN REALITY. IN CASE OF KALE & OTHERS V. DEPUTY DIRECTOR OF CONSOLIDATION, THE APEX COURT FURTHER OBSERVED THAT THE BENEFICIARY WHO RECEIVES A PROPERTY UNDER A FAMILY ARRANGEMENT CAN BE SAID TO HAVE RECEIVED IT AS A GIFT PURE AND SIMPLE. IN THE CASE OF BE BILAKHIA FAMILY, PURSUANT TO THE FAMILY ARRANGEMENT DATED 16.02.2001, THE SHARE OF VARIOUS COMPANIES INCLUDING THAT M/S. BILAG INDUSTRIES PVT. LTD. WERE RECEIVED BY THE COMPANY FROM THREE BROTHERS MAINLY AND OTHER FAMILY MEMBERS AS A GIFT WITHOUT ANY CONSIDERATION. THREE BROTHERS HAVE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 5 OF 66 ALSO TRANSFERRED THE SHARES ONLY TO THEIR FAMILY HOLDING COMPANY WHERE THEIR ECONOMIC INTEREST ARE EQUAL EVEN THOUGH THE COMPANY IS IN SUBSTANCE ENTIRELY OWNED AND RUN BY THREE BROTHERS AS A SEPARATE LEGAL ENTITY WHICH IS THE INVESTMENT OF THREE BROTHERS. THEREFORE, SHARES RECEIVED BY THE ASSESSEE COMPANY WERE HELD TO BE GIFT IN THE HANDS OF THE ASSESSEE COMPANY. SINCE THE FACTS OF THE CASE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ARE IDENTICAL AS THAT OF ASSESSMENT YEAR 2003-04, AS HELD BY HIS PREDECESSORS LD. CIT(A), THE LD. CIT(A) HELD THAT SHARES WHICH HAS BEEN RECEIVED BY THE APPELLANT COMPANY FROM THE BILAKHIA FAMILY MEMBERS CONSTITUTE A GIFT IN ITS HAND. THIS GROUND OF APPEAL WAS THEREFORE, DISMISSED. 7. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY RELIED ON THE DECISION OF HONOURABLE SUPREME COURT IN THE CASE OF THE APOLLO TYRES V. CIT, 255 ITR 273 (SC). HOWEVER, IT WAS SUBMITTED THAT THE ISSUE IS REPETITIVE AND DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL AGAINST THE ASSESSEE COMPANY IN I.T.A.NOS.1505 & 1557/AHD/2012 FOR A.Y. 2007- 08 DATED 08.02.2016. 8. PER CONTRA , LEARNED CIT(D.R.) RELIED ON LOWER AUTHORITIES. BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 6 OF 66 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE COMPANY BY DECISION OF CO-ORDINATE BENCH IN I.T.A.NO.1505 & 1557/AHD/2012 DATED 08.03.2016 FOR THE ASSESSMENT YEAR 2007-08 OF WHICH RELEVANT PARA IS REPRODUCED AS UNDER: 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AND WE FIND THAT SIMILAR GROUND REGARDING ADDITION OF SURPLUS FROM SALE OF SHARES ADDED TO BOOK PROFIT U/S 115JB OF THE ACT WAS HELD TO BE CORRECT AND THE CO-ORDINATE BENCH IN THE CASE OF ADDL. CIT VS. BILAKHIA HOLDING PVT. LTD. & OTHERS IN ITA NOS.981 TO 985/AHD/2009 FOR ASST. YEARS 2001-02 TO 2006-07 VIDE ITS ORDER DATED 30.05.2014 HAS HELD AS UNDER :- 10. 27. GROUND NO. 5 & 6 RELATE TO ADJUSTMENT TO BOOK PROFIT U/S. 115JB OF THE ACT. THE AO DURING THE ASSESSMENT PROCEEDINGS MADE AN ADDITION OF RS. 45,58,654/- BEING SURPLUS TO SALE OF SHARES TO THE BOOK PROFIT FOR TAXATION U/S. 115JB WHICH HAS BEEN CONFIRMED BY LD.CIT(A). BEFORE US RELIANCE WAS PLACED ON THE FOLLOWING SUBMISSION:- 1. THE AO HAS NO AUTHORITY TO ADJUST BOOK PROFITS ONCE THE ACCOUNTS ARE AUDITED AND ACCEPTED BY THE GENERAL BODY, SAVE AND EXCEPT SUCH ADJUSTMENT AS ARE PROVIDED FOR IN EXPLANATION TO SECTION 115JB. RELIANCE WAS PLACED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF THE APOLLO TYRES VS. CIT (255 ITR 273), WHERE THE SUPREME COURT HAD HELD THAT WHILE DETERMINING THE BOOK PROFIT UNDER SECTION 115JB, THE ASSESSING OFFICER COULD NOT RE-COMPUTE THE PROFIT AND LOSS ACCOUNT BY EXCLUDING THE PROVISIONS MADE FOR ARREARS OR DEPRECIATION. THE DECISION OF THE APEX COURT HAS BEEN FOLLOWED IN THE FOLLOWING OTHER DECISIONS:- A. MALAYALA MANORAMA CO. LTD VS. CIT [2008] 300 ITR 251 (SC) B. CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD [2008] 305 ITR 409 (SC), C. CIT-I VS. VIJAYASHREE FINANCE AND INVESTMENT CO. PVT. LTD 2 DTR 38 [216 CTR (MADRA) 191] D. CIT VS. RUBAMIN P. LTD [2009] 312 ITR 18 (GUJ) E. CIT VS. KOVAI MARUTHI PAPER AND BOARD P. LTD [2007] 294 57 (MAD) F. CIT VS. ADBHUT TRADING CO. P. LTD [2011] 338 ITR 94 (BOM), AND G. CIT VS. AKSHAY TEXTILES TRADING AND AGENCIES P. LTD [2008] 304 ITR (BOM) 2. PROCEEDS ON SALE OF GIFTED SHARES CANNOT BE CREDITED TO P &L A/C A. SHARES RECEIVED AS GIFT DO NOT CONSTITUTE INVESTMENT AND HENCE GAINS ON SALE OF THE AFORESAID SHARES ARE NOT REQUIRED TO BE ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT. LEARNED SR. COUNSEL SUBMITTED THAT SINCE THE GIFT CANNOT BE EQUATED WITH INVESTMENT, THE APPELLANT IS JUSTIFY IN CREDITING BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 7 OF 66 THE SALE PROCEEDS OF THE GIFTED SHARES DIRECTLY TO CAPITAL ACCOUNT WITHOUT ROUTING THROUGH PROFIT AND LOSS ACCOUNT. HE THEREFORE SUBMITTED THAT THE SAID CREDIT SHOULD NOT BE TAKEN INTO ACCOUNT FOR PURPOSES OF CALCULATION OF PROFITS UNDER SECTION 115JB AND THE PROVISIONS OF SECTION 115JB IS NOT APPLICABLE IN SUCH SITUATION. B. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: I. CIT VS. INSANYAT TRUST (173 ITR 248) II. 203/349 (GUJ) III. 209/390 (GUJ) IV. 209/865 (GUJ) V. 252/610 (GUJ) VI. 258/712 (GUJ) 3. ADOPTING NOTES TO ACCOUNTS DOES NOT AMOUNT TO QUALIFICATION. RELIANCE IS PLACED ON PARAGRAPH 3.9 AND IN PARTICULAR 3.12 OF THE ICAIS GUIDELINES SPECIFY THE MANNER OF QUALIFICATION-ADOPTION OF NOTES OF ACCOUNTS (AS CONTAINED IN PARA 4.6 AT PG. 11 OF THE PAPER BOOK) CANNOT AMOUNT TO A QUALIFICATION. 4. THE DECISION IN THE CASE OF VEEKAYLAL (BOM)-249 ITR 597 RELIED UPON BY THE AO IS NO LONGER GOOD LAW IN VIEW OF THE LATER DECISIONS OF THE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. ADBHUT TRADING CO. P. LTD. [2011] 338 ITR 94 (BOM) AND COMMISSIONER OF INCOME-TAX VS. AKSHAY TEXTILES TRADING AND AGENCIES P. LTD [2008] 304 ITR 401 (BOM) WHICH HAVE HELD THAT IN VIEW OF THE DECISION OF APOLLO TYRES VS. CIT (2555 ITR 273). SINCE IN REVENUES APPEAL WE HAVE HELD THAT SHARES RECEIVED BY THE ASSESSEE-COMPANY WERE NOT GIFTS IN THE HANDS OF ASSESSEE-COMPANY, THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE-COMPANY THAT SHARES RECEIVED AS GIFT DO NOT CONSTITUTE INVESTMENT AND HENCE GAIN ON SALE OF THESE SHARES WERE NOT REQUIRED TO BE ROUTED THROUGH PROFIT AND LOSS ACCOUNT FALLS FLAT ( CASE LAWS IN SUPPORT OF THIS ARGUMENT ARE THEREFORE NOT APPLICABLE TO THE FACTS OF THIS CASE), THE ASSESSEE WAS NOT JUSTIFIED IN CREDITING THE SALE PROCEEDS OF THE SHARES DIRECTLY TO CAPITAL RESERVE ACCOUNT WITHOUT ROUTING THROUGH PROFIT AND LOSS ACCOUNT. WE ARE THEREFORE OF THE CONSIDERED OPINION THAT AO HAS RIGHTLY TAKEN THESE CREDITS FOR THE PURPOSE OF ADJUSTMENT TO BOOK PROFIT U/S. 115JB OF THE ACT. THE ORDER PASSED BY LD. CIT(A) CONFIRMING THE ACTION OF AO IS HEREBY UPHELD. GROUND NO. 5 & 6 OF ASSESSEES APPEAL ARE ALSO DISMISSED. 28. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE AND GOING THROUGH THE FACTS OF THE CASE OF ASSESSEE BEFORE US ARE SIMILAR TO THE ISSUE DEALT BY THE CO-ORDINATE BENCH IN THE DECISION REFERRED ABOVE, WE ARE OF THE VIEW THAT LD. ASSESSING OFFICER HAS RIGHTLY ADDED THE LONG TERM CAPITAL GAIN FROM SALE OF SHARES TO THE BOOK PROFITS U/S 115JB OF THE ACT AND ACCORDINGLY, WE DISMISS THE GROUND OF ASSESSEE. BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 8 OF 66 11. THEREFORE, RESPECTIVELY FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH OF AHMEDABAD IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08, AND GOING THROUGH THE FACTS OF THE CASE OF ASSESSEE BEFORE US WHICH ARE SIMILAR TO THE ISSUE DEALT BY THE CO-ORDINATE BENCH IN THE DECISION REFERRED ABOVE, WE ARE OF THE VIEW THAT THE LD.AO HAS RIGHTLY ADDED THE LONG TERM CAPITAL GAIN FROM SALE OF SHARES TO THE BOOK PROFITS U/S 115JB OF THE ACT, AND ACCORDINGLY THIS GROUNDS OF APPEAL IS DECIDED AGAINST THE ASSESSEE. THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREFORE DISMISSED. 12. GROUND NO.4: STATES THAT ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER/TRANSFER PRICING OFFICER IN MAKING UPWARD ADJUSTMENT OF RS.1,80,56,250/- OUT OF INTEREST ON LOAN TO THE AE TO THE INCOME OF THE APPELLANT COMPANY ON ACCOUNT OF DETERMINING THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. THE ACTION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE FACTS AND LAW AND DESERVE TO THE DELETED. 13. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE HAS BEEN CREATED AN INVESTMENT COMPANY PROMOTED BY BILAKHIA GROUP. THE ASSESSEE CREDITED A SPECIAL PURPOSE VEHICLE (SPV) KNOWN AS M-3 BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 9 OF 66 HOLDINGS (SINGAPORE) PTE LTD [M3]. THE ASSESSEE COMPANY WAS HOLDING 46.2% SHARES IN A PRINTING INK MANUFACTURING COMPANY KNOWN AS STERLING + HOSTAG. M3 IS THE SUBSIDIARY COMPANY WHICH WHOLLY OWNED BY THE CREDIT AND ITS TRANSACTIONS WITH THE ASSESSEE COMPANY ARE UNDER AUDIT. AS PER 3CEB AUDIT REPORT, THE ASSESSEE HAD INTERNATIONAL TRANSACTIONS WITH THE ASSESSEE ENTERPRISES OF WHICH DETAILS ARE GIVEN AS UNDER . 14. THE ASSESSEE HAS SHOWN OUTSTANDING LOAN OF DOLLAR 7 MILLION (RS.28.125 CRORE) WHICH WERE GIVEN TO M3 FOR ITS DAY TO DAY FUNCTIONING AS IT IS AN SPV NOT HAVING ANY CASH FLOW. SIMILARLY, THE ASSESSEE COMPANY PROVIDED CORPORATE GUARANTEE FOR A SUM OF RS.2218.65 MILLION ON BEHALF OF M3 FOR AVAILING LOAN FACILITIES FROM THE STANDARD CHARTERED BANK, MAURITIUS. THE ASSESSEE COMPANY HAD CONSIDERED THE AFORESAID TRANSACTIONS TO BE IN THE SHAREHOLDERS SR.NO NAME OF THE AE NATURE OF TRANSACTION AMOUNT IN RS.MILLION 1 M3 HOLDINGS (SINGAPORE) PTE LTD. REDEMPTION OF PREFERENTIAL SHARES OF M3 HOLDINGS (SINGAPORE) PTE LTD 1749.06 2 MEEBA HOLDINGS PTE LTD TRANSFER OF EQUITY SHARES OF M3 HOLDINGS (SINGAPORE) PTE LTD 47.37 3 M3 HOLDINGS (SINGAPORE) PTE LTD. PROVIDED CORPORATE GUARANTEE ON BEHALF OF M3 HOLDINGS (SINGAPORE) PTE LTD 2218.65 4 M3 HOLDINGS (SINGAPORE) PTE LTD. INTEREST FREE UNSECURED LOAN 281.25 BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 10 OF 66 DOMAIN AND DID NOT CHARGE ANY INTEREST OR CHARGE FROM THE SPV M3. THE TRANSFER PRICING OFFICER (TPO) DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE COMPANY THAT THE LOAN TRANSACTIONS BE CONSIDERED AS QUASI EQUITY OR OTHERWISE FALLING WITHIN THE DOMAIN OF SHAREHOLDERS ACTIVITY. THE TPO RELIED UPON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF PEROT SYSTEMS TSI V. DCIT [2010] 37 SOT 358 (DELHI-TRIB), WHEREIN, INTEREST FREE LOANS GIVEN TO 100% FOREIGN SUBSIDIARIES WERE NOT ACCEPTED AS QUASI CAPITAL AND ARMS LENGTH PRICE OF THE LOANS WAS DETERMINED AND ADDED TO THE TOTAL INCOME. IT WAS SUBMITTED THAT THE ASSESSEE HAD INVESTED US $ 2 MILLION IN EQUITY SHARES AND US $ 38 MILLION IN REDEEMABLE PREFERENTIAL SHARES AS PART OF EQUITY IN SINGAPORE PTE LTD WHICH HAS BEEN SOLD BY THE COMPANY TO ANOTHER RELATED COMPANY MEEBA HOLDING PVT. LTD., A FINANCE COMPANY AT SINGAPORE. THE PREFERENTIAL SHARES HAVE BEEN REDEEMED DURING THE YEAR. MOST OF THE TRANSACTIONS RELATED TO THE REDEEMING OF THE PREFERENTIAL SHARES. HOWEVER, THE TPO WAS OF THE VIEW THAT THE NATURE AND USE WILL NOT ALTER THE FACT OF THE ASSESSEE HAVING ADVANCED THE LOAN TO AN ASSOCIATED ENTERPRISE. ONCE FUNDS HAVE BEEN MADE AVAILABLE TO THE AE IN THE FORM OF LOAN, THEN THE PROVISIONS OF TRANSFER PRICING MANDATE THAT SUCH LOAN BE BENCH MARKED IN TERMS OF ARMS LENGTH PRICE OF THE LOAN. A LOAN PER SE CANNOT BE TERMED AS QUASI EQUITY AND THE ASSESSEE MAY CLAIM ZERO BENCH MARKING UNDER THIS BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 11 OF 66 PLEA. THEREFORE, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AS TO WHY THE INTEREST FREE LOANS TO THE AE SHOULD NOT BE BENCH MARKED WITH REFERENCE TO LOANS GIVEN TO THIRD PARTY AT 7.33%. THE ASSESSEE FURNISHED ITS REPLY VIDE LETTER DATED 03.10.2011 WHICH HAS BEEN REPRODUCED BY THE TPO AT PAGE 4 TO 11 OF THE ORDER OF TPO. HOWEVER, THE TPO OBSERVED THAT THE MAIN CONTENTION OF THE ASSESSEE COMPANY IS THAT THE LOAN HAS BEEN ADVANCED TO THE AE IN ITS CAPACITY OF ONLY SHAREHOLDER ADVANCEMENT OF INTEREST FREE LOAN IS TO ENSURE CONTINUITY OF BUSINESS AND HENCE THIS SUBSTANCE OF THE TRANSACTION SHOULD BE EXAMINED NOT ITS FORM. ONCE FUNDS HAVE BEEN MADE AVAILABLE TO THE AE IN THE FORM OF LOAN, THE CHARACTER OF SUCH FUNDS REMAINED LOAN UNLESS THE AGREEMENT FOR CIRCUMSTANCES COVERING LOAN PROVE OTHERWISE. ACCORDINGLY, THE CONTENTION OF THE ASSESSEE COMPANY WAS NOT ACCEPTED ON THIS ISSUE. THE TPO FURTHER OBSERVED THAT THE ACTION OF ADVANCING OF RS.28 CRORE CANNOT BE SAID TO BE A SHAREHOLDERS ACTIVITY OR AN ACT TO ENSURE CONTINUANCE OF THE ACTIVITIES OF THE COMPANY, ESPECIALLY WHEN THE COMPANY IS AN SPV WITHOUT MANY EMPLOYEES AND HAS NO SUBSTANTIVE ROUTINE EXPENSES. THE ASSESSEE HAS FAILED TO EXPLAIN THE REASON FOR ADVANCING SUCH A HUGE LOAN. IT IS ALSO NOT BEEN ABLE TO JUSTIFY THAT THE LOAN WAS ESSENTIAL TO ENSURE RUNNING OF THE AE. SINCE THE AE IS AN SPV AND IS ENGAGED IN ONLY FINANCIAL ACTIVITIES, IT IS CLEAR THAT THE LOAN WOULD BE USED FOR BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 12 OF 66 FINANCIAL ACTIVITIES OF THE AE'S. HENCE, ASSESSEE NEEDS TO ADVANCE SUCH A SUM AT NORMAL ARMS LENGTH FINANCIAL LEVEL. HENCE, WITH REGARD TO CONTENTION OF THE ASSESSEE REGARDING USE OF SIBOR FOR BENCH MARKING OF THE INTEREST RATE AS AGAINST LIBOR PROPOSED IN SHOW-CAUSE NOTICE. THE TPO NOTED THAT DATA GIVEN BY THE ASSESSEE FOR SIBOR PERTAINS TO ONE MONTH OF SIBOR WHICH IS NOT APPLICABLE TO THE LONG TERM LOAN GIVEN BY THE ASSESSEE. THE TPO ADOPTED 12 MONTH AVERAGE SIBOR FOR THE PURPOSE OF BENCH MARKING OF THE INTEREST RATE. HE THEREAFTER, DETERMINED ARMS LENGTH, RISK SPREAD BY ASSUMING THAT THE FACTORS OF THE BANK MARGIN/FEES AND COST OF RISK BEING CARRIED BY THE BANK BY LENDING THE AMOUNT TO CORPORATE ENTITY. THE TPO THEREAFTER ALSO CONSIDERED THE ELEMENTS OF FINANCIAL RISK CREDIT RISK, BUSINESS RISK, AND STRUCTURAL RISK. THE TPO FURTHER OBSERVED THAT THE STUDY OF DIFFERENT TYPE OF BONDS ISSUED BY THE INDIAN INDUSTRIES AND INTEREST PAID ON SUCH PAPERS GIVES AN INDICATION OF INTEREST THAT COULD BE EARNED IF THE AMOUNT IS LENT TO THE COMPANIES. GOVERNMENT BONDS ARE SUBJECT TO INTEREST RISK. HOWEVER, CORPORATE BONDS ARE SUBJECT TO CREDIT RISK, IN ADDITION TO INTEREST RATE RISK. ACCORDINGLY, THE TPO FOR BENCHMARKING THE LOAN TRANSACTION, 12 MONTH SIBOR + 0.5% MARGIN + 3.5% RISK RATE OF 3.5% WAS ADOPTED AS THE ARMS LENGTH INTEREST RATE WHICH SHOULD HAVE BEEN CHANGED FROM AE OVER AND ABOVE THE SIBOR PLUS 0.5% MARGIN PLUS 3.5% RATE ADOPTED AS THE ARM`S LENGTH INTEREST BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 13 OF 66 WHICH SHOULD HAVE BEEN CHARGED FROM AE. THE ANNUAL AVERAGE OF 12 MONTHS SIBOR WAS PROPOSED TO BE REASONABLE YARD STICK WITH REFERENCE TO NATURE OF LOANS GIVEN BY THE ASSESSEE TO ITS AE IS 2.42%. WITH A SPREAD OF 4%, ACCORDINGLY THE TOTAL INTEREST REQUIRED TO BE CHARGED FROM THE AE WOULD BE 6.42%.FOR THE TOTAL BORROWING OF RS.28.125 CRORES, THE TOTAL INTEREST REQUIRED TO BE CHARGED WAS WORKED OUT TO RS.1,80,56,250/-. ACCORDINGLY, AN UPWARD ADJUSTMENT OF RS.1,80,56,250/- WAS MADE ON THIS ACCOUNT. 15. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WHEREIN, IT WAS SUBMITTED THAT THE ASSESSEE HAS CONSIDERED THE TRANSACTION TO BE IN THE SHAREHOLDERS DOMAIN AND DID NOT CHARGE ANY INTEREST OR CHARGES FROM THE SPV M3. ACCORDING TO HIM, THE TPO DID NOT ACCEPT ITS CONTENTION THAT THE LOAN TRANSACTION BE CONSIDERED AS QUASI EQUITY OR OTHERWISE FALLING IN THE DOMAIN OF SHAREHOLDERS ACTIVITY. THE ASSESSEE HAS REITERATED THE SUBMISSIONS AS MADE BEFORE THE TPO. IT WAS CONTENDED THAT THE AE WAS FORMED AS AN SPV ONLY WITH THE OBJECT OF INVESTING IN AN OPERATING PRINTING INK COMPANY AND NOT FOR ANY FINANCING ACTIVITY/OPERATIONS. THE LOAN OF USD 7 MILLION HAS BEEN GIVEN FOR MEETING THE WORKING CAPITAL REQUIREMENT OF M3 AND NOT FOR FURTHER LENDING. THEREFORE, THE INTEREST FREE LOAN HAS BEEN GIVEN TO ENSURE CONTINUITY OF INVESTMENT AND EASY REPATRIATION BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 14 OF 66 OF THE MONEY FROM SINGAPORE TO INDIA AS AND WHEN THE AE EARNS ANY PROFIT. IN VIEW OF THE SAME, EVEN THOUGH THE TRANSACTION HAS BEEN SHOWN AS AN INTEREST FREE LOAN, THE SAME AMOUNTS TO QUASI-EQUITY. THEREFORE, THE AMOUNT IS SUBJECT TO THE SAME RISK THAT MAY ARISE TO THE EQUITY SHARE HOLDER FOR A SIMILAR TYPE OF ACTIVITY. RELIANCE WAS ALSO PLACED ON THE EXTRACT FROM THE OECD COMMENTARY FOR MAKING SUCH REASONABLE INFERENCE IN THE CIRCUMSTANCES OF THE CASE. IT WAS FURTHER SUBMITTED THAT EVEN IN THE EVENT OF THE TRANSACTION BEING CONSTRUED AS A LOAN TRANSACTION BY REJECTING THE CONTENTION OF THE APPELLANT COMPANY, THE RATE OF INTEREST ADOPTED FOR CALCULATING THE ALP SHALL BE THE BANK LENDING RATES BASED ON SINGAPORE INTER BANK OFFER RATE (SIBOR). THIS WAS BASED ON THE PREMISE THAT IF A THIRD PARTY OBTAINS LOAN FROM ANOTHER THIRD PARTY IT WILL BE ABLE TO OBTAIN SUCH LOANS IN SINGAPORE AT THE SIBOR RATE. FURTHER, AS PER RULE 10B TO SECTION 92C OF THE ACT THE ALP SHALL BE ADOPTED AFTER BENCHMARKING THE SAME WITH COMPARABLE TRANSACTIONS. IT WAS FURTHER SUBMITTED THE TPO HAS ARRIVED AT A RISK RATE/MARGIN BY COMPARING INTEREST RATE OF AAA CREDIT RATED CORPORATE BONDS IN INDIA WITH BBB CREDIT RATED CORPORATE BONDS IN INDIA. HOWEVER, IT WAS SUBMITTED THAT THE AE BEING SPV, THE SAME CREDIT RATING ENJOYED BY THE PARENT COMPANY SHOULD BE ASSIGNED TO THE SPV, WHEREAS THE TPO HAS ASSUMED CREDIT RATING OF AAA FOR THE ASSESSEE BEING LENDER AND BBB FOR AE BEING BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 15 OF 66 BORROWER. SINCE, THE CREDIT RATING OF PARENT COMPANY HAS ASSUMED AT AAA, THE SAME CAN BE NOTCHED DOWN BY ONE NOTCH TO ARRIVE AT CREDIT RATING FOR AE I.E. AA + OR AA FOR TWO NOTCHES. CONSERVATIVELY ASSUMING AA RATING FOR AE RISK RATE WOULD BE 0.39% (I.E. 9.71%- 9.32%) INSTEAD OF 3.5%. FURTHER, THE RISK MARGIN SPREAD OF EACH COUNTRY IS DIFFERENT BECAUSE RATE OF INTEREST IN EACH COUNTRY IS DIFFERENT WHICH IN TURN IS BASED ON ECONOMIC AND FINANCIAL CONDITION OF SUCH COUNTRY. WITHOUT PREJUDICE TO ABOVE, IT WAS ALSO SUBMITTED THAT THE RATE OF INTEREST AT WHICH AE HAS ACTUALLY TAKEN LOAN FROM BANK CAN BE CONSIDERED AS BENCHMARK RATE. THEREFORE, RATE OF INTEREST AT WHICH AE HAS TAKEN LOAN FROM INDEPENDENT BANK SHOULD BE CONSIDERED AS COMPARABLE RATING I.E. LIBOR + 0.75%. IT WAS ALSO CONTENDED THAT TO ADOPT THE 12 MONTHS AVERAGE SIBOR AS THE ALP OF THE TRANSACTION UNDER THE CUP METHOD PRESCRIBED UNDER RULE 10B. IF THE ACTUAL ALTERNATIVE CONSIDERATION THE INTERNAL CUP METHOD AND CONSIDERED THE ALP AN ACTUAL RATE OF INTEREST FOR A LOAN FROM INDEPENDENT BANK FROM AE I.E. LIBOR + 0.75% WHICH IS REPRESENTED THE ACTUAL COST TAKEN BY STANDARD CHARTERED BANK, MAURITIUS FOR ITS REQUIREMENTS. HOWEVER, THE CIT(A) OBSERVED THAT THE TRANSACTION IS A LOAN TO THE AE IN SINGAPORE TO MEET ITS DAY TO DAY NEEDS IF AN ENTITY IN SINGAPORE RAISES LOAN FROM A THIRD PARTY OR BANK, THE CYBER RATE WOULD HAVE BEEN A BENCH MARK AT INTEREST RATE PAY SUCH LOANS. APART BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 16 OF 66 FROM, THIS CYBER RATE OF INTEREST FROM MARK-UP PAYABLE FOR RISK MARGIN AS WELL AS STANDARD CHARTERED ACCOUNT OF TRANSACTIONS. THE TPO HAS CONSIDERED THAT THE SPVS CREDIT RATING WILL BE DOWN BY 9 NOTCHES AS COMPARABLE TO THE RATE ENJOYED BY THE PARENT COMPANY. ACCORDINGLY, HE HAS DETERMINED 4% AS THE RISK PREMIUM APART FROM THE SIBOR RATE AS PER ALP FOR THE TRANSACTION AS PER THE TRANSFER PRICING PROVISIONS. AS REGARDS, ALTERNATIVE RATING THAT IF AT ALL THE ALP HAS TO BE COMPUTED AS PROVIDED IN RULE 10B WHICH IS THE MACHINERY PROVISION IN THIS REGARD. APPARENTLY, THE TPO HAS CONSIDERED AND COMPARED THE RATE OF INTEREST, RISK MARGIN AND OTHER FACTORS APPLICABLE TO CORPORATE BONDS AND SIMILAR RATED INSTRUMENTS IN INDIA. THEREAFTER HE HAS ARRIVED AT THE RISK PREMIUM OF 4% OVER AND ABOVE THE SIBOR RATE OF INTEREST. THE TPO HAS ALSO CONSIDERED THE CREDIT RATING OF THE SPV TO BE SIGNIFICANTLY DOWN THAN THE PARENT COMPANY. ADMITTEDLY, THE SPV IS FULLY OWNED BY THE APPELLANT COMPANY AND HAS BEEN FORMED AS SPV TO HOLD INVESTMENTS. IT DOES NOT CARRY ON ANY OTHER ACTIVITY AND THE ENTIRE RISK AND REWARD OF THE AE SHALL BE BORNE AND ENJOYED BY THE APPELLANT COMPANY. ACCORDINGLY, CIT(A) OBSERVED THAT HE HAS AGREED WITH THE TPOS OBSERVATIONS THAT THE RISK PREMIUM OF 4% OVER AND ABOVE THE SIBOR RATE OF INTEREST IS JUSTIFIED. ACCORDINGLY, THE FINDINGS OF THE TPO WERE UPHELD. BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 17 OF 66 16. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THIS TRIBUNAL. THE LD. COUNSEL SUBMITTED THAT THE BHILAKHIA HOLDINGS PVT. LTD [IN SHORT BHPL] I.E. AN APPELLANT-COMPANY IS AN INVESTMENT COMPANY AND WAS HOLDING 46.2% SHARES IN A PRINTING INK COMPANY KNOWN AS STERLING + HOSTAG AND FOR THAT PURPOSE CREATED A WHOLLY OWNED SUBSIDIARY IN SINGAPORE AS A SPECIAL PURPOSE VEHICLE (SPV) KNOWN AS M3 HOLDINGS (SINGAPORE) PVT. LTD (M3). BHPL HAS INVESTED IN EQUITY, PREFERENCE SHARES AND LOAN IN THE SUBSIDIARY AE WHICH IN TURN INVESTED IN STERLING + HOSTAGE A PRINTING INK MANUFACTURING COMPANY IN EUROPE. ONCE INVESTMENTS ARE SOLD, IT HAS TO WIND UP AND BRING BACK ENTIRE PROCEEDS TO INDIA AND PAY ALL APPLICABLE TAXES AS IF ANY OTHER RESIDENT COMPANY IS REQUIRED TO DO IF IT HAS DIRECTLY INVESTED FROM INDIA. AS PER THE TERMS OF THE INVESTMENT APPLICABLE TO THE SPV UNDER FEMA AS WELL IN THE YEAR 2012-13 (07/09/2012) THE SAID SINGAPORE AE HAS BEEN WOUND UP AND ALL THE CAPITAL REMITTED FROM INDIA AND INVESTMENT/GAINS ON DISPOSAL OF INVESTMENTS HAS BEEN COMPLETELY BROUGHT BACK TO INDIA. TAX AT THE RATE OF 15% HAS BEEN PAID IN INDIA AS PER LAW ON THE DIVIDEND RECEIVED. DURING THE YEAR, BHPL HAS REDEEMED PREFERENCE SHARES AND BROUGHT BACK OF RS.174.90 CRORES IN ORDER TO REDEEM THE AFOREMENTIONED PREFERENCE SHARES IN THE AE AND CONSIDERING THE FACT THAT THE AE DO NOT HAVE ANY INCOME OR EXTRA FUNDS IN ITS HAND, THE REDEMPTION HAS BEEN ACHIEVED IN THE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 18 OF 66 FOLLOWING MANNER I.E. BHPL AND THE AE ARRANGED A LOAN FROM STANDARD CHARTERED BANK MAURITIUS TO THE TUNE OF 35 MILLION EURO. STANDARD CHARTERED BANK, AHMEDABAD GAVE GUARANTEE TO STANDARD CHARTERED BANK MAURITIUS. BHPL HAS GIVEN CORPORATE GUARANTEE TO STANDARD CHARTERED BANK AHMEDABAD. BHPL HAS PAID GUARANTEE CHARGES OF RS.1,78,86,359/-. BHPL ALSO EXTENDED A LOAN OF RS.28.125 CR TO THE AE DURING THE YEAR TOWARDS DAY TO DAY EXPENSES AND FOR ACHIEVING THE ABOVE REDEMPTION. FROM THE AFORESAID FOREIGN LOAN AND QUASI-EQUITY CONTRIBUTION FROM BHPL, THE AE REDEEMED THE PREFERENCE SHARES HELD BY BHPL AND ALSO RECOVERED A SUM OF RS.3,22,19,944/- WHICH IS MUCH MORE THAN THE GUARANTEE CHARGES PAID TO THE BANK. THEREFORE, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE AE IS ONLY A SPV TO HOLD SHARES IN COMPANY STERLING + HOSTAGE EUROPE AND HENCE NOT AUTHORIZED TO CARRY ANY OTHER ACTIVITY. ONCE THE ABOVE SHARES ARE SOLD WHEN DECIDED BY BHPL, IT HAS TO WIND UP ITSELF, AND BRING BACK THE PROCEEDS TO INDIA AND BHPL HAS TO PAY TAXES. IT WAS SUBMITTED THAT AS PER OECD GUIDELINES THE SUBSTANCES OVER FORM HAS NOT BEEN CONSIDERED BY THE TPO/CIT(A). THE ENTIRE TRANSACTIONS CARRIED OUT WITH AE IS A SINGLE INTER LINKED TRANSACTION DURING THE YEAR WHICH HAS NOT BEEN CONSIDERED AS SUCH AS AN INTEGRATED TRANSACTION BY THE LOWER AUTHORITIES. BHPL HAD FILED TP STUDY REPORT JUSTIFYING THE TRANSACTIONS AS SHAREHOLDERS ACTIVITY AND AFTER DETAILED ANALYSIS JUSTIFIED THE ALP BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 19 OF 66 FOR INTEREST AT NIL. THE TPO/CIT(A) HAS REJECTED THE AFORESAID T P STUDY REPORT AND ARBITRARILY ADOPTED THE CUP METHOD. THE FINDING IN THE CASE OF PEROT SYSTEMS TSI V. DCIT [2010] 37 SOT 358 (DELHI-TRIB) THAT PROFITS ARE SHIFTED OUT OF INDIA TO BERMUDA, A TAX HEAVEN. HOWEVER, IN THE INSTANT CASE, THE AE SUBSIDIARY HAS BEEN FORMED WITH THE INTENTION AND THE STRUCTURE OF THE TRANSACTION IS TO BRING BACK THE CAPITAL AND PROFITS TO INDIA AFTER PAYMENT OF DUE TAXES. THEREFORE, THE DECISION IN THE CASE OF PEROT SYSTEM TSI (INDIA) LIMITED VS. DCIT (2010) 37 SOT 358 (DELHI) RELIED BY THE TPO/ CIT(A) IS DISTINGUISHABLE ON FACT AS IN THAT CASE THE RESULT OF THE TRANSACTION WAS THAT THE INCOME OF THE ASSESSEE IN INDIA WOULD BE REDUCED, WHILE IN THE CASE OF THE ASSESSEE THE INCOME WOULD BE INCREASED. IT IS SEEN THAT THE ASSESSEE HAS BROUGHT BACK AN AMOUNT OF RS.1,31,30,08,025/- AS DIVIDEND DURING THE ASSESSMENT YEAR 2012-13 AND IN ASSESSMENT YEAR 2013-14 AS COULD BE SEEN FROM FINANCIAL ACCOUNTS CHART FILED BY THE ASSESSEE. FURTHER THE ASSESSEE HAS GIVEN LOAN OF RS.30,84,56,150/- AND HAS BROUGHT BACK RS.32,56,53,750/- AS REPAYMENTS. SIMILARLY INVESTMENT IN PREFERENTIAL SHARES OF RS.1,71,68,40,000/- HAS BEEN BROUGHT BACK BY WAY OF REDEMPTION OF PREFERENTIAL SHARES FOR AN AMOUNT OF RS.1,74,90,59,944/- DURING THE YEAR UNDER CONSIDERATION. THAT CASE WAS OTHERWISE A CLASSIC CASE OF VIOLATION OF TRANSFER PRICING NORMS, WHERE PROFITS WERE SHIFTED TO TAX HEAVENS OR LOW TAX REGIMES BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 20 OF 66 TO BRING DOWN THE AGGREGATE TAX INCIDENCE OF A MULTI-NATIONAL GROUP. WHEREAS, IN THE CASE OF THE ASSESSEE, THE TRANSACTION HAS RESULTED INTO INCREASE IN CASH INFLOW INTO INDIA AND POSSIBILITY OF INCREASE OF TAX BASE IN INDIA. FURTHER, THERE IS NO FINDING OF FACT THAT THE TRANSACTIONS HAVE BEEN UNDERTAKEN FOR SHIFTING OF PROFITS TO A LOW TAX JURISDICTION AS AGAINST THE FINDING GIVEN IN PEROT SYSTEM (SUPRA). 17. THE TRANSACTION IN THE CASE OF ASSESSEE IS A QUASI-EQUITY IN SUBSTANCE BASED ON THE TRANSACTIONS CONSIDERED WHICH HAS BEEN CHARACTERIZED BY THE TPO AS PURE LOAN SIMPLICITOR AS GIVEN BY A FINANCIAL INSTITUTION. THE QUASI-EQUITY AS EXPLAINED IN THE DECISION OF CADILA HEALTHCARE LIMITED [2017] 80 TAXMANN.COM 24 (AHMEDABAD- TRIB.), WHEREIN IT WAS HELD THAT WHERE ASSESSEE-COMPANY ADVANCED LOAN TO ITS AE WITH OPTION TO CONVERT SAME INTO EQUITY AT PAR, SINCE REAL CONSIDERATION FOR GRANTING LOAN WAS NOT INTEREST SIMPLICITOR ON AMOUNT ADVANCED BUT OPPORTUNITY TO OWN CAPITAL ON FAVOURABLE TERMS, IT WAS TO BE REGARDED AS QUASI CAPITAL TRANSACTION WHICH COULD NOT BE COMPARED WITH SIMPLE LOAN TRANSACTION FOR PURPOSE OF DETERMINING ALP. THE LD. COUNSEL FURTHER HAS ALSO DRAWN OUT ATTENTION, PARA 10 TO 14 OF THE SAID DECISIONS IN SUPPORT OF HIS CONTENTIONS. BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 21 OF 66 18. IN THE CASE OF THE ASSESSEE COMPANY, THE LOAN HAS BEEN GIVEN FOR ENSURING CONTINUES WORKING OF THE AE AT SINGAPORE. IT IS UNDISPUTED FACTS THAT THE AE IS AN SPV ONLY TO HOLD INVESTMENT AND NOT PERMITTED TO ENGAGE IN OTHER ACTIVITY AND LIABLE FOR BRINGING ALL THE CAPITAL AND PROFIT BACK TO INDIA ON WINDING UP. THUS, THE LOAN IS NOT MERE LOAN SIMPLICITOR AS THE AMOUNTS ADVANCED ARE AUTHORIZED WITH OBLIGATION TO BE PAID UP ALONG WITH PROFITS AND ACCRUED PROFITS. THE LENDING IS THUS, IN THE NATURE OF QUASI CAPITAL IN THE SENSE THAT SUBSTANTIVE REWARD OR TRUE CONSIDERATION FOR SUCH A LOAN TRANSACTION IS NOT INTEREST SIMPLICITOR ON AMOUNT ADVANCED BUT OPPORTUNITY TO OWN PROFITS AND CAPITAL ON CERTAIN FAVOURABLE TERMS. IT WAS SUBMITTED THAT THE CONSIDERATION FOR EXTENDING THE LOAN SIMPLICITOR IS MATERIALLY DISTINCT AND DIFFERENT FROM EXTENDING A LOAN WHICH IS GIVEN IN CONSIDERATION FOR OR MAINLY IN CONSIDERATION FOR, OPTION TO CONVERT THE SAME INTO CAPITAL ON CERTAIN TERMS WHICH ARE FAVOURABLE VIS--VIS THE TERMS AVAILABLE OR TO PUT IT MORE REALISTICALLY, HYPOTHETICALLY AVAILABLE, TO AN INDEPENDENT ENTERPRISE. IT WAS FURTHER SUBMITTED THAT THE TPO HAS NOT CONSIDERED RULE 10A(D) WHICH INCLUDES NUMBER OF CLOSELY LINKED TRANSACTIONS. THE NATURE OF TRANSACTION CARRIED OUT BY BHPL AS PER ITS OBJECTIVE EFFECTED A REDEMPTION OF PREFERENCE SHARES HELD BY IT TO BRING BACK ITS MONEY TO INDIA WHICH WILL INCREASE ITS ASSET BASE AND INCOME INTO INDIA. IN ORDER TO REDEEM THE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 22 OF 66 PREFERENCE SHARES, THE AE DO NOT HAVE ANY FUNDS AND THE BHPL HAS EXTENDED THE LOAN OF RS.22.125 CRORES AND CARRIED OUT ALL NECESSARY ACTIVITIES TO A FACILITATED REDEMPTION OF PREFERENCE SHARES. THIS IS A CLOSELY LINKED INTEGRATED TRANSACTION UNDER RULE 10A(D) I.E. FUNCTIONING HIS SHAREHOLDERS FUNCTION AND AS WELL AS THE LOAN EXTENDED FOR FORM SHALL BE CONSIDERED ALSO A QUASI-EQUITY CAPITAL FOR THE PURPOSE OF DETERMINING ALP. THE LD. COUNSEL FURTHER SUBMITTED THAT IN THE CASE OF BARTRONICS INDIA LTD V. DCIT (2017) 86 TAXMANN.COM 254 (HYDERABAD-TRIB.). THE TRIBUNAL HAS EXPLAINED THE CONCEPT OF QUASI-EQUITY IN PARA 20. THEREFORE, CONSIDERING THE SAME, AS THE ASSESSEE HAS ALSO GIVEN LOAN TO OBTAIN THE BENEFITS OF FULL PROFITS EARNED BY THE SUBSIDIARY AND TO ENSURE FULL CONTROL OVER THE OPERATIONS OF THE SUBSIDIARY. THEREFORE, THIS IS NOT COMPARABLE TO A BANK FINANCING A CUSTOMER BASED ON THEIR INDIVIDUAL FINANCING NEEDS. FURTHER, IN THE CASE OF BHPL COULD HAVE VERY WELL GIVEN THE MONEY AS A PREFERENCE CAPITAL OR AS AN EQUITY CAPITAL BUT THE INTEREST FREE LOAN WAS GIVEN TO ENABLE THE BHPL BRING BACK SUCH MONEY BACK TO INDIA EASILY SO AS TO INCREASE THE ASSET AND TAX BASE IN INDIA. IN ALL COUNTRIES SHARE CAPITAL CAN BE BROUGHT BACK ONLY AFTER COMPLYING WITH CERTAIN PROCEDURE AND MORE SO IN THE CASE OF EQUITY CAPITAL. HENCE THE CONTENTION OF THE ASSESSEE THAT IT IS A QUASI-EQUITY CAPITAL HAS NOT BEEN RIGHT FULLY CONSIDERED BY THE TPO AS WELL AS CIT(A). THEREFORE, BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 23 OF 66 BOTH THE LOWER AUTHORITIES HAVE NOT CONSIDERED SUBSTANCE OVER FORM BY HAVING A HOLISTIC VIEW OF ENTIRE FACTS. THEREFORE, ON AN ANALYSIS OF TRANSACTION AS A WHOLE AND CONSIDERING THE OBSERVATIONS AND ANALYSIS BY HONBLE TRIBUNAL AHMEDABAD IN THE CASE OF CADILA HEALTHCARE LTD. V. ACIT-CIRCLE-1, AHMEDABAD [2017] 80 TAXMANN.COM 24 (AHMEDABAD-TRIB) AND BARTRONICS INDIA LTD V. DCIT (2017) 86 TAXMANN.COM 254 (HYDERABAD-TRIB.) RELIED UPON BY THE ASSESSEE. THEREFORE, THE TRANSACTION HAVE TO BE CONSIDERED AS QUASI-EQUITY IN NATURE. IT WAS FURTHER CONTENDED THAT THE TPO HAS NOT CARRIED OUT ANY FAR ANALYSIS AS IN THE CASE OF ASSESSEE, THE AE IS JUST AN EXTENSION OF BHPL TO HOLD INVESTMENTS AND HAVE NOT CARRIED OUT ANY FUNCTIONS. THE ENTIRE RISKS ARE BORNE BY BHPL ONLY AND THE ENTIRE INVESTMENTS IN STERLING + HOSTAG HAS BEEN FUNDED AS EQUITY CAPITAL, PREFERENCE CAPITAL AND LOAN ONLY BY BHPL AS PART OF ITS SHAREHOLDER FUNCTION. THE AE ITSELF HAS NOT EMPLOYED ANY ASSETS. AS PER THE CONTRACTUAL TERMS AND LAW, THE MOMENT THIS INVESTMENT IS SOLD THE ENTIRE PROCEEDS OF CAPITAL AND PROFITS ARE TO BE REPATRIATED TO INDIA COMPULSORILY AND SUBJECT THE SAME TO TAXATION IN INDIA. THEREFORE, IN THIS MANNER THE ENTIRE RISKS ARE TO BE BORNE BY AND REWARDS ACCRUE TO BHPL ONLY AS A RESULT OF THE INVESTMENTS MADE. AS PER RULE 10B, ADJUSTMENT FOR CONTRACTUAL TERMS ARE TO BE CONSIDERED WHILE APPLYING CUP METHOD. IN THIS CASE THE AE IS NOT AUTHORISED BY LAW TO UNDERTAKE ANY FUNCTIONS BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 24 OF 66 OR PURSUE ANY BUSINESS. ONCE BHPL DECIDES TO SELL INVESTMENTS HELD, THE AE HAS TO WIND UP AND BHPL HAS TO BRING BACK THE ENTIRE PROCEEDS TO INDIA. THUS, THE AFORESAID FAR ANALYSIS AS REQUIRED UNDER RULE 10B HAS NOT BEEN CARRIED OUT BY THE TPO/CIT(A) WHILE REJECTING THE CONTENTION OF BHPL THAT EVEN THOUGH IN FORM THE TRANSACTION IS STRUCTURED AS A LOAN, IN SUBSTANCE THIS IS A QUASI-EQUITY CAPITAL. THUS, THE AFORESAID MATERIAL DIFFERENCES AND CONSIDERATIONS FOR EXTENDING THE LOAN TO AE AS COMPARED TO A LOAN SIMPLICITOR HAS NOT BEEN CONSIDERED BY THE TPO/CIT(A) AS REQUIRED BY RULE 10B, WHICH IS MORE PARTICULARLY ANALYZED BY THE HONBLE AHMEDABAD TRIBUNAL IN THE CASE OF CADILA HEALTHCARE LTD. V. ACIT-CIRCLE-1, AHMEDABAD [2017] 80 TAXMANN.COM 24 (AHMEDABAD-TRIB) IN PARA 11 & 12 OF THE JUDGEMENT. THE LD. COUNSEL FURTHER, WITHOUT PREJUDICE, AS AN ALTERNATIVE ARGUMENT STATED THAT IN THE EVENT IF THE TRANSACTION IS NOT CONSIDERED AS QUASI-EQUITY IN NATURE, THEN THERE IS NO LOSS OF REVENUE TO THE GOVERNMENT OF INDIA, HENCE CHAPTER-X BEING ANTI-AVOIDANCE PROVISIONS ARE NOT APPLICABLE TO THE FACTS OF THE CASE. HAD INTEREST BEEN PAID ON THE AMOUNT BROUGHT BACK TO INDIA, PROFITS WOULD HAVE BEEN LESSER TO THAT EXTENT AND TAXES WOULD HAVE BEEN PAID TO GOVERNMENT OF INDIA PROPORTIONATELY LESSER TO THAT EXTENT. HENCE, THERE IS NO LOSS OF REVENUE TO THE GOVERNMENT OF INDIA. FURTHER, ALTERNATIVELY IF TRANSACTION AS QUASI-EQUITY IS NOT ACCEPTED IT SHALL BE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 25 OF 66 CONSIDERED THAT THERE IS NO RISK FOR BHPL IN EXTENDING THE INTEREST FREE LOAN AS OBSERVED BY THE CIT(A) IN PARA 9.3 AT PAGE 19 OF THE APPELLATE ORDER. THE CIT(A) OBSERVED THAT THE TRANSACTION IS AS A LOAN SIMPLICITOR TO AN UN-RELATED PARTY. SINCE, THE LOAN IS CONSUMED IN A FOREIGN COUNTRY, INTEREST RATE PREVALENT IN THAT COUNTRY SHALL BE CONSIDERED AS ALP. IN THIS CASE, AS PER RULE-10B, ENTIRE FUNCTIONS ARE CARRIED OUT BY BHPL AND THE RISKS AND REWARDS ARE ALSO TO BE BORNE AND ENJOYED BY BHPL, HENCE THERE SHOULD NOT BE ANY RISK PREMIUM CHARGEABLE TO THE LOAN AS AN ADJUSTMENT. IN SUPPORT OF THIS CONTENTIONS, THE LD. COUNSEL HAS PLACED RELIANCE ON THE FOLLOWING DECISION OF VIBHAV GEMS LIMITED (2017) 88 TAXMANN.COM 12 (RAJ.)- SLP DISMISSED (2018) 99 TAXMANN.COM 2 (SC). IT WAS FURTHER CONTENDED THAT THE TPO HAVE APPLIED SIBOR RATE OF 1.13% FOR THE PERIOD FROM 01.04.2007 TO 31.03.2008. THE THIRD ALTERNATIVE ARGUMENTS TAKEN BY THE BHPL ARE THAT THE AE OF THE ASSESSEE HAS TAKEN LOAN FROM STANDARD CHARTERED BANK, MAURITIUS AT AN INTEREST OF 0.75%. THEREFORE, CONSIDERING THE AE AS A TESTED PARTY, THIS BECOMES AN INTERNAL CUP FOR THE LOAN TAKEN BY THE AE FROM BHPL. SINCE, THERE IS A PERFECT INTERNAL CUP AVAILABLE, THE ALP OF THE LOAN TRANSACTION SHOULD HAVE BEEN DETERMINED AT LIBOR RATE +0.75% PER ANNUM. BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 26 OF 66 19. PER CONTRA , THE LD. CIT (DR) SUBMITTED THAT FOR BENCHMARK INTEREST RATE. THE AO RELYING ON THE LOWER AUTHORITIES SUBMITTED THAT THE BENCHMARK RATE HAS BEEN CORRECTLY APPLIED. FURTHER, THE TPO HAS CORRECTLY RELIED ON THE DECISION IN THE CASE OF PEROT SYSTEMS TSI V. DCIT [2010] 37 SOT 358 (DELHI-TRIB). THE LD. CIT (DR) SUBMITTED THAT THE DECISION OF BARTRONICS INDIA LTD V. DCIT (2017) 86 TAXMANN.COM 254 (HYDERABAD-TRIB.) AND CADILA HEALTHCARE LTD. V. ACIT-CIRCLE-1, AHMEDABAD [2017] 80 TAXMANN.COM 24 (AHMEDABAD-TRIB) ARE NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE, IN ARRIVING AT THE CONCLUSION, HENCE THESE DECISIONS HAVE NO APPLICATION IN THE CASE OF ASSESSEE. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE IS AN INVESTMENT COMPANY AND WAS HOLDING 46.2% SHARES IN A PRINTING INK COMPANY KNOWN AS STERLING + HOSTAG AND FOR THAT PURPOSE CREATED A WHOLLY OWNED SUBSIDIARY IN SINGAPORE AS A SPECIAL PURPOSE VEHICLE (SPV) KNOWN AS M3 HOLDINGS (SINGAPORE) PVT. LTD (M3). THE BHPL HAS INVESTED IN EQUITY, PREFERENCE SHARES AND LOAN IN THE SUBSIDIARY AE, WHICH IN TURN INVESTED IN STERLING + HOSTAGE A PRINTING INK MANUFACTURING COMPANY IN EUROPE. ONCE THE INVESTMENTS ARE SOLD, IT HAS TO WIND UP AND BRING BACK ENTIRE PROCEEDS TO INDIA AND PAY ALL BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 27 OF 66 APPLICABLE TAXES AS IF ANY OTHER RESIDENT COMPANY IS REQUIRED TO DO, IF IT HAS DIRECTLY INVESTED FROM INDIA. AS PER THE TERMS OF THE INVESTMENT AS APPLICABLE TO THE SPV UNDER FEMA AS WELL IN THE YEAR 2012-13 (07.09.2012) THE SAID SINGAPORE AE HAS BEEN WINDED UP AND ALL THE CAPITAL REMITTED FROM INDIA AND INVESTMENT/GAINS ON DISPOSAL OF INVESTMENTS HAS BEEN COMPLETELY BROUGHT BACK TO INDIA DURING YEAR 2012-13 AND 2013-14 AND PAID TAX AT THE RATE OF 15% IN INDIA AS PER LAWS ON THE DIVIDEND RECEIVED. DURING THE YEAR, THE BHPL HAS REDEEMED PREFERENCE SHARES AND BROUGHT BACK OF RS.174.90 CR. IN ORDER TO REDEEM THE AFOREMENTIONED PREFERENCE SHARES IN THE AE, AND CONSIDERING THE FACT THAT THE AE DO NOT HAVE ANY INCOME OR EXTRA FUNDS IN ITS HAND, THE REDEMPTION HAS BEEN ACHIEVED BY THE ASSESSEE COMPANY I.E. BHPL AND THE AE BY ARRANGING A LOAN FROM STANDARD CHARTERED BANK MAURITIUS TO THE TUNE OF 35 MILLION EURO THROUGH STANDARD CHARTERED BANK MAURITIUS. THIS IS DISCERNIBLE FROM THE LETTER DATED 30.10.2007 OF STANDARD CHARTERED BANK MAURITIUS ADDRESSED TO M3 HOLDINGS (SINGAPORE) PTE LTD. THAT THE PURPOSE OF FINANCING IS THAT THE COMPANY WILL REDEEM PREFERENCE CAPITAL SUBSCRIBED BY BILAKHIA HOLDING PVT. LTD., INDIA. THE STANDARD CHARTERED BANK, AHMEDABAD GAVE GUARANTEE TO STANDARD CHARTERED BANK, MAURITIUS. BHPL HAS GIVEN CORPORATE GUARANTEE TO STANDARD CHARTERED BANK AHMEDABAD. BHPL HAS PAID GUARANTEE CHARGES OF RS.1,78,86,359/-. BHPL ALSO BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 28 OF 66 EXTENDED A LOAN OF RS.28.125 CR TO THE AE DURING THE YEAR TOWARDS DAY TO DAY EXPENSES AND FOR ACHIEVING THE ABOVE REDEMPTION. FROM THE AFORESAID FOREIGN LOAN AND QUASI-EQUITY CONTRIBUTION FROM BHPL, THE AE REDEEMED THE PREFERENCE SHARES HELD BY BHPL AND ALSO RECOVERED A SUM OF RS.3,22,19,944/- WHICH IS MUCH MORE THAN THE GUARANTEE CHARGES PAID TO THE BANK. IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT THE AE HAS BEEN CREATED AS SPV ONLY TO HOLD SHARES IN COMPANY STERLING + HOSTAGE EUROPE AND NOT AUTHORIZED TO CARRY ANY OTHER ACTIVITY. THIS VIEW IS FURTHER SUPPORTED BY THE LETTER DATED 02.11.2006 PLACED AT PAPER BOOK PAGE NO.18, WHEREIN THE PROPOSAL SUBMITTED BY THE ASSESSEE VIDE LETTER DATED 07.07.2006 (PLACED AT PAPER BOOK PAGE NO. 15 TO 17] WAS APPROVED WHEREIN IN IT IS CLEARLY MENTIONED THAT M3 HOLDINGS (SINGAPORE) PTE LTD. IS A SPV FORMED TO HOLD INVESTMENT AND DO NOT PROPOSE TO ENGAGE IN ANY OTHER ACTIVITY BEING SPV. ONCE THE ABOVE SHARES ARE SOLD AS AND WHEN DECIDED BY BHPL, IT HAS TO WIND UP ITSELF, AND BRING BACK THE PROCEEDS TO INDIA AND BHPL HAS TO PAY TAXES. THE PERUSAL OF ANNUAL ACCOUNTS FOR A.Y. 2012-13 [PLACED AT PAPER BOOK PAGE NO. 54 TO 82 AND PARTICULARLY PAPER BOOK PAGE NO. 78 NOTE 35 APPENDED THEREIN WOULD SHOW THAT THE ASSESSEE COMPANY HAS RESOLVED TO WIND UP OF M3 HOLDINGS (SINGAPORE) PTE LTD. AS PER APPLICABLE LAWS OF SINGAPORE AND ACCORDINGLY, RECEIVED DIVIDEND OF RS.1,27,25,34,505 DURING A.Y.2012- BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 29 OF 66 13 AND RS.4,01,73,520/- IN A.Y.2013-14 WHICH HAS BEEN DULY REFLECTED IN ANNUAL ACCOUNTS PLACED AT PAPER BOOK PAGE NO. 55 (AND CHART FILED WITH WRITTEN SUBMISSIONS FILED BY THE COUNSEL). THEREFORE, WE ARE IN AGREEMENT WITH THE ASSESSEE THAT AS PER OECD GUIDELINES, THE SUBSTANCES OVER FORM HAS TO BE CONSIDERED. THE TRANSACTION IN THE CASE OF ASSESSEE IS THEREFORE, BE CONSIDERED AS A QUASI-EQUITY IN SUBSTANCE, AS AGAINST THE TRANSACTIONS CONSIDERED AND CHARACTERIZED BY THE TPO AS PURE LOAN SIMPLICITOR AS GIVEN BY A FINANCIAL INSTITUTION. THE FINDING RECORDED BY THE AO, THAT THE AE OF THE ASSESSEE COMPANY WAS ENGAGED IN THE FINANCIAL SERVICES ACTIVITIES IN SINGAPORE IS NOT FOUND TO BE CORRECT AS IT IS CLEARLY BORNE OUT FROM THE LETTER OF DISBURSEMENT OF LOAN AND PURPOSE AS SETOUT THE TERMS OF LOAN AS DISCUSSED HEREIN ABOVE. THE TERM OF QUASI-EQUITY WAS EXPLAINED BY THE CO-ORDINATE BENCH OF AHMEDABAD IN THE DECISION OF CADILA HEALTHCARE LIMITED [2017] 80 TAXMANN.COM 24 (AHMEDABAD-TRIB.), WHEREIN, IT WAS HELD THAT WHERE ASSESSEE-COMPANY ADVANCED LOAN TO ITS AE WITHIN OPTION TO CONVERT SAME INTO EQUITY AT PAR, SINCE REAL CONSIDERATION FOR GRANTING LOAN WAS NOT INTEREST SIMPLICITOR ON AMOUNT ADVANCED BUT OPPORTUNITY TO OWN CAPITAL ON FAVOURABLE TERMS, IT WAS TO BE REGARDED AS QUASI CAPITAL TRANSACTION WHICH COULD NOT BE COMPARED WITH SIMPLE LOAN TRANSACTION FOR PURPOSE OF DETERMINING BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 30 OF 66 ALP. THE CO-ORDINATE BENCH OF TRIBUNAL IN PARA 10 TO 14 OF THE SAID DECISION OBSERVED AS UNDER: 10. THERE IS NO DISPUTE THAT THE TRANSACTIONS IN QUESTION ARE NOT OF THE TRANSACTIONS OF LENDING MONEY TO THE ASSOCIATED ENTERPRISES. THE AMOUNT/ADVANCED TO THE AES ARE ATTACHED WITH THE OBLIGATION OF THE AES TO SUE SHARE CAPITAL, IN CASE THE ASSESSEE EXERCISE OPTION FOR THE SAME, ON CERTAIN CONDITIONS, WHICH ARE ADMITTEDLY MORE FAVOURABLE, AND AT AN AGREED PRICE, WHICH IS ADMITTEDLY MUCH LOWER, VIS-A-VIS THE CONDITIONS AND PRICES WHICH INDEPENDENT ENTERPRISE WOULD NORMALLY AGREE TO ACCEPT. THE LENDING IS THUS IN THE NATURE OF QUASI CAPITAL IN THE SENSE THAT SUBSTANTIVE REWARD, OR TRUE CONSIDERATION, FOR SUCH A LOAN TRANSACTION IS NOT INTEREST SIMPLICITOR ON AMOUNT ADVANCED BUT OPPORTUNITY TO OWN CAPITAL ON CERTAIN FAVOURABLE TERMS. CONTRAST THIS REWARD OF OWNING THE CAPITAL IN THE BORROWER ENTITY WITH INTEREST SIMPLICITOR, WHICH IS TYPICALLY DEFINED AS 'THE REWARD OF PARTING WITH LIQUIDITY FOR A SPECIFIED PERIOD' (PROF KEYNES) OR AS 'A PAYMENT MADE BY THE BORROWER OF CAPITAL BY VIRTUE OF ITS PRODUCTIVITY AS A REWARD FOR HIS CAPITALIST'S ABSTINENCES' (PROF WICKSELL). HOWEVER, IN THE CASE OF TRANSACTIONS LIKE THE ONE BEFORE US, THERE IS SOMETHING MUCH MORE VALUABLE WHICH IS GIVEN AS A REWARD TO THE LENDER AND THAT VALUABLE THING IS THE RIGHT TO OWN CAPITAL ON CERTAIN FAVOURABLE TERMS. THEREFORE, THE TRUE REWARD AS WE HAVE NOTED EARLIER, IS THE OPPORTUNITY AND PRIVILEGE TO OWN CAPITAL OF THE BORROWER ON CERTAIN FAVOURABLE TERMS. IT IS FOR THIS REASON, THAT THE TRANSACTIONS BEFORE US BELONG TO A DIFFERENT GENUS THAN THE ACT OF SIMPLY GIVING THE MONEY TO THE BORROWER AND FALL IN THE CATEGORY OF 'QUASI CAPITAL'. 11. AS FOR. THE CONNOTATIONS OF 'QUASI CAPITAL', IN THE CONTEXT OF DETERMINATION OF ARM'S -LENGTH PRICE UNDER TRANSFER PRICING REGULATIONS, WE MAY REFER TO THE OBSERVATIONS MADE BY A COORDINATE BENCH OF THIS TRIBUNAL- SPEAKING THROUGH ONE OF US (I.E. THE' ACCOUNTANT MEMBER), IN THE CASE OF SOMA TEXTILE & INDUSTRIES LTD. V. ASST.CLT [2015] 154 ITD 745/59 TAXMANN.COM 152 (AHD.), AS FOLLOWS: '5 ........ THE QUESTION, HOWEVER, ARISES AS TO WHAT ARE THE CONNOTATIONS OF EXPRESSION 'QUASI CAPITAL IN THE CONTEXT OF THE TRANSFER PRICING LEGISLATION. 6. HON'BLE DELHI HIGH COURT, IN THE CASE CHRYSCAPITAL INVESTMENT ADVISORS INDIA LTD. V. ACIT [(2015) 56 TAXMANN.COM 417 (DELHI)], HAS BEGUN BY QUOTING THE THOUGHT PROVOKING WORDS OF JUSTICE FELIX FRANKFURTER TO THE EFFECT THAT 'A PHRASE BEGINS LIFE AS A LITERARILY EXPRESSION; ITS FELICITY LEADS TO ITS LAZY REPETITION; AND REPETITION SOON ESTABLISHES IT AS A LEGAL FORMULA, UNDISCRIMINATINGLY USED TO EXPRESS DIFFERENT AND SOMETIMES CONTRADICTORY IDEAS'. THE REFERENCE SO MADE TO THE WORDS OF JUSTICE FRANKFURTER WAS IN THE CONTEXT OF THE CONCEPT OF 'SUPER PROFITS' BUT IT IS EQUALLY VALID IN THE CONTEXT OF CONCEPT OF 'QUASI CAPITALS' ALSO. AS IN THE CASE OF THE SUPER PROFITS, TO QUOTE THE WORDS OF THEIR LORDSHIPS, 'MANY DECISIONS OF DIFFERENT BENCHES OF THE ITAT INDICATE A ROTE REPETITION (IN THE WORDS OF FELIX FRANKFURTER J, QUOTED IN THE BEGINNING OF THIS JUDGMENT A 'LAZY REPETITION') BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 31 OF 66 OF THIS REASONING, WITHOUT AN INDEPENDENT ANALYSIS OF THE PROVISIONS OF THE ACT AND THE RULES' THE SAME SEEMS TO BE THE POSITION WITH REGARD TO 'QUASI CAPITALS' THERE ARE SEVERAL DECISIONS OF THIS TRIBUNAL, INCLUDING IN THE CASES OF PEROT SYSTEMS TSI V. DCIT [(2010) 130 TTJ 685 (DEL)]., MICRO INKS LTD. V. ACIT [(2013) 157 TTJ 289 (AHD)], FOUR SOFT PVT. LTD. V. DCIT [(2014)149 ITD 732 (HYD.)], PRITHVI INFORMATION SOLUTIONS PVT. LTD. V. ACIT [(2014) 34 ITR (TRI) 429 HYD.] , WHICH REFER TO THE CONCEPT OF 'QUASI CAPITAL' BUT NONE OF THESE DECISIONS THROWS ANY LIGHT ON WHAT CONSTITUTES 'QUASI CAPITAL' IN THE CONTEXT OF TRANSFER PRICING AND ITS RELEVANCE IN ASCERTAINMENT OF THE ARM'S LENGTH PRICE OF A TRANSACTION. LEST WE MAY ALSO END UP CONTRIBUTING TO, AS HON'BLE DELHI HIGH COURT PUT IT, 'ROTE REPETITION OF THIS REASONING WITHOUT AN INDEPENDENT ANALYSIS OF THE PROVISIONS OF THE ACT AND THE RULES' LET US TAKE DEAL WITH THE CONNOTATIONS OF 'QUASI CAPITAL', AND ITS RELEVANCE, UNDER THE TRANSFER PRICING REGULATIONS. 7. THE RELEVANCE OF QUASI CAPITAL, SO FAR AS ALP DETERMINATION UNDER THE TRANSFER PRICING REGULATION IS CONCERNED, IS FROM THE POINT OF VIEW OF COMPARABILITY OF A BORROWING TRANSACTION BETWEEN THE ASSOCIATED ENTERPRISES. 8. IT IS ONLY ELEMENTARY THAT WHEN IT COMES TO COMPARING THE BORROWING TRANSACTION BETWEEN THE ASSOCIATED ENTERPRISES, UNDER THE COMPARABLE UNCONTROLLED PRICE (I.E. CUP) METHOD, WHAT IS TO BE COMPARED IS A MATERIALLY SIMILAR TRANSACTION, AND THE ADJUSTMENTS ARE TO BE MADE FOR THE SIGNIFICANT VARIATIONS BETWEEN THE ACTUAL TRANSACTION WITH THE A E AND THE TRANSACTION IT IS BEING COMPARED WITH. UNDER RULE 10B(L)(A), AS A FIRST STEP, THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED, AND THEN SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE PRICE IN THE O PEN MARKET. USUALLY LOAN TRANSACTIONS ARE BENCHMARKED ON THE BASIS OF INTEREST RATE APPLICABLE ON THE LOAN TRANSACTIONS SIMPLICTOR WHICH, UNDER THE TRANSFER PRICING REGULATIONS, CANNOT BE COMPARED WITH A TRANSACTION WHICH IS SOMETHING MATERIALLY DIFFERENT THAN A LOAN SIMPLICTOR, FOR EXAMPLE, A NON- REFUNDABLE LOAN WHICH IS TO BE CONVERTED INTO EQUITY. IT IS IN THIS CONTEXT THAT THE LOANS, WHICH ARE IN THE NATURE OF QUASI CAPITAL, ARE TREATED DIFFERENTLY THAN THE NORMAL LOAN TRANSACTIONS. 9. THE EXPRESSION 'QUASI CAPITAL', IN OUR HUMBLE UNDERSTANDING, IS RELEVANT FROM THE POINT OF VIEW OF HIGHLIGHTING THAT A QUASI CAPITAL LOAN OR ADVANCE IS NOT A ROUTINE LOAN TRANSACTION SIMPLILCITOR. THE SUBSTANTIVE REWARD FOR SUCH A LOAN TRANSACTION IS NOT INTEREST BUT OPPORTUNITY TO OWN CAPITAL. 'AS A COROLLARY TO THIS POSITION, IN THE CASES OF QUASI CAPITAL LOANS OR ADVANCES, THE COMPARISON OF THE QUASI CAPITAL LOANS IS NOT WITH THE COMMERCIAL BORROWINGS BUT WITH THE LOANS OR ADVANCES WHICH ARE GIVEN IN THE SAME OR SIMILAR SITUATIONS. IN ALL THE DECISIONS OF THE COORDINATE BENCHES, WHEREIN REFERENCES HAVE BEEN MADE TO THE ADVANCES BEING IN THE NATURE OF'QUASI CAPITAL', THESE CASES REFERRED TO THE SITUATIONS IN WHICH (A) ADVANCES WERE MADE AS CAPITAL COULD NOT SUBSCRIBED TO DUE TO REGULATORY ISSUES AND THE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 32 OF 66 ADVANCING OF LOANS WAS ONLY FOR THE PERIOD TILL THE SAME COULD BE CONVERTED INTO EQUITY, AND (B) ADVANCES WERE MADE FOR SUBSCRIBING TO THE CAPITAL BUT THE ISSUANCE OF SHARES WAS DELAYED, EVEN IF NOT INORDINATELY. CLEARLY, THE ADVANCES IN SUCH CIRCUMSTANCES WERE MATERIALLY DIFFERENT THAN THE LOAN TRANSACTIONS SIMPLICITOR AND THAT IS WHAT WAS DECISIVE SO FAR AS DETERMINATION OF THE ARM'S LENGTH PRICE OF SUCH TRANSACTIONS WAS CONCERNED. THE REWARD FOR TIME VALUE OF MONEY IN' THESE CASES WAS OPPORTUNITY TO SUBSCRIBE TO THE CAPITAL, UNLIKE IN A NORMAL LOAN TRANSACTION WHERE REWARD IS INTEREST, WHICH IS MEASURED AS A PERCENTAGE OF THE MONEY LOANED OR ADVANCED. 12. IT IS THUS QUITE CLEAR THAT THE CONSIDERATIONS FOR EXTENDING A LOAN SIMPLICTOR ARE MATERIALLY DISTINCT AND DIFFERENT FROM EXTENDING A LOAN WHICH IS GIVEN IN CONSIDERATION FOR, OR MAINLY IN CONSIDERATION FOR, OPTION TO CONVERT THE SAME INTO CAPITAL ON CERTAIN TERMS WHICH ARE FAVOURABLE VIS-A- VIS THE TERMS AVAILABLE, OR, TO PUT IT MORE REALISTICALLY, HYPOTHETICALLY AVAILABLE, TO AN INDEPENDENT ENTERPRISE. ON A CONCEPTUAL NOTE, THE ENTIRE PURPOSE OF THE EXERCISE OF DETERMINATION OF ARM'S LENGTH PRICE IS TO NEUTRALIZE THE IMPACT OF INTRA AE RELATIONSHIP IN A TRANSACTION, THE RIGHT COMPARABLE FOR SUCH A TRANSACTION OF QUASI CAPITAL IS A SIMILAR TRANSACTION OF LENDING MONEY ON THE SAME TERM I.E. WITH AN OPTION TO CONVERT THE LOAN INTO CAPITAL ON MATERIALLY SIMILAR TERMS. HOWEVER, WHAT THE AUTHORITIES BELOW HAVE HELD, AND WRONGLY HELD FOR THAT REASON, IS THAT A QUASI CAPITAL TRANSACTION LIKE ONE BEFORE US CAN BE COMPARED WITH A SIMPLE LOAN TRANSACTION WHERE SOLE MOTIVATION AND CONSIDERATION FOR THE LENDER IS THE INTEREST ON SUCH LOANS. IN THE CASE BEFORE US, THE CONSIDERATION FOR HAVING GIVEN THE LOAN IS, AS WE HAVE NOTED EARLIER, OPPORTUNITY AND PRIVILEGE OF OWNING CAPITAL OF THE BORROWER ON CERTAIN FAVOURABLE TERMS. IF AT ALL THE COMPARISON OF THIS TRANSACTION WAS TO BE DONE WITH OTHER LOAN TRANSACTION, THE COMPARISON SHOULD HAVE BEEN DONE WITH OTHER LOANS GIVING RISE TO SIMILAR PRIVILEGE AND OPPORTUNITY TO THE LENDER. THE VERY FOUNDATION OF IMPUGNED ALP ADJUSTMENT IS THUS DEVOID OF LEGALLY SUSTAINABLE BASIS. 13. LET US, AT THIS STAGE, TAKE NOTE OF THE US TAX COURT DECISION, RELIED UPON BY THE TPO, IN THE CASE OF PEPSI COLA BOTTLING CO OF PUERTO RICO INC (DOCKET NOS. 13676-09,13677-09; ORDER DATED 20TH SEPTEMBER 2012). IT HAS BEEN REFERRED TO BY THE TPO AS DECISION OF THE US SUPREME COURT BUT IN FACT IT IS A DECISION OF THE US TAX COURT, BROADLY AT THE SAME LEVEL OF JUDICIAL HIERARCHY AS THIS TRIBUNAL. THIS DECISION DEALS WITH THE LIMITED QUESTION WHETHER A PARTICULAR TRANSACTION IS REQUIRED TO BE TREATED AS DEBT OR AS EQUITY. THE PRECISE QUESTION, WHICH CAME UP FOR CONSIDERATION OF THE US TAX COURT, WERE (1) WHETHER ADVANCE AGREEMENTS ISSUED BY PEPSI CO'S NETHERLANDS SUBSIDIARIES TO CERTAIN PEPSI CO DOMESTIC SUBSIDIARIES AND PPR ARE MORE APPROPRIATELY CHARACTERIZED AS DEBT THAN AS EQUITY; AND, (2) IF THE ADVANCE AGREEMENTS ARE CHARACTERIZED AS DEBT, WHETHER, AND TO WHAT EXTENT PAYMENTS ON THE ADVANCE AGREEMENTS CONSTITUTE ORIGINAL ISSUE DISCOUNT, RELATING TO CONTINGENT PAYMENT DEBT INSTRUMENTS UNDER SECTION 1.1275-4(C), INCOME TAX REGULATIONS. THIS PROVISION IS A DEDUCTION PROVISION AND NOT A PROVISION RELATING TO DETERMINATION OF ARM'S LENGTH PRICE. NOTHING, THEREFORE, TURNS ON THIS DECISION. IN ANY EVENT, IT IS NOBODY'S CASE THAT THE TRANSACTION BEFORE US IS OF THE DEBT. THE CASE OF THE ASSESSEE IS THAT SINCE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 33 OF 66 IN CONSIDERATION OF THIS TRANSACTION, THE ASSESSEE IS ENTITLED TO OWN THE CAPITAL AT CERTAIN ADMITTEDLY FAVOURABLE TERMS, THE TRUE REWARD OF THIS DEBT IS THE AVAILABILITY OF SUCH AN OPTION, AND, THEREFORE, IT CANNOT BE COMPARED WITH A DEBT SIMPLICTOR FOR THE PURPOSE OF DETERMINING ARM'S LENGTH PRICE. NOTHING, THEREFORE, TURNS ON THIS DECISION, AND WHATEVER BE ITS PERSUASIVE VALUE, OR LACK THEREOF, THE AUTHORITIES BELOW WERE IN ERROR EVEN IN RELYING UPON THIS DECISION. 14. WE HAVE NOTED THAT, AS NOTED BY THE TPO, IT IS WHOLLY IMMATERIAL AS TO WHETHER OR NOT THE ASSESSEE, BY THE VIRTUE OF THIS TRANSACTION, IS ENTITLED TO SUBSCRIBE TO CAPITAL OF THE AE ON CERTAIN CONCESSIONAL TERMS, BECAUSE, IN ANY CASE, THE AE IS A WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE AND NONE ELSE CAN SUBSCRIBE TO THE AE'S CAPITAL. WHAT HAS BEEN OVERLOOKED, HOWEVER, IN THIS PROCESS OF REASONING IS THAT THE VERY CONCEPT OF ARMS LENGTH PRICE IS BASED ON THE ASSUMPTION OF HYPOTHETICAL INDEPENDENCE BETWEEN AES. ESSENTIALLY, WHAT IS, THEREFORE, REQUIRED IS VISUALIZATION OF A HYPOTHETICAL SITUATION IN WHICH AES ARE INDEPENDENT OF EACH OTHER, AND, AS SUCH, IMPACT OF INTRA AE ASSOCIATION ON PRICING OF TRANSACTION IS NEUTRALIZED. ONCE WE DO SO, AS IS THE COMPULSION OF HYPOTHESIS INVOLVED IN ARMS LENGTH PRICE, THE FACT THAT NORMALLY A PARENT COMPANY HAS A RIGHT TO SUBSCRIBE TO THE CAPITAL OF THE SUBSIDIARY AT SUCH PRICE AS SUITS THE ASSESSEE IS REQUIRED TO BE IGNORED. AN ARMS LENGTH PRICE IS HYPOTHETICAL PRICE AT WHICH INDEPENDENT ENTERPRISES WOULD HAVE ENTERED THE TRANSACTION, AND, AS SUCH THE IMPACT OF INTRA AE ASSOCIATION CANNOT HAVE ANY ROLE TO PLAY IN DETERMINATION OF ARMS LENGTH PRICE. THE STAND SO TAKEN BY THE TPO, WHICH HAS MET THE APPROVAL OF THE DRP AS WELL, DOES NOT, THEREFORE, MEET OUR APPROVAL. 15. AS REGARDS THE STAND OF THE AUTHORITIES BELOW THAT IRISH SUBSIDIARY HAS SHOWN HUGE PROFITS AND HIGH OPERATIONAL PROFITS @ 93%, AND THIS FACT SHOWS THAT THE ASSESSEE SHOULD HAVE CHARGED INTEREST ON COMMERCIAL RATES, WE ARE UNABLE TO EVEN UNDERSTAND, MUCH LESS APPROVE, THIS LINE OF REASONING. IT IS INCOMPREHENSIBLE AS TO WHAT ROLE PROFITS EARNED FROM THE FUNDS RAISED CAN HAVE IN DETERMINING ARM'S LENGTH CONSIDERATION OF RAISING THE FUNDS, UNLESS PROFIT SHARING IS IMPLICIT IN THE CONSIDERATION FOR RAISING THE FUNDS ITSELF- WHICH IS NEITHER THE NORMAL COMMERCIAL PRACTICE NOR THE CASE BEFORE US. THE COST OF RAISING FUNDS IS DETERMINED MUCH BEFORE THE RETURNS FROM FUNDS SO RAISED IS EVEN KNOWN. TO HOLD THAT COST OF FUNDS RAISED SHOULD HAVE BEEN HIGHER BECAUSE THE RETURNS FROM FUNDS EMPLOYED BY THE ENTERPRISE IS HIGHER IS PUTTING CART BEFORE THE HORSE. IN THE COMMERCIAL WORLD, INTEREST DOES NOT REPRESENT ANY PARTICIPATION OF PROFITS, AND IT DOES NOT VARY BECAUSE OF THE PROFITS MADE BY THE BORROWER FROM MONIES SO RAISED. IN ANY EVENT, WHILE DETERMINING ARM'S LENGTH PRICE OF A TRANSACTION, IT IS IMMATERIAL AS TO WHAT 'BENEFIT* AN AE SUBSEQUENTLY DERIVES FROM SUCH A TRANSACTION. WHAT IS TO BE DETERMINED IS THE CONSIDERATION OF A TRANSACTION IN A HYPOTHETICAL SITUATION, IN WHICH AES ARE INDEPENDENT OF EACH OTHER, AND NOT THE BENEFIT THAT AES DERIVE FROM SUCH TRANSACTIONS. IT IS NOT EVEN THE CASE OF THE AUTHORITIES BELOW THAT IN THE EVENT OF HYPOTHETICALLY DEALING WITH AN INDEPENDENT ENTERPRISE, NO INDEPENDENT ENTERPRISE WOULD NOT HAVE GIVEN HIM AN INTEREST FREE LOANS EVEN IF THERE WAS AN OPTION, COUPLED WITH SUCH A DEAL, TO SUBSCRIBE TO THE CAPITAL OF THE AE ON THE TERMS AS OFFERED BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 34 OF 66 BY THE AE TO THE ASSESSEE. UNLESS THAT HAPPENS, THERE IS NOT EVEN A PRIMA FACIE CASE MADE OUT FOR AN ALP ADJUSTMENT. 16. WE HAVE ALSO NOTED THAT, IN ANY EVENT, WHENEVER THE ASSESSEE'S RIGHT TO EXERCISE THE OPTION OF CONVERTING THE LOAN INTO EQUITY COMES TO AN END, THE ASSESSEE IS ENTITLED TO INTEREST ON THE COMMERCIAL RATES. IT IS NOT EVEN THE CASE OF THE AUTHORITIES BELOW THAT THE INTEREST SO CHARGED BY THE ASSESSEE, IN A SITUATION IN WHICH THE RIGHT TO EXERCISE THE OPTION HAS COME TO AN END, IS NOT AN ARM'S LENGTH PRICE. KEEPING IN MIND ALL THESE FACTORS, AS ALSO ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPER TO DELETE THE ARMS LENGTH PRICE ADJUSTMENT OF RS. 5,00,35,270 IN RESPECT OF INTEREST WHICH, ACCORDING TO THE REVENUE AUTHORITIES, SHOULD HAVE CHARGED ON THE OPTIONALLY CONVERTIBLE LOAN GRANTED TO THE AES . 21. THUS, APPLYING THE RATIO OF ABOVE DECISION, IT WOULD EMERGE THAT THE CONSIDERATION FOR EXTENDING THE LOAN SIMPLICITOR IS MATERIALLY DISTINCT AND DIFFERENT FROM EXTENDING A LOAN WHICH IS GIVEN IN CONSIDERATION FOR OR MAINLY IN CONSIDERATION FOR, OPTION TO CONVERT THE SAME INTO CAPITAL ON CERTAIN TERMS WHICH ARE FAVOURABLE VIS--VIS THE TERMS AVAILABLE OR TO PUT IT MORE REALISTICALLY, HYPOTHETICALLY AVAILABLE, TO AN INDEPENDENT ENTERPRISE. THEREFORE, QUASI CAPITAL LOAN OR ADVANCE ARE NOT ROUTINE TRANSACTION OF LOAN SIMPLICITOR. THE SUBSTANTIVE REWARD FOR SUCH A LOAN TRANSACTION IS NOT LOAN BUT OPPORTUNITY TO OWN CAPITAL. IN THE CASE OF THE ASSESSEE, THE LOAN TRANSACTION IS THEREFORE, QUASI-CAPITAL AND SUBSTANTIVE REWARD AS INTEREST THEREON IS OPPORTUNITY TO REDEEM ITS PREFERENTIAL SHARES CAPITAL AND BRING BACK THE SAME INTO INDIA. WE ALSO NOTE THAT THE TPO HAS NOT CONSIDERED RULE 10A(D) ACCORDING TO TRANSACTION WHICH INCLUDES NUMBER OF CLOSELY LINKED TRANSACTIONS. HENCE, THE NATURE OF TRANSACTION AS CARRIED OUT BY BHPL AS PER ITS OBJECTIVE EFFECTED A BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 35 OF 66 REDEMPTION OF PREFERENCE SHARES HELD BY IT TO BRING BACK ITS MONEY TO INDIA WHICH WILL INCREASE ITS ASSET BASE AND INCOME INTO INDIA. IN ORDER TO REDEEM THE PREFERENCE SHARES, THE AE DO NOT HAVE ANY FUNDS AND THE BHPL HAS EXTENDED THE LOAN OF RS.22.125 CRORES AND CARRIED OUT ALL NECESSARY ACTIVITIES TO A FACILITATED REDEMPTION OF PREFERENCE SHARES. THIS IS A CLOSELY LINKED INTEGRATED TRANSACTION UNDER RULE 10A(D) I.E. FUNCTIONING HIS SHAREHOLDERS FUNCTION AND AS WELL AS THE LOAN EXTENDED FOR FORM SHALL BE CONSIDERED ALSO A QUASI-EQUITY CAPITAL FOR THE PURPOSE OF DETERMINING ALP. 22. THE LD. COUNSEL RELIED IN THE CASE OF BARTRONICS INDIA LTD V. DCIT (2017) 86 TAXMANN.COM 254 (HYDERABAD - TRIB.). 15. AS REGARDS GROUND NO. 3 REGARDING ADDITION OF RS. 1,22,27,058/- IN RESPECT OF CORPORATE GUARANTEE PROVIDED TO AE, LD. AR SUBMITTED THAT THE CORPORATE GUARANTEE GIVEN TO AE DOES NOT FALL WITHIN THE SCOPE OF INTERNATIONAL TRANSACTION U/S 92B. HE SUBMITTED THAT THE CORPORATE GUARANTEE IS PROVIDED TO AE FOR COMMERCIAL AND BUSINESS EXPEDIENCY AND THE ASSESSEE HAS NOT INCURRED ANY COST FOR PROVIDING SUCH GUARANTEE. 15.1 WITHOUT PREJUDICE TO THE ABOVE, LD. AR SUBMITTED THAT THE CORPORATE GUARANTEE WAS BROUGHT UNDER SECTION 92B UNDER FINANCE ACT, 2012 W.E.F. AY 2013-14. IT IS NOT APPLICABLE TO THE CURRENT AY. FOR THIS PROPOSITION, HE RELIED ON THE FOLLOWING CASES: 17 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. 1. DR. REDDYS LABORATORIES, ITA NO. 294/HYD/2014 & ITA NO. 458/HYD/2015. 2. SIRO CLINPHARM PVT. LTD. VS. DCIT, ITA NO. 2876/MUM/2014 3. BHARATI AIRTEL LTD. VS. ACIT, ITA NO. 5816/DEL/2012 4. ASIAN PAINTS LTD. VS. ACIT, ITA NO. 7801/MUM/2010 5. LANCO INFRATECH LTD. VS. DCIT, ITA NO. 450/HYD/2016 16. LD. DR, ON THE OTHER HAND, SUBMITTED THAT EVEN THOUGH THE AMENDED SECTION IS INTRODUCED IN FINANCE ACT, 2012, BUT, IT IS INTRODUCED WITH RETROSPECTIVE EFFECT FROM 01/04/2002. ACCORDINGLY, HE SUPPORTED THE FINDINGS OF REVENUE AUTHORITIES. 17. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS VARIOUS CASE LAWS SUBMITTED BY THE ASSESSEE. ASSESSEE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 36 OF 66 HAS PROVIDED CORPORATE GUARANTEE TO ITS AE IN THE CURRENT AY WITHOUT CHARGING ANY FEES FOR THE SAME. THE TERM GUARANTEE WAS INSERTED IN THE DEFINITION OF INTERNATIONAL TRANSACTION BY INSERTING AN EXPLANATION IN THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01/04/2002. THERE IS NO DISPUTE THAT THE CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION AND DIFFERENT ASSESSEES ARE ADOPTING DIFFERENT METHODS OF TREATMENT. SOME ASSESSEES CHARGES NOMINAL RATE TO THE AES, WHEREAS OTHER ASSESSEES ARE TREATING THIS AS SHAREHOLDER SERVICE. HERE, THE ASSESSEE HAS OBJECTED TO INCLUDE THIS TRANSACTION AS INTERNATIONAL TRANSACTION FOR THE REASON THAT THE FINANCE ACT, 2012, WHICH HAS INSERTED AN EXPLANATION, WHICH WILL BE APPLICABLE PROSPECTIVELY FROM AY 2013-14 AND THE CORPORATE GUARANTEE TRANSACTION WILL NOT BE APPLICABLE TO THE CURRENT AY. THE SAME VIEW WAS UPHELD BY THE COORDINATE BENCH IN THE CASE OF DR. REDDY LABORATORIES AND OTHER BENCHES OF TRIBUNAL. THE FINDINGS GIVEN BY THE COORDINATE BENCH IN THE CASE OF DR. REDDY LABORATORIES (SUPRA) ARE EXTRACTED BELOW: 29. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE ITAT, DELHI BENCH IN THE CASE OF 18 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. BHARATI AIRTEL LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE WHICH WAS RE-AFFIRMED IN THE CASE OF SIRO CLINPHARMA PVT. LTD., VS. DCIT (ORDER DATED 31 ST MARCH, 2016). THE BENCH OBSERVED THAT TRANSFER PRICING IS A LEGISLATION SEEKING THE TAX-PAYERS TO ORGANISE THEIR AFFAIRS IN A MANNER COMPLIANT WITH THE NORMS SETOUT. IN SHORT, IT IS AN ANTI ABUSE LEGISLATION WHICH TELLS YOU AS TO WHAT IS THE ACCEPTABLE BEHAVIOUR BUT IT DOES NOT TRIGGER LEVY OF TAX IN A RETROSPECTIVE MANNER BECAUSE NO PARTY CAN BE ASKED TO DO AN IMPOSSIBILITY.. ANALYSING FURTHER THE BENCH OBSERVED THAT THOUGH EXPLANATION TO SECTION 92B IS STATED TO BE C1ARIFICATORY, IT HAS TO BE NECESSARILY TREATED AS EFFECTIVE FROM THE A.Y. 2013- 2014 AND IN THIS REGARD, RELIED UPON THE OBSERVATIONS OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SKIES SATELLITE. WE HAVE ALSO ANALYSED THE CASE LAW RELIED UPON BY THE LD. D.R. AND ALSO THE PROVISIONS OF THE ACT. IN OUR CONSIDERED OPINION, THE VIEW TAKEN BY THE DELHI BENCH OF ITAT IN THE CASE OF BHARATI AIRTEL LTD., (SUPRA) IS ONE OF THE POSSIBLE VIEWS ON THE MATTER AND SO LONG AS THERE IS NO BINDING DECISION OF ANY OTHER HIGHER FORUM TAKING A CONTRARY VIEW, THE ONE WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE ADOPTED EVEN THOUGH OTHER BENCHES HAVE TAKEN A DIFFERENT VIEW. WE, THEREFORE, HOLD THAT THE EXPLANATION TO SECTION 92B CANNOT BE APPLIED RETROSPECTIVELY AND FOR THE YEARS UNDER CONSIDERATION THE ASSESSEE HAVING NOT INCURRED ANY COSTS IN PROVIDING CORPORATE GUARANTEE IT WOULD NOT CONSTITUTE 'INTERNATIONAL TRANSACTION' WITHIN THE MEANING OF SECTION 92B OF THE ACT AND CONSEQUENTLY, ALP ADJUSTMENT IS NOT WARRANTED ON THIS ASPECT. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE REJECT THE TREATMENT OF CORPORATE GUARANTEE AS INTERNATIONAL TRANSACTION AND CONSEQUENTLY, ALP ADJUSTMENT IS NOT WARRANTED ON THIS ASPECT. ACCORDINGLY, THE GROUND RAISED BY ASSESSEE IS ALLOWED. 18. AS REGARDS ADDITION OF RS. 48,10,26,558/- TOWARDS INTEREST ON ADVANCES GIVEN TO AE, LD. AR SUBMITTED THAT THE TPO ERRED IN RECHARACTERIZING THE NATURE OF TRANSACTIONS FROM INVESTMENT TO LOAN WHICH IS NOT PERMISSIBLE U/S 145 OF THE ACT. HE SUBMITTED THAT IF THE AMOUNT IS ADVANCED AS THE SHARE CAPITAL, THE SAME WOULD ALSO BE SHOWN AS SHARE APPLICATION MONEY IN THE HANDS OF SUBSIDIARY. HE SUBMITTED THAT BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 37 OF 66 TRANSACTION OF INVESTMENT IS NOT INTERNATIONAL TRANSACTION U/S 92B OF THE ACT AND HENCE NO INTEREST CAN BE CHARGED ON SUCH INVESTMENT. HE RELIED ON THE FOLLOWING CASES: 19 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. 1. CIT VS. EKL APPLIANCES LTD., ITA NO. 1068/2011 2. M/S VIJAY ELECTRICALS LTD., VS. ADDITIONAL CIT, ITA NO. 842/HYD/2012, ORDER DATED 31/05/2013. 3. GSS INFOTECH LTD. VS. ACIT, HYD. ITA NO. 497/HYD/2015 4. KAR THERAPEUTICS & ESTATES PVT. LTD., VS. DCIT, ITA NO. 86/HYD/2016. 5. TOPSGRUP ELECTRONICS SYSTEMS LTD. VS. ITO, 67 TAXMANN.COM 310 (MUM.) 6. MYLAN LABORATORIES LTD. VS. ACIT, [2015] 63 TAXMANN.COM 179 (HYD.) 19. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES AND SUBMITTED THAT THIS TRANSACTION IS RECORDED IN THE BOOKS OF ACCOUNT AS LOAN AND NOT AS INVESTMENT. HE REFERRED TO PAGE 203 OF PAPER BOOK TO SUBMIT THAT IT IS CLASSIFIED AS LOANS & ADVANCES. HE FURTHER SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS ONLY AN AFTER THOUGHT. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. ASSESSEE HAS TRANSFERRED FUNDS TO ITS AE AS INVESTMENT AND THE SAME WAS CLASSIFIED IN THE BALANCE SHEET AS LOANS AND ADVANCES. HOWEVER, IT IS ONLY A CLASSIFICATION OF ACCOUNTING ENTRY IN THE BOOKS, BUT, WHAT IS RELEVANT AND IMPORTANT IS WHETHER SUCH TRANSFER OF FUNDS WERE DULY TREATED AS INVESTMENT AND ACCORDINGLY SHARES WERE ALLOTTED IN THE SUBSEQUENT AY. ASSESSEE HAS SUBMITTED SHARE ALLOTMENT CERTIFICATE AS EVIDENCE. SINCE THE TRANSFER OF FUNDS WERE DULY ACCOUNTED BY THE AE AND THERE IS NO RESTRICTION ON THE PART OF THE AE TO ALLOT SHARES IN THE SAME AY OF RECEIPT OF FUNDS, AS LONG AS THE SHARES ALLOTTED, IT GIVES TRUE NATURE OF THE TRANSACTION. IN THE GIVEN CASE, EVEN THERE IS NO OUTSTANDING BALANCE IN THE BOOKS OF ASSESSEE AS LOANS AND ADVANCES, THE SAME TRANSACTION WAS DULY JUSTIFIED BY RECEIVING ALLOTTED SHARES IN THE SUBSEQUENT AY. IN OUR CONSIDERED VIEW, THERE IS NO ELEMENT OF PROFIT IN THE ABOVE TRANSACTION. MOREOVER CHARGING OF INTEREST IS DEPENDING UPON THE CONTRACTUAL OBLIGATIONS BETWEEN THE PARTIES. IN THE GIVEN CASE, 20 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. ASSESSEE HAS TRANSFERRED FUNDS WITH AN INTENTION TO MAKE INVESTMENT, IT CANNOT BE TREATED AS INTERNATIONAL TRANSACTION AS HELD BY VARIOUS COURTS, PARTICULARLY, IN THE CASE OF KAR THERAPEUTICS & ESTATES PVT. LTD. (SUPRA) WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 9. CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF REVENUE AUTHORITIES. THERE IS NO DISPUTE THAT THE ASSESSEE HAD REMITTED $ 3387182 TOWARDS INVESTMENT IN SHARE CAPITAL. THE SHARES WERE ALLOTTED TO THE EXTENT OF $ 2654797 IN THE SAME AY. THE SUBSIDIARY COMPANY HAS TREATED THE BALANCE REMITTANCE AS INTEREST FREE UNSECURED LOAN AND REPAYABLE ON DEMAND IN THEIR FINANCIAL STATEMENT. IN THE NEXT AY, THE SUBSIDIARY COMPANY HAS ALLOTTED THE SHARES ON 15/03/2012. NOW, CAN THESE TRANSACTIONS BE TREATED AS INTERNATIONAL TRANSACTION, WHICH QUALIFIES FOR ALP ADJUSTMENT. IN OUR CONSIDERED VIEW, THE AMOUNT $ 732.385 IS TOWARDS INVESTMENT IN SHARE CAPITAL OF THE SUBSIDIARY OUTSIDE INDIA AND THE TRANSACTIONS ARE NOT IN THE NATURE OF INTERNATIONAL TRANSACTION REFERRED TO SECTION 92-B OF THE IT ACT AND TRANSFER PRICING PROVISIONS ARE NOT APPLICABLE AS THERE IS NO INCOME AS WELL AS THERE IS NO MUTUAL AGREEMENT BETWEEN THE COMPANIES FOR SUCH PAYMENT OF INTEREST. MOREOVER, THE SUBSIDIARY COMPANY ALSO DISCLOSED AS INTEREST FREE. BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 38 OF 66 MOREOVER, IN THE SIMILAR SITUATION WITH UNCONTROLLED TRANSACTION, THE ALLOTTEE COMPANY IN NORMAL COURSE OF TRANSACTION WILL NOT BE EXPECTED TO RECEIVE ANY INTEREST LEAVE AWAY THE INTERNATIONAL TRANSACTION. WITHOUT ANY CERTAINTY OR ANY AGREEMENT ON RECEIVING ANY INTEREST BUT MERELY RELYING ON THE ACCOUNTING METHOD AND DISCLOSURE OF THE SUBSIDIARY IN THEIR FINANCIAL STATEMENT CANNOT LEAD TO THIS TRANSACTION AS INTERNATIONAL TRANSACTION WHICH REQUIRE ALP ADJUSTMENT. ASSESSEE HAD RELIED ON THE CASE OF PRITHVI INFORMATION SOLUTIONS LTD. (SUPRA) WHEREIN ON THE SIMILAR SET OF FACTS AND CIRCUMSTANCES, THE COORDINATE BENCH OF THIS TRIBUNAL HAS HELD AS BELOW: 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS DECISIONS CITED. IN OUR OPINION, THE AMOUNT REPRESENTING 2118.84 IS TOWARDS INVESTMENT IN SHARE CAPITAL OF THE SUBSIDIARIES OUTSIDE INDIA AS THE TRANSACTIONS ARE NOT IN THE NATURE OF TRANSACTIONS REFERRED TO SECTION 92-B OF THE IT ACT AND THE TRANSFER PRICING PROVISIONS ARE NOT APPLICABLE AS THERE IS NO INCOME. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE CIT U/S 263 AND THAT OF THE AO IS RESTORED AND THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD ARE ALLOWED. 21 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. AS HELD IN THE ABOVE, WE ARE INCLINED TO TREAT THE ABOVE TRANSACTION AS NOT AN INTERNATIONAL TRANSACTION AND ACCORDINGLY GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. SINCE WE HAVE ADJUDICATED GROUND NO. 1 AS ALLOWED, THE GROUND NOS. 2 & 3 ARE ONLY ACADEMIC IN NATURE AND ACCORDINGLY, DISMISSED. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THE SAID CASE, WE ARE INCLINED TO TREAT THE ABOVE TRANSACTION AS NOT AN INTERNATIONAL TRANSACTION AND ACCORDINGLY THE GROUND RAISED ON THIS ISSUE IS ALLOWED. 23. IN THE LIGHT OF RATIO OF ABOVE DECISION, WE FIND THAT THE TRIBUNAL HAS HELD THAT THE ADVANCING INTEREST FREE LOANS MUST NOT NECESSARILY BE DEEMED TO BE INTEREST EARNING ACTIVITY AND ACTIVITY TO CAPITALIZE OPPORTUNITY COST FOR INVESTING IN NEW TERRITORIES-THE FUNDS WERE RAISED FOR THE PURPOSE OF INVESTMENT IN SUBSIDIARIES AND ON THE FACT THAT THESE FUNDS WERE INTEREST FREE AND ULTIMATELY, SHARES WERE ALLOTTED, IT SHOWS THAT THERE IS NO ADJUSTMENT NEED TO BE MADE, ON THE CUP METHOD ADOPTED BY THE AO/TPO, EVEN IF THE TRANSACTION IS CONSIDERED AS ONE THAT OF INTERNATIONAL TRANSACTION. (AY. 2008-09 TO 2011-12) . WE ALSO NOTE THAT IT IS ONLY A CLASSIFICATION OF ACCOUNTING BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 39 OF 66 ENTRY IN THE BOOKS, BUT, WHAT IS RELEVANT AND IMPORTANT IS WHETHER SUCH TRANSFER OF FUNDS WERE DULY TREATED AS INVESTMENT AND ACCORDINGLY SHARES WERE ALLOTTED IN THE SUBSEQUENT AY. ASSESSEE HAS SUBMITTED BROUGHT BACK THE PREFERENTIAL SHARES SINCE THE TRANSFER OF FUNDS WERE DULY ACCOUNTED BY THE AE AND THERE IS NO RESTRICTION ON THE PART OF THE AE TO ALLOT SHARES IN THE SAME AY OF RECEIPT OF FUNDS, AS LONG AS THE SHARES ALLOTTED, IT GIVES TRUE NATURE OF THE TRANSACTION. THEREFORE, IN OUR CONSIDERED VIEW, THERE IS NO ELEMENT OF PROFIT IN THE ABOVE TRANSACTION. MOREOVER CHARGING OF INTEREST IS DEPENDING UPON THE CONTRACTUAL OBLIGATIONS BETWEEN THE PARTIES. FURTHER, WE FIND THE AMOUNT REPRESENTING LOAN WAS TOWARDS INVESTMENT IN SHARE CAPITAL OF THE SUBSIDIARIES OUTSIDE INDIA AS THE TRANSACTIONS ARE NOT IN THE NATURE OF TRANSACTIONS REFERRED TO SECTION 92-B OF THE IT ACT AND THE TRANSFER PRICING PROVISIONS ARE NOT APPLICABLE AS THERE IS NO INCOME. THEREFORE, CONSIDERING THE SAME, AS THE ASSESSEE HAS ALSO GIVEN LOAN TO OBTAIN THE BENEFITS OF FULL PROFITS EARNED BY THE SUBSIDIARY AND TO ENSURE FULL CONTROL OVER THE OPERATIONS OF THE SUBSIDIARY. THEREFORE, THIS IS NOT COMPARABLE TO A BANK FINANCING A CUSTOMER BASED ON THEIR INDIVIDUAL FINANCING NEEDS. FURTHER, IN THE CASE OF BHPL COULD HAVE VERY WELL GIVEN THE MONEY AS A PREFERENCE CAPITAL OR AS AN EQUITY CAPITAL BUT THE INTEREST FREE LOAN WAS GIVEN TO ENABLE THE BHPL BRING BACK SUCH MONEY BACK TO INDIA EASILY SO AS TO INCREASE THE ASSET AND BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 40 OF 66 TAX BASE IN INDIA. IN ALL COUNTRIES SHARE CAPITAL CAN BE BROUGHT BACK ONLY AFTER COMPLYING WITH CERTAIN PROCEDURE AND MORE SO IN THE CASE OF EQUITY CAPITAL. HENCE THE CONTENTION OF THE ASSESSEE THAT IT IS A QUASI-EQUITY CAPITAL HAS NOT BEEN RIGHT FULLY CONSIDERED BY THE TPO AS WELL AS CIT(A). 24. THE FINDINGS GIVEN IN THE CASE OF PEROT SYSTEMS TSI V. DCIT [2010] 37 SOT 358 (DELHI-TRIB) ARE DISTINGUISHABLE AS IN THAT CASE PROFITS WERE SHIFTED OUT OF INDIA TO BERMUDA, A TAX HEAVEN. WHERE IN THE INSTANT CASE, THE AE SUBSIDIARY IS FORMED WITH THE INTENTION AND THE STRUCTURE OF THE TRANSACTION IS TO BRING BACK THE CAPITAL AND PROFITS TO INDIA AFTER PAYMENT OF DUE TAXES. FURTHER, IN THAT CASE THE RESULT OF THE TRANSACTION WAS THAT THE INCOME OF THE ASSESSEE IN INDIA WOULD REDUCE WHILE THAT OF THE AE WOULD INCREASE. THAT WAS ALSO A CLASSIC CASE OF VIOLATION OF TRANSFER PRICING NORMS WHERE PROFITS ARE SHIFTED TO TAX HEAVENS OR LOW TAX REGIMES TO BRING DOWN THE AGGREGATE TAX INCIDENCE OF A MULTI-NATIONAL GROUP, WHEREAS IN THE PRESENT CASE, THE TRANSACTION HAVE RESULTED INTO INCREASE IN CASH INFLOW INTO INDIA AND POSSIBILITY OF INCREASE OF TAX BASE IN INDIA. FURTHER, THERE IS NO FINDING OF FACT THAT THE TRANSACTIONS HAVE BEEN UNDERTAKEN FOR SHIFTING OF PROFITS TO A LOW TAX JURISDICTION AS AGAINST THE FINDING GIVEN IN PEROT SYSTEM (SUPRA). THEREFORE, ON AN ANALYSIS OF TRANSACTION AS A WHOLE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 41 OF 66 AND CONSIDERING THE OBSERVATIONS AND ANALYSIS BY HONBLE TRIBUNAL AHMEDABAD AND HYDERABAD IN THE DECISIONS RELIED UPON BY THE ASSESSEE, THE TRANSACTION HAS TO BE CONSIDERED AS QUASI-EQUITY IN NATURE. IT WAS FURTHER CONTENDED THAT THE TPO HAS NOT CARRIED OUT ANY FAR ANALYSIS AS IN THE CASE OF ASSESSEE, THE AE IS JUST AN EXTENSION OF BHPL TO HOLD INVESTMENTS AND HAVE NOT CARRIED OUT ANY FUNCTIONS. THE ENTIRE RISKS ARE BORNE BY THE ASSESSEE COMPANY ONLY AND THE ENTIRE INVESTMENTS IN STERLING + HOSTAG HAS BEEN FUNDED AS EQUITY CAPITAL, PREFERENCE CAPITAL AND LOAN ONLY BY BHPL AS PART OF ITS SHAREHOLDER FUNCTION. THE AE ITSELF HAS NOT EMPLOYED ANY ASSETS. AS PER THE CONTRACTUAL TERMS AND LAW, THE MOMENT THIS INVESTMENT IS SOLD THE ENTIRE PROCEEDS OF CAPITAL AND PROFITS ARE TO BE REPATRIATED TO INDIA COMPULSORILY AND SUBJECT THE SAME TO TAXATION IN INDIA. THEREFORE, IN THIS MANNER THE ENTIRE RISKS ARE TO BE BORNE BY AND REWARDS ACCRUE TO BHPL ONLY AS A RESULT OF THE INVESTMENTS MADE. AS PER RULE10B ADJUSTMENT FOR CONTRACTUAL TERMS ARE TO BE CONSIDERED WHILE APPLYING CUP METHOD. IN THIS CASE THE AE IS NOT AUTHORISED BY LAW TO UNDERTAKE ANY FUNCTIONS OR PURSUE ANY BUSINESS. ONCE BHPL DECIDES TO SELL INVESTMENTS HELD, THE AE HAS TO WIND UP AND BHPL HAS TO BRING BACK THE ENTIRE PROCEEDS TO INDIA. THUS, THE AFORESAID FAR ANALYSIS AS REQUIRED UNDER RULE 10B HAS NOT BEEN CARRIED OUT BY THE TPO/CIT(A) WHILE REJECTING THE CONTENTION OF BHPL THAT EVEN THOUGH IN FORM THE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 42 OF 66 TRANSACTION IS STRUCTURED AS A LOAN, IN SUBSTANCE THIS IS A QUASI-EQUITY CAPITAL. THUS, THE AFORESAID MATERIAL DIFFERENCES AND CONSIDERATIONS FOR EXTENDING THE LOAN TO AE AS COMPARED TO A LOAN SIMPLICITOR HAS NOT BEEN CONSIDERED BY THE TPO/CIT(A) AS REQUIRED BY RULE 10B, WHICH IS MORE PARTICULARLY ANALYZED BY THE HONBLE AHMEDABAD TRIBUNAL IN THE CASE OF CADILA HEALTHCARE LIMITED IN PARA 11 & 12 OF THE JUDGEMENT AS REPRODUCED ABOVE. THE LD. COUNSEL FURTHER WITHOUT PREJUDICE AS AN ALTERNATIVE ARGUMENT THAT FOR THE EVENT IN THE TRANSACTION IS NOT CONSIDERED AS QUASI-EQUITY IN NATURE THEN THERE IS NO LOSS OF REVENUE TO THE GOVERNMENT OF INDIA HENCE CHAPTER X BEING ANTI-AVOIDANCE PROVISIONS ARE NOT APPLICABLE TO THE FACTS OF THE CASE. HAD INTEREST BEEN PAID ON THE AMOUNT BROUGHT BACK TO INDIA PROFITS WOULD HAVE BEEN LESSER TO THAT EXTENT AND TAXES WOULD HAVE BEEN PAID TO GOVERNMENT OF INDIA PROPORTIONATELY LESSER TO THAT EXTENT. HENCE, THERE IS NO LOSS OF REVENUE TO THE GOVERNMENT OF INDIA. FURTHER, ALTERNATIVELY IF TRANSACTION AS QUASI-EQUITY IS NOT ACCEPTED IT SHALL BE CONSIDERED THAT THERE IS NO RISK FOR BHPL IN EXTENDING THE INTEREST FREE LOAN AS OBSERVED BY THE CIT(A) IN PARA 9.3 AT PAGE 19 OF THE APPEAL ORDER. THE CIT (A) OBSERVED THAT THE TRANSACTION IS AS A LOAN SIMPLICITOR TO AN UN-RELATED PARTY. SINCE THE LOAN IS CONSUMED IN A FOREIGN COUNTRY INTEREST RATE PREVALENT IN THAT COUNTRY SHALL BE CONSIDERED AS ALP. IN THIS CASE AS PER RULE 10B ENTIRE FUNCTIONS ARE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 43 OF 66 CARRIED OUT BY BHPL AND THE RISKS AND REWARDS ARE ALSO TO BE BORNE AND ENJOYED BY BHPL, HENCE THERE SHOULD NOT BE ANY RISK PREMIUM CHARGEABLE TO THE LOAN AS AN ADJUSTMENT. THEREFORE, RELIANCE PLACED BY THE LEARNED COUNSEL LD. COUNSEL HAS PLACED RELIANCE ON THE FOLLOWING DECISION OF VIBHAV GEMS LIMITED (2017) 88 TAXMANN.COM 12 (RAJ.)- SLP DISMISSED (2018) 99 TAXMANN.COM 2 (SC) ALSO SUPPORTS HIS CASE. WE HAVE NOTED THAT, AS NOTED BY THE TPO, IT IS WHOLLY IMMATERIAL AS TO WHETHER OR NOT THE ASSESSEE, BY THE VIRTUE OF THIS TRANSACTION, IS ENTITLED TO SUBSCRIBE TO CAPITAL OF THE AE ON CERTAIN CONCESSIONAL TERMS, BECAUSE, IN ANY CASE, THE AE IS A WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE AND NONE ELSE CAN SUBSCRIBE TO THE AE'S CAPITAL. WHAT HAS BEEN OVERLOOKED, HOWEVER, IN THIS PROCESS OF REASONING IS THAT THE VERY CONCEPT OF ARMS LENGTH PRICE IS BASED ON THE ASSUMPTION OF HYPOTHETICAL INDEPENDENCE BETWEEN AES. ESSENTIALLY, WHAT IS, THEREFORE, REQUIRED IS VISUALIZATION OF A HYPOTHETICAL SITUATION IN WHICH AES ARE INDEPENDENT OF EACH OTHER, AND, AS SUCH, IMPACT OF INTRA AE ASSOCIATION ON PRICING OF TRANSACTION IS NEUTRALIZED. ONCE WE DO SO, AS IS THE COMPULSION OF HYPOTHESIS INVOLVED IN ARMS LENGTH PRICE, THE FACT THAT NORMALLY A PARENT COMPANY HAS A RIGHT TO SUBSCRIBE TO THE CAPITAL OF THE SUBSIDIARY AT SUCH PRICE AS SUITS THE ASSESSEE IS REQUIRED TO BE IGNORED. AN ARMS LENGTH PRICE IS HYPOTHETICAL PRICE AT WHICH INDEPENDENT ENTERPRISES BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 44 OF 66 WOULD HAVE ENTERED THE TRANSACTION, AND, AS SUCH THE IMPACT OF INTRA AE ASSOCIATION CANNOT HAVE ANY ROLE TO PLAY IN DETERMINATION OF ARMS LENGTH PRICE. THE STAND SO TAKEN BY THE TPO, WHICH HAS MET THE APPROVAL OF THE DRP AS WELL, DOES NOT, THEREFORE, MEET OUR APPROVAL. WE HAVE ALSO NOTED THAT THE ASSESSEE HAS GIVEN LOAN OF RS.30,84,40,000/- AND BROUGHT BACK RS.32,56,53,750/- AS REPAYMENTS. SIMILARLY, INVESTMENT IN PREFERENTIAL SHARES WERE AT RS.1,71,68,40,000/- AS AGAINST WHICH THE ASSESSEE HAS BROUGHT BACK BY WAY OF REDEMPTION OF PREFERENCE SHARES FOR AN AMOUNT OF RS.1,74,90,59,944/-. THEREFORE, THE TRANSACTIONS UNDER CONSIDERATION IS IN THE NATURE OF QUASI CAPITAL. HENCE, THERE WAS NO REQUIREMENT CHARGE AN ARM'S LENGTH PRICE. KEEPING IN MIND ALL THESE FACTORS, AS ALSO ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPER TO DELETE THE ARMS LENGTH PRICE ADJUSTMENT OF RS.1,80,56,250 IN RESPECT OF INTEREST ON LOAN TO AE, WHICH, ACCORDING TO THE REVENUE AUTHORITIES, SHOULD HAVE CHARGED ON THE LOAN GRANTED TO THE AES TO BRING BACK PREFERENTIAL SHARES CAPITAL IN INDIA . THUS, GROUND NO. 4 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 25. GROUND NO.5: STATES THAT ON APPRECIATION OF FACTS AND CIRCUMSTANCES OF THE CASE NS LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 45 OF 66 ASSESSING OFFICER / LEARNED TRANSFER PRICING OFFICER IN MAKING UPWARD ADJUSTMENT OF RS.1,78,86,359/- OUT OF GUARANTEE FEE CHARGES TO THE INCOME OF THE APPELLANT COMPANY ON ACCOUNT OF DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. THE ACTION OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) IS CONTRARY TO THE FACTS AND LAW AND DESERVE TO BE DELETED. 26. FACTS APROPOS OF THIS GROUND ARE THAT THE ASSESSEE HAS GUARANTEED LOAN TO THE EXTENT OF POUND 35 MILLION TAKEN BY M3 HOLDINGS (SINGAPORE) PTE LTD. THE LOAN HAS BEEN GRANTED TO M3 HOLDINGS (SINGAPORE) PTE LTD. ON A CONCESSIONAL RATE ON ACCOUNT OF BACK TO BACK GUARANTEE OF OVER RS. 212 CRORE GIVEN BY THE ASSESSEE COMPANY, BEING MUTUAL FUND HOLDINGS OF THE COMPANY. IN ADDITION TO THE GUARANTEE / COLLATERAL SECURITY, THE ASSESSEE HAS ALSO INCURRED THE ENTIRE BANK CHARGES LEVIED BY STANDARD CHARTERED BANK AMOUNTING TO RS.1,78,86,359/-. THE ASSESSEE HAS CLAIMED THAT M3 HOLDINGS (SINGAPORE) PTE LTD. HAS REDEEMED ITS PREFERENTIAL SHARES TO THE EXTENT OF RS. 1749.06 MILLION (US$ 38 MILLION). SINCE M3 HOLDINGS (SINGAPORE) PTE LTD. IS A SPV AND HAS NO LIQUID FUNDS, IT HAD TO BORROW FROM THE ABOVE BANK FOR REPAYING THE PREFERENTIAL SHARES OF BHPL. THE ASSESSEE COMPANY RELIED UPON THE OECD GUIDELINES AT PARA 1.37 BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 46 OF 66 AND PARA 7.9 WHILE SUBMITTING THAT IN SPECIAL CIRCUMSTANCES, A LOAN CAN BE TREATED A SUBSCRIPTION TO CAPITAL AND ALSO CHARACTERIZATION OF STEWARDSHIP ACTIVITIES OR SHAREHOLDER ACTIVITIES UNDERTAKEN BY THE PARENT COMPANIES. THE ASSESSEE HAS FURTHER CLAIMED THAT BECAUSE OF PROVIDING OF GUARANTEE, THE AE HAS BEEN ABLE TO RAISE FUNDS THROUGH WHICH IT HAS BEEN ABLE TO REPATRIATE THE REDEEMED PREFERENTIAL SHARES INTO THE COUNTRY RESULTING IN OVERALL AT THIS ASSETS BASE OF THE ASSESSEE COMPANY INITIATION COUNTRY. THE ASSESSEE COMPANY SUBMITTED THAT BY LETTING THE AE HAS RAISED FUNDS IN SINGAPORE, EFFECTIVELY THE COST OF THE FUNDS HAVE BEEN SHIFTED TO SINGAPORE WHILE ASSETS BROUGHT IN THE COUNTRY WOULD ENABLE IT TO EARN MORE FROM ITS INVESTMENTS. IN SUPPORT OF HIS CONTENTION, THE ASSESSEE COMPANY RELIED IN THE CASE OF FOUR SOFT LTD. V. DCIT [I.T.A.NO. 1495/HYD/2010) OF HYDERABAD TRIBUNAL WHEREIN IT WAS HELD THAT CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE DOES NOT FALL WITHIN THE DEFINITION OF INTERNATIONAL TRANSACTIONS. HOWEVER, THE AO WAS OF THE VIEW THAT THE WORD ANY PROVISION OF SERVICE WHETHER IT FALL WITHIN THE ROUTINE COURSE OF BUSINESS OR NOT, OR IS INCLUDIBLE AS INTERNATIONAL TRANSACTION AND HENCE, LIABLE TO BE BENCHMARKED. THE AO FURTHER OBSERVED THAT OECD COMMENTARIES ON THIS ISSUE ALSO ACKNOWLEDGE THE CORPORATE GUARANTEE TO BE IN THE NATURE OF SERVICE AS HELD BY THE US TAX COURT IN THE CASE OF CONTAINER CORPORATION V. COMMISSIONER. THE ASSESSEE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 47 OF 66 HAS EXPLAINED THAT FOR THE PURPOSE OF ISSUE OF A COMFORT LETTER TO THE SCB, MAURITIUS, THE ASSESSE COMPANY HAS INCURRED BANK CHARGES OF RS.1,78,86,359/-. THE ASSESSEE HAS NOT CHARGED THIS AMOUNT TO ITS SINGAPORE ENTITY INSPITE OF THE FACT THAT THE ENTIRE AMOUNT HAS BEEN INCURRED FOR THE BENEFIT OF THE AE. IT WAS EXPLAINED THAT ASSESSEE HAS PAID ONE TIME BANK CHARGES OF RS.17,886,359/- TO STANDARD CHARTERED BANK, AHMEDABAD FOR UPFRONT STRUCTURING FEES FOR STAND BY LETTER OF CREDIT FACILITY. SUCH BANK CHARGES ARE AMORTISED OVER A PERIOD OF LOAN TENURE I.E. 5 YEARS. ACCORDINGLY PROPORTIONATE BANK CHARGES PERTAINING TO THE FINANCIAL YEAR 2007-08 AMOUNTING TO RS.1,83,897/- WAS CHARGED TO PROFIT & LOSS ACCOUNT DURING THE YEAR UNDER CONSIDERATION. HOWEVER, SUCH EXPENSES INCURRED BY BILAKHIA HOLDINGS PVT. LTD ON ARRANGING LOAN TO M3 HOLDINGS (SINGAPORE) PVT. LTD AND DEBITED TO PROFIT & LOSS ACCOUNT HAS NOT BEEN CLAIMED IN RETURN OF INCOME AS DEDUCTION UNDER ANY HEAD OF INCOME .THE TPO OBSERVED THAT THE BASIC CLAIM OF THE ASSESSE IS THAT SINCE THE AMOUNT HAS NOT BEEN REDUCED FROM THE TAXABLE INCOME OF THE COMPANY WHILE COMPUTING THE INCOME OF THE ASSESSE COMPANY, NO ADVERSE VIEW SHOULD BE ADOPTED IN RESPECT OF THE AMOUNT NOT CHARGED FROM THE AE. HOWEVER, THE AO HAS FAILED TO APPRECIATE THAT WHILE DETERMINING THE ARMS LENGTH VALUE OF A TRANSACTION, IT IS NOT RELEVANT WHETHER THE AMOUNT HAS BEEN REDUCED FROM ITS TAXABLE INCOME OR NOT. THAT AN BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 48 OF 66 ITEM OF EXPENSES HAS NOT BEEN OFFERED FOR TAXATION DOES NOT DECIDE THE ARM'S LENGTH VALUE OF THIS AMOUNT TO BE 'NIL. THE IMPORTANT POINT TO BE ASCERTAINED IS WHETHER THE AMOUNT HAS GONE IN TO CONTRIBUTE TOWARDS THE COST OF THE LOAN AND THAT WHETHER A NON-RELATED PARTY WOULD HAVE CHARGED THIS AMOUNT FROM THE OTHER PARTY OR NOT. IF YES, THE AMOUNT SHOULD HAVE BEEN RECOVERED AS COST FROM THE AE. ON BOTH THESE COUNTS, THE ARGUMENTS OF THE ASSESSE COMPANY FAIL. AS ALREADY STATED ABOVE, AS PER THE PROVISIONS OF SECTION 92, ANY COST INCURRED BY THE ASSESSEE COMPANY WHILE PROVIDING ANY SERVICE OR BENEFIT TO THE ASSESSE COMPANY NEEDS TO BE RECOUPED FROM THE AE. SINCE THE ASSESSEE HAS CLAIMED THAT THE GUARANTEE HAS BEEN GIVEN TO THE BANK FOR ISSUE OF LOAN TO THE AE. THE RESULT OF THE LOAN TAKEN BY THE AE IS THAT THE ASSESSEE HAS RECEIVED REDEMPTION OF THE ENTIRE PREFERENTIAL SHARES 'WHICH HAVE BEEN REDEEMED ON ACCOUNT OF THE LOAN TAKEN BY THE AE. HENCE, BY PROVIDING THE COMFORT LETTER, THE ASSET BASE OF THE ASSESSEE HAS BEEN PROTECTED AND EFFECTIVELY COST OF FUNDS HAVE BEEN SHIFTED FROM THE ASSESSEE TO THE AE. IN ADDITION, THE FUNDS OF THE ASSESSEE, HAVING BEEN INVESTED EARLIER AS PREFERENTIAL SHARES, HAVE NOW BEEN BROUGHT BACK INTO THE COUNTRY. HENCE, WHILE ASSESSEE HAS A BIGGER ASSET BASE RESULTING IN HIGHER INCOME IN INDIA, THE COST OF FUNDS WILL BE BORNE BY THE AE. WITHOUT PROVISION OF THE GUARANTEE, THERE WAS NO WAY TO BRING IN THE PREFERENTIAL SHARES ISSUED EARLIER. BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 49 OF 66 HOWEVER, THE EXPLANATION GIVEN BY THE ASSESSEE WITH RESPECT TO THE AMOUNT OF RS.1,78,86,359/- WAS NOT FOUND ACCEPTABLE IN LIGHT OF EXPRESS PROVISIONS OF THE ACT ON THIS ISSUE. AS PER SECTION 92(1) AND 92(2) OF THE INCOME TAX ACT WHICH READS AS UNDER: 92. (1) ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. EXPLANATION, FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE ALLOWANCE FOR ANY EXPENSE OR INTEREST ARISING FROM AN INTERNATIONAL TRANSACTION SHALL ALSO BE DETERMINED HAVING REGARD TO THE ARMS LENGTH PRICE. (2) WHERE IN AN INTERNATIONAL TRANSACTION, TWO OR MORE ASSOCIATED ENTERPRISES ENTER INTO A MUTUAL AGREEMENT OR ARRANGEMENT FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES, THE COST OR EXPENSE ALLOCATED OR APPORTIONED TO, OR, AS THE CASE MAY BE, CONTRIBUTED BY, ANY SUCH ENTERPRISE SHALL BE DETERMINED HAVING REGARD TO THE ARM'S LENGTH PRICE OF SUCH BENEFIT, SERVICE OR FACILITY, AS THE CASE MAY BE. 27. IN LIGHT OF THE EXPRESS PROVISIONS OF SECTION AS REPRODUCED ABOVE, THE TPO OBSERVED THAT ANY COST INCURRED BY THE ASSESSE IN RELATION TO THE SERVICE/BENEFIT FOR THE AE SHOULD BE CHARGED TO THE AE. THE ASSESSE IS WRONG IN SUBMITTING THAT SINCE THE ULTIMATE BENEFIT WAS FOR THE ASSESSE, THIS COST NEED NOT BE RECOVERED FROM THE AE. THE RESPONSIBILITY FOR REDEMPTION OF THE PREFERENTIAL SHARES WAS ON THE ASSESSEE COMPANY. IT HAD BENEFITED FROM THE SHARES OF THE ASSESSE COMPANY BY INVESTING THE SAME IN ITS VENTURES. HENCE, ANY COST FOR ITS REDEMPTION WAS A COST LOGICALLY TO BE BORNE BY THE AE. THE ASSESSE SHOULD HAVE CHARGED THE ENTIRE AMOUNT OF RS.1,78,86,359/- TO ITS AE M3 AS THE EXPENDITURE RELATED TO IT. ACCORDINGLY, THE INCOME OF THE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 50 OF 66 ASSESSE COMPANY WAS REVISED BY MAKING UPWARDS TO THE EXTENT OF RS.1,78,86,359/-. 28. BEING, AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A). BEFORE WHOM IT WAS SUBMITTED THAT THE AE OF THE APPELLANT COMPANY AVAILED LOAN OF 35 MILLION EURO FROM STANDARD CHARTERED BANK MAURITIUS. THE LOAN HAS BEEN GRANTED TO M3 HOLDINGS (SINGAPORE) PTE LTD. ON A CONCESSIONAL RATE ON ACCOUNT OF BACK GUARANTEE OF OVER 212 CR. GIVEN BY THE APPELLANT COMPANY. IN ADDITION TO THE GUARANTEE GIVEN THE APPELLANT COMPANY ALSO INCURRED BANK CHARGES TO THE TUNE OF RS.1,78,86,359/- LEVIED BY STANDARD CHARTERED BANK. SINCE THE AE IS AN SPV HAVING NO LIQUID FUNDS IT HAD TO BORROW FROM THE ABOVE BANK TO REDEEM THE PREFERENTIAL SHARES HELD BY THE APPELLANT COMPANY. ACCORDINGLY TO THE TPO THE APPELLANT COMPANY FAILED TO APPRECIATE THAT WHILE DETERMINING THE ARMS LENGTH VALUE OF A TRANSACTION, IT IS NOT RELEVANT WHETHER THE AMOUNT HAS BEEN REDUCED FROM ITS TAXABLE INCOME OR NOT. THE OBSERVATIONS OF THE TPO WHILE REJECTING THE SUBMISSION MADE BEFORE HIM BY THE APPELLANT COMPANY CAN BE SUMMARIZED AS UNDER:- THE FACT THAT AN ITEM OF EXPENDITURE WHICH HAS NOT BEEN CLAIMED AS A DEDUCTION FOR TAXABLE INCOME DO NOT DECIDE THE ARMS LENGTH VALUE OF THAT TRANSACTION TO BE NIL. THE IMPORTANT POINT TO BE ASCERTAINED IS WHETHER THE AMOUNT HAS GONE IN TO BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 51 OF 66 CONTRIBUTE TOWARDS THE COST OF THE LOAN AND THAT WHETHER A NON- RELATED PARTY WOULD HAVE CHARGED THIS AMOUNT FROM OTHER PARTY OR NOT. IT WAS SUBMITTED THAT AS PER PROVISIONS OF SECTION 92 OF THE ACT, ANY COST INCURRED BY THE ASSESSEE COMPANY WHILE PROVIDING ANY SERVICES OR BENEFIT TO ITS AE, THE SAME NEEDS TO BE CHARGED AND RECOVERED FROM THE AE. THE APPELLANT COMPANY IS WRONG IN SUBMITTING THAT SINCE THE ULTIMATE BENEFIT WAS FOR THE ASSESSEE, THIS COST NEED NOT BE RECOVERED FROM THE AE. THE RESPONSIBILITY FOR REDEMPTION OF THE PREFERENTIAL SHARES WAS ON THE AE AND NOT ON THE APPELLANT COMPANY AND THE AE HAD BENEFITTED FROM THE SHARES SUBSCRIBED BY THE APPELLANT COMPANY BY INVESTING THE SAME IN ITS VENTURES. HENCE ANY COST FOR ITS REDEMPTION WAS A COST LOGICALLY TO BE BORNE BY THE AE. ACCORDINGLY THE TPO MADE AN UPWARD ADJUSTMENT OF RS.1,78,86,359/- ON ACCOUNT OF GUARANTEE FEES GIVEN FOR LOAN TO M3 AN AE LOCATED AT SINGAPORE. HOWEVER, CIT (A) OBSERVED THAT WITH REGARDS UPWARD ADJUSTMENT ON ACCOUNT OF CORPORATE GUARANTEE RS.2218.65 MILLION ON BEHALF OF M3 FOR AVAILING LOAN FACILITIES FROM STANDARD CHARTERED BANK MAURITIUS THE APPELLANT COMPANY SUBMITTED BEFORE HIM THAT THEY DID NOT RECOVER FROM THE AE THE BANK CHARGES INCURRED BY IT FOR PROVISION OF BACK TO BACK CORPORATE GUARANTEE. IN SUPPORT OF ITS CONTENTION THAT THE CHARGES ARE NOT RECOVERABLE, THE APPELLANT COMPANY RELIED UPON THE DECISION OF HONORABLE ITAT BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 52 OF 66 HYDERABAD IN THE CASE OF FOUR SOFT LIMITED V/S. DCIT (ITA NO. 1495/HYD/2010) WHEREIN IT HAS BEEN OBSERVED THAT CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE IN THAT CASE DOES NOT FALL WITHIN THE DEFINITION OF THE TERM INTERNATIONAL TRANSACTION AS PROVIDED IN SECTION 92C OF THE INCOME TAX ACT. IT WAS SUBMITTED BEFORE THE CIT (A) THAT THE COMPANY HAS AMORTIZED SUCH BANK CHARGES OVER A PERIOD OF 5 YEARS AND HAS CHARGED ONLY RS.12,83,897/- DURING THE YEAR IN ITS PROFIT AND LOSS ACCOUNT. SUCH EXPENSE INCURRED HAS NOT BEEN CLAIMED AS AN EXPENDITURE OR DEDUCTION UNDER ANY HEAD OF INCOME DURING THE YEAR. THE CIT (A) FURTHER NOTED THE EXHAUSTIVE SUBMISSION GIVEN TO THE TPO WHICH HAS BEEN REPRODUCED IN PAGE NO.8 TO 11 OF THE TRANSFER PRICING ORDER. IT WAS ALSO SUBMITTED BEFORE HIM THAT THE TPO HAS NOT CONSIDERED ITS FOLLOWING MAIN CONTENTIONS THAT THE BANK CHARGES PAID FOR PROVIDING BACK TO BACK CORPORATE GUARANTEE FOR THE AE HAS NOT BEEN CLAIMED AS A DEDUCTION FROM ANY HEAD OF INCOME. THE SAME HAS BEEN PAID OUT OF TAX PAID FUNDS OF THE APPELLANT COMPANY AVAILABLE IN THE BOOKS OF ACCOUNT. HENCE ADDITION OF THE SAME AMOUNTS TO DOUBLE TAXATION. FURTHER, THE TPO HAS NOT CONSIDERED THE FACT THAT TRANSFER PRICING PROVISIONS ARE ANTI-AVOIDANCE PROVISIONS AND AN EXPENDITURE WHICH HAS NOT BEEN CLAIMED AS A DEDUCTION DO NOT RESULT IN ANY REDUCTION OF TAX BASE IN INDIA. ACCORDINGLY IT WAS SUBMITTED THAT THE TPO OUGHT TO HAVE ACCEPTED THE FACT THAT PROVISION OF BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 53 OF 66 CORPORATE GUARANTEE IS NOT AN INTERNATIONAL TRANSACTION AS PER THE DECISION OF HONBLE ITAT HYDERABAD IN THE CASE OF FOUR SOFT LIMITED V/S. DCIT (SUPRA). IT WAS REQUESTED TO DELETE THE AMOUNT OF QUANTUM OF BANK CHARGES RS.1,78,86,359/- AS ALP OF THE TRANSACTION. HOWEVER, THE CIT (A) WAS NOT SATISFIED WITH EXPLANATION AND SUBMISSIONS OF THE ASSESSEE AND ACCORDINGLY, CONFIRMED THE FINDINGS AND ADDITION MADE BY THE AO. 29. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE GUARANTEE GIVEN FOR BRINGING BACK FUNDS INTO THE COUNTRY WHICH WILL INCREASE ASSET BASE AND TAXABLE INCOME IN INDIA. THIS DOES NOT RESULT IN ANY SHIFTING OF PROFIT ABROAD RATHER SHIFTS THE FUTURE PROFITS INTO INDIA. THE TPO HAS RELIED ON PLAIN READING OF SECTION 92(1) AND 92(2) WHICH IS NOT APPLICABLE OWING TO FACTS THAT THERE IS NO MUTUAL ARRANGEMENTS TO PROVIDE ANY SERVICE AND THE GUARANTEE HAS BEEN PROVIDED TO ENABLE THE AE TO REPATRIATE RS.174.90 CRORES BY REDEEMING THE PREFERENCE SHARES ISSUED TO THE AE BY RAISING A LOAN FROM STANDARD CHARTERED BANK, MAURITIUS WHICH HAS RESULTED IN INCREASE IN ASSET BASE AND TAXABLE INCOME OF THE ASSESSEE IN INDIA, HENCE, IT IS SHAREHOLDER FUNCTION, WHICH DOES NOT AMOUNT TO AN INTERNATIONAL TRANSACTION. THE AE HAD NO FUNDS AVAILABLE TO REDEEM BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 54 OF 66 PREFERENCE SHARES. REDEMPTION OF PREFERENCE SHARES WAS UNDERTAKEN BY THE ASSESSEE TO BRING BACK THE MONEY TO INDIA WHICH WILL INCREASE THE ASSET BASE AND TAX BASE IN INDIA. THE GUARANTEE WAS GIVEN AND GUARANTEE COMMISSION PAID TO FACILITATE GRANTING OF LOAN TO THE AE AND ACHIEVE THE GOAL OF BRINGING BACK THE MONEYS BACK TO INDIA. THE GUARANTEE FEE PAID TO THE FOREIGN BANK WAS INCURRED TO ACHIEVE THIS OBJECTIVE WHICH INCREASES THE ASSET BASE AND TAX BASE IN INDIA AND NOT AS A SERVICE TO THE AE. IN-FACT WHEN THE PREFERENCE SHARES WERE REDEEMED THE AFORESAID EXPENSES HAS BEEN RECEIVED BACK ALONG WITH THE PRINCIPLE AMOUNT AND THERE IS NO LOSS TO THE ASSESSEE AND NO DEDUCTION HAS BEEN CLAIMED ON ACCOUNT OF SUCH PAYMENTS UNDER ANY HEAD OF INCOME BY THE ASSESSEE. THE CORPORATE GUARANTEE PROVIDED BEFORE 2012 IS NOT AN INTERNATIONAL TRANSACTION EVEN AFTER THE AMENDMENT 2012. CORPORATE GUARANTEE PROVIDED BEFORE 2012 IS NOT AN INTERNATIONAL TRANSACTION EVEN AFTER THE AMENDMENT IN 2012. RELIED ON THE DECISION OF HYDERABAD TRIBUNAL IN THE CASE OF BARTRONICS INDIA LTD V. DCIT (2017) 86 TAXMANN.COM 254 (HYDERABAD-TRIB.) IN WHICH IT WAS HELD AS UNDER: CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS VARIOUS CASE LAWS SUBMITTED BY THE ASSESSEE. ASSESSEE HAS PROVIDED CORPORATE GUARANTEE TO ITS AE IN THE CURRENT AY WITHOUT CHARGING ANY FEES FOR THE SAME. THE TERM GUARANTE 1 WAS INSERTED IN THE DEFINITION OF INTERNATIONAL TRANSACTION BY INSERTING AN EXPLANATION IN THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01/04/2002. THERE IS NO DISPUTE THAT THE CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION AND DIFFERENT ASSESSEE ARE ADOPTING DIFFERENT METHODS OF TREATMENT. SOME ASSESSEE CHARGES NOMINAL RATE TO THE AES, WHEREAS OTHER ASSESSEE ARE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 55 OF 66 TREATING THIS AS SHAREHOLDER SERVICE. HERE, THE ASSESSEE HAS OBJECTED TO INCLUDE THIS TRANSACTION AS INTERNATIONAL TRANSACTION FOR THE REASON THAT THE FINANCE ACT, 2012, WHICH HAS INSERTED AN EXPLANATION, WHICH WILL BE APPLICABLE PROSPECTIVELY FROM AY 2013-14 AND THE CORPORATE GUARANTEE TRANSACTION WILL NOT BE APPLICABLE TO THE CURRENT AY. THE SAME VIEW WAS UPHELD BY THE COORDINATE BENCH IN THE CASE OF DR. REDDY LABORATORIES AND OTHER BENCHES OF TRIBUNAL. THE FINDINGS GIVEN BY THE COORDINATE BENCH IN THE CASE OF DR. REDDY LABORATORIES (SUPRA) ARE EXTRACTED BELOW: '29. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE ITAT, DELHI BENCH IN THE CASE OF BHARATI AIRTEL LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE WHICH WAS RE-AFFIRMED IN THE CASE OF SIRO CLINPHARMA PVT. LTD., V. DCIT (ORDER DATED 31 ST MARCH, 2016). THE BENCH OBSERVED THAT TRANSFER PRICING IS A LEGISLATION SEEKING THE TAX-PAYERS TO ORGANIZE THEIR AFFAIRS IN A MANNER COMPLIANT WITH THE NORMS SET- OUT. IN SHORT, IT IS AN ANTI-ABUSE LEGISLATION WHICH TELLS YOU AS TO WHAT IS THE ACCEPTABLE BEHAVIOR BUT IT DOES NOT TRIGGER LEVY OF TAX IN A RETROSPECTIVE MANNER BECAUSE NO PARTY CAN BE ASKED TO DO IMPOSSIBILITY. ANALYZING FURTHER THE BENCH OBSERVED THAT THOUGH EXPLANATION TO SECTION 92B IS STATED TO BE CLARIFICATORY, IT HAS TO BE NECESSARILY TREATED AS EFFECTIVE FROM THE A.Y. 2013- 2014 AND IN THIS REGARD, RELIED UPON THE OBSERVATIONS OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SKIES SATELLITE. WE HAVE ALSO ANALYZED THE CASE LAW RELIED UPON BY THE LD. D.R. AND ALSO THE PROVISIONS OF THE ACT. IN OUR CONSIDERED OPINION, THE VIEW TAKEN BY THE DELHI BENCH OF ITAT IN THE CASE OF BHARATI AIRTEL LTD (SUPRA) IS ONE OF THE POSSIBLE VIEWS ON THE MATTER AND SO LONG AS THERE IS NO BINDING DECISION OF ANY OTHER HIGHER FORUM TAKING A CONTRARY VIEW, THE ONE WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE ADOPTED EVEN THOUGH OTHER BENCHES HAVE TAKEN A DIFFERENT VIEW. WE, THEREFORE, HOLD THAT THE EXPLANATION TO SECTION 92B CANNOT BE APPLIED RETROSPECTIVELY AND FOR THE YEARS UNDER CONSIDERATION THE ASSESSEE HAVING NOT INCURRED ANY COSTS IN PROVIDING CORPORATE GUARANTEE IT WOULD NOT CONSTITUTE 'INTERNATIONAL TRANSACTION' WITHIN THE MEANING OF SECTION 92B OF THE ACT AND CONSEQUENTLY, ALP ADJUSTMENT IS NOT WARRANTED ON THIS ASPECT.' RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE REJECT THE TREATMENT OF CORPORATE GUARANTEE AS INTERNATIONAL TRANSACTION AND CONSEQUENTLY, ALP ADJUSTMENT IS NOT WARRANTED ON THIS ASPECT. ACCORDINGLY, THE GROUND RAISED BY ASSESSEE IS ALLOWED. 30. THIS HAS ALSO BEEN HELD BY HONBLE AHMEDABAD TRIBUNAL IN THE CASE OF MICRO INK LTD. V. ADDL. CIT (2016) 157 ITD 132/63 TAXMANN.COM 352 (AHD.), PARA 47 & 48 AT PAGE 113 & 114 OF THE COMPILATION OF DECISIONS AND CADILA HEALTHCARE LTD REPORTED IN (2017) BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 56 OF 66 80 TAXMANN.COM 24 (AHMEDABAD-TRIB.) SUB PARA. 24 & 25 AT PAGE 99 OF THE COMPILATION OF DECISIONS. ACCORDINGLY, CORPORATE GUARANTEE PROVIDED BEFORE 2012 IS NOT AN INTERNATIONAL TRANSACTION EVEN AFTER THE AMENDMENT 2012. THEREFORE, IN ARGUMENT NO.3 IS ON FACTS GUARANTEE CHARGES IS RECOVERED FROM THE AE, HENCE ADDITION NOT JUSTIFIED. ON FACTS BHPL HAS RECOVERED AND BROUGHT BACK MORE MONEY WHILE REDEEMING THE PREFERENCE SHARES. THE CORPORATE GUARANTEE HAS BEEN GIVEN FOR OBTAINING A LOAN FROM A BANK WHICH IS USED FOR REDEEMING THE ASSESSEE PREFERENCE SHARES IN THE AE. BHPL HAS BROUGHT BACK MONEYS INVESTED AS PREFERENCE SHARES + GUARANTEE CHARGES PAID TO THE BANK. HENCE, THE ALP OF THAT TRANSACTION EQUIVALENT TO THE GUARANTEE COMMISSION EXPENSES PAID IS NOT JUSTIFIED. BHPL NOT CLAIMED GUARANTEE CHARGES PAID AS DEDUCTION AGAINST ANY TAXABLE INCOME. CHAPTER X SECTION 92 AND 92C OF THE INCOME TAX ACT CONSTITUTE ANTI-AVOIDANCE PROVISIONS WHICH RESULT IN DETERMINATION OF ALP AND ADDING BACK THE ALP AND THE PRICE RECORDED IN THE BOOKS OF ACCOUNTS TO THE TOTAL INCOME TO LEVY TAX. IN THE INSTANT CASE BHPL ITSELF HAS NOT CLAIMED IT AS A DEDUCTION FROM ANY INCOME AND GUARANTEE CHARGES ACCORDINGLY HAS BEEN OFFERED TO TAXATION. THE AMOUNT PAID AS GUARANTEE CHARGES HAS ALREADY SUFFERED DISALLOWANCE WHILE FILLING RETURN OF INCOME ITSELF. HENCE, AGAIN ADDITION THE SAME TO TOTAL INCOME RESULTS IN DOUBLE TAXATION. TP STUDY REPORT REJECTED BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 57 OF 66 WITHOUT A SPEAKING ORDER. BHPL HAS FILED TRANSFER PRICING DOCUMENTATION AND HAS UNDERTAKEN T P STUDY ON THE BASIS OF INTEREST SAVER (IS) APPROACH. THE CONCLUSION OF THE T P STUDY REPORT IS IN PAGE NO.163 OF THE PAPER BOOK. THE TPO CIT(A) HAS NOT CONSIDERED AND REJECTED THE TP STUDY REPORT WITHOUT A SPEAKING ORDER. THE ACCURACY OF THE T P STUDY REPORT IS NOT DISPUTED BY THE TPO/ CIT(A). WHEN THE T P ANALYSIS OF BHPL HAS NOT BEEN DISPUTED TP ADJUSTMENT MADE IN THIS REGARD IS NOT AS PER LAW. HENCE, SAME NEEDS TO BE DELETED. 31. PER CONTRA , THE LD. CIT (DR) SUBMITTED THE ARGUMENT OF THE COUNSEL ARE MISLEADING FACT THAT RS. 171.68 CRORES PROFIT SHOWN IN YEAR 2005 AND BROUGHT BACK RS. 174.90 CRORES. NO SUCH CLAIM WAS MADE BEFORE TPO OR CIT (A). THE CHARGE ARE INCURRED BY THE PARENT COMPANY IN INDIA AND NOT RECOVERED AND ONLY BOOKING CHARGE PAID BY THE ASSESSEE. THE LD. CIT (DR) SUBMITTED THAT THERE IS AMENDMENT IN SECTION 92B OF THE ACT WHICH IS RETROSPECTIVE IN NATURE, HENCE, SAME IS APPLICABLE TO THE ASSESSEE. THE LD. CIT (DR) RELIED IN THE CASE OF CIT V. EVEREST KENTO CYLINDERS LTD. [2015] 58 TAXMANN.COM 254 (BOMBAY) IN SUPPORT OF HIS CONTENTIONS. 32. IN REJOINDER, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMOUNT OF RS. 174.90 CRORES HAS BEEN RECORDED IN THE BOOKS OF ACCOUNTS AND SAME FORMA PART OF ASSESSMENT RECORDS,WHICH IS MORE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 58 OF 66 THAN RS. 171.68 CRORES OF CORPORATE GUARANTEE GIVEN BY THE ASSESSEE, HENCE, THE ASSESSEE HAS RECOVERED MORE RS. 3.22 CRORES MORE AS AGAINST THE GUARANTEE CHARGES PAID TO BANK, THEREFORE, THE CONTENTION OF LEARNED CIT(D.R.) IS NOT CORRECT. FURTHER, THE DECISION IN THE CASE OF CIT V. EVEREST KENTO CYLINDERS LTD. [2015] 58 TAXMANN.COM 254 (BOMBAY) IS NOT APPLICABLE AS THE SAID DECISION RATHER SUPPORTS THE CASE OF THE ASSESSEE. 33. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE GUARANTEE HAS BEEN GIVEN FOR BRINGING BACK FUNDS INTO THE COUNTRY, WHICH WILL INCREASE ASSET BASE AND TAXABLE INCOME IN INDIA. THIS DOES NOT RESULT IN ANY SHIFTING OF PROFIT ABROAD RATHER SHIFTS THE FUTURE PROFITS INTO INDIA. THE ASSESSEE HAS INCURRED EXPENDITURE OF RS.171.68 CRORES ON ACCOUNT OF BANK GUARANTEE GIVEN AS AGAINST WHICH THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.174.90 CRORES AS DIVIDEND INCOME , HENCE, AMOUNT RECEIVED IS MORE BY RS.3.22 CRORES, HENCE, NO UPWARD ADJUSTMENTS ON ACCOUNT OF ARMS LENGTH PRICE ON CORPORATE GUARANTEE IS REQUIRED. THIS AMOUNT WAS RECEIVED IN THE ASSESSMENT YEAR 2012-13 AND ASSESSMENT YEAR 2013-14 AND SAME HAS BEEN DULY REFLECTED FINANCIAL STATEMENT AND BALANCE SHEET OF THE ASSESSEE IN RETROSPECTIVE ASSESSMENT YEARS. AS WE HAVE ALREADY HELD THAT THIS IS A CASE OF QUASI- BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 59 OF 66 CAPITAL INVESTMENT AND AS LOAN SIMPLICITOR, AND SAME LOAN HAS BEEN GIVEN FOR REDEMPTION OF PREFERENTIAL SHARES CAPITAL, HENCE, NOT A SIMPLICITOR LOAN. THE TPO HAS RELIED ON PLAIN READING OF SECTION 92(1) AND 92(2) WHICH IS NOT APPLICABLE OWING TO THE FOLLOWING REASONS AS THERE IS NO MUTUAL ARRANGEMENTS TO PROVIDE ANY SERVICE AND THE GUARANTEE HAS BEEN PROVIDED TO ENABLE THE AE TO REPATRIATE RS.174.90 CRORES BY REDEEMING THE PREFERENCE SHARES ISSUED TO THE AE BY RAISING A LOAN FROM STANDARD CHARTERED BANK MAURITIUS WHICH HAS RESULTED IN INCREASE IN ASSET BASE AND TAXABLE INCOME OF THE ASSESSEE IN INDIA. THIS IT IS A SHAREHOLDER FUNCTION, HENCE, DOES NOT AMOUNT TO AN INTERNATIONAL TRANSACTION. THE AE HAD NO FUNDS AVAILABLE TO REDEEM PREFERENCE SHARES. REDEMPTION OF PREFERENCE SHARES WAS UNDERTAKEN BY THE ASSESSEE TO BRING BACK THE MONEY TO INDIA WHICH WILL INCREASE THE ASSET BASE AND TAX BASE IN INDIA. THE GUARANTEE WAS GIVEN AND GUARANTEE COMMISSION PAID TO FACILITATE GRANTING OF LOAN TO THE AE AND ACHIEVE THE GOAL OF BRINGING BACK THE MONEYS BACK TO INDIA. THE GUARANTEE FEE PAID TO THE FOREIGN BANK WAS INCURRED TO ACHIEVE THIS OBJECTIVE WHICH INCREASES THE ASSET BASE AND TAX BASE IN INDIA AND NOT AS A SERVICE TO THE AE. IN-FACT WHEN THE PREFERENCE SHARES WERE REDEEMED THE AFORESAID EXPENSES HAS BEEN RECEIVED BACK ALONG WITH THE PRINCIPLE AMOUNT AND THERE IS NO LOSS TO THE ASSESSEE AND NO DEDUCTION HAS BEEN CLAIMED ON ACCOUNT OF SUCH PAYMENTS UNDER ANY BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 60 OF 66 HEAD OF INCOME BY THE ASSESSEE. WE ARE ALSO OF THE VIEW THAT THE CORPORATE GUARANTEE PROVIDED BEFORE 2012 IS NOT AN INTERNATIONAL TRANSACTION AS PER PROVISIONS OF SECTION 92(2) AND EVEN AFTER THE AMENDMENT IN 2012 IN SECTION 92(2) OF THE ACT. THE CORPORATE GUARANTEE PROVIDED BEFORE 2012 IS NOT AN INTERNATIONAL TRANSACTION EVEN AFTER THE AMENDMENT IN 2012. THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF HYDERABAD TRIBUNAL IN THE CASE OF BARTRONICS INDIA LTD V. DCIT (2017) 86 TAXMANN.COM 254 (HYDERABAD-TRIB.) OF WHICH RELEVANT PART IS REPRODUCED AS UNDER: 17. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS VARIOUS CASE LAWS SUBMITTED BY THE ASSESSEE. ASSESSEE HAS PROVIDED CORPORATE GUARANTEE TO ITS AE IN THE CURRENT AY WITHOUT CHARGING ANY FEES FOR THE SAME. THE TERM GUARANTE 1 WAS INSERTED IN THE DEFINITION OF INTERNATIONAL TRANSACTION BY INSERTING AN EXPLANATION IN THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01/04/2002. THERE IS NO DISPUTE THAT THE CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION AND DIFFERENT ASSESSEE ARE ADOPTING DIFFERENT METHODS OF TREATMENT. SOME ASSESSEE CHARGES NOMINAL RATE TO THE AES, WHEREAS OTHER ASSESSEE ARE TREATING THIS AS SHAREHOLDER SERVICE. HERE, THE ASSESSEE HAS OBJECTED TO INCLUDE THIS TRANSACTION AS INTERNATIONAL TRANSACTION FOR THE REASON THAT THE FINANCE ACT, 2012, WHICH HAS INSERTED AN EXPLANATION, WHICH WILL BE APPLICABLE PROSPECTIVELY FROM AY 2013-14 AND THE CORPORATE GUARANTEE TRANSACTION WILL NOT BE APPLICABLE TO THE CURRENT AY. THE SAME VIEW WAS UPHELD BY THE COORDINATE BENCH IN THE CASE OF DR. REDDY LABORATORIES AND OTHER BENCHES OF TRIBUNAL. THE FINDINGS GIVEN BY THE COORDINATE BENCH IN THE CASE OF DR. REDDY LABORATORIES (SUPRA) ARE EXTRACTED BELOW: '29. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE ITAT, DELHI BENCH IN THE CASE OF BHARATI AIRTEL LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE WHICH WAS RE-AFFIRMED IN THE CASE OF SIRO CLINPHARMA PVT. LTD., V. DCIT (ORDER DATED 31 ST MARCH, 2016). THE BENCH OBSERVED THAT TRANSFER PRICING IS A LEGISLATION SEEKING THE TAX- PAYERS TO ORGANIZE THEIR AFFAIRS IN A MANNER COMPLIANT WITH THE NORMS SET- OUT. IN SHORT, IT IS AN ANTI-ABUSE LEGISLATION WHICH TELLS YOU AS TO WHAT IS THE ACCEPTABLE BEHAVIOR BUT IT DOES NOT TRIGGER LEVY OF TAX IN A RETROSPECTIVE MANNER BECAUSE NO PARTY CAN BE ASKED TO DO IMPOSSIBILITY. ANALYZING FURTHER THE BENCH OBSERVED THAT THOUGH EXPLANATION TO SECTION 92B IS STATED TO BE CLARIFICATORY, IT HAS TO BE NECESSARILY TREATED AS EFFECTIVE FROM THE A.Y. 2013- 2014 AND IN THIS REGARD, RELIED UPON THE BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 61 OF 66 OBSERVATIONS OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SKIES SATELLITE. WE HAVE ALSO ANALYZED THE CASE LAW RELIED UPON BY THE LD. D.R. AND ALSO THE PROVISIONS OF THE ACT. IN OUR CONSIDERED OPINION, THE VIEW TAKEN BY THE DELHI BENCH OF ITAT IN THE CASE OF BHARATI AIRTEL LTD (SUPRA) IS ONE OF THE POSSIBLE VIEWS ON THE MATTER AND SO LONG AS THERE IS NO BINDING DECISION OF ANY OTHER HIGHER FORUM TAKING A CONTRARY VIEW, THE ONE WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE ADOPTED EVEN THOUGH OTHER BENCHES HAVE TAKEN A DIFFERENT VIEW. WE, THEREFORE, HOLD THAT THE EXPLANATION TO SECTION 92B CANNOT BE APPLIED RETROSPECTIVELY AND FOR THE YEARS UNDER CONSIDERATION THE ASSESSEE HAVING NOT INCURRED ANY COSTS IN PROVIDING CORPORATE GUARANTEE IT WOULD NOT CONSTITUTE 'INTERNATIONAL TRANSACTION' WITHIN THE MEANING OF SECTION 92B OF THE ACT AND CONSEQUENTLY, ALP ADJUSTMENT IS NOT WARRANTED ON THIS ASPECT.' RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE REJECT THE TREATMENT OF CORPORATE GUARANTEE AS INTERNATIONAL TRANSACTION AND CONSEQUENTLY, ALP ADJUSTMENT IS NOT WARRANTED ON THIS ASPECT. ACCORDINGLY, THE GROUND RAISED BY ASSESSEE IS ALLOWED. 34. THEREFORE, RESPECTFULLY FOLLOWING THE RATIO OF ABOVE DECISION, THE TREATMENT OF CORPORATE GUARANTEE AS INTERNATIONAL TRANSACTION AND CONSEQUENTLY, ALP ADJUSTMENT IS NOT WARRANTED ON THIS ASPECT. THUS, IN THE LIGHT OF ABOVE DISCUSSION, WE HOLD THAT THE EXPLANATION TO SECTION 92B CANNOT BE APPLIED RETROSPECTIVELY AND FOR THE YEARS UNDER CONSIDERATION THE ASSESSEE HAVING NOT INCURRED ANY COSTS IN PROVIDING CORPORATE GUARANTEE IT WOULD NOT CONSTITUTE 'INTERNATIONAL TRANSACTION' WITHIN THE MEANING OF SECTION 92B OF THE ACT AND CONSEQUENTLY, ALP ADJUSTMENT IS NOT WARRANTED ON THIS ASPECT.' 35. FURTHER IT HAS ALSO BEEN HELD BY HONBLE AHMEDABAD TRIBUNAL IN THE CASE OF MICRO INK LTD. V. ADDL. CIT (2016) 157 ITD 132/63 TAXMANN.COM 352 (AHD.), PARA 47 & 48 AT PAGE 113 & 114 OF THE COMPILATION OF DECISIONS AND CADILA HEALTHCARE LTD REPORTED IN (2017) BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 62 OF 66 80 TAXMANN.COM 24 (AHMEDABAD-TRIB.) SUB PARA. 24 & 25 AT PAGE 99 OF THE COMPILATION OF DECISIONS. ACCORDINGLY, CORPORATE GUARANTEE PROVIDED BEFORE 2012 IS NOT AN INTERNATIONAL TRANSACTION EVEN AFTER THE AMENDMENT 2012. THEREFORE, IN ARGUMENT NO.3 IS ON FACTS GUARANTEE CHARGES IS RECOVERED FROM THE AE, HENCE ADDITION NOT JUSTIFIED. ON FACTS, THE BHPL HAS RECOVERED AND BROUGHT BACK MORE MONEY WHILE REDEEMING THE PREFERENCE SHARES. THE CORPORATE GUARANTEE HAS BEEN GIVEN FOR OBTAINING A LOAN FROM A BANK WHICH IS USED FOR REDEEMING ASSESSEE PREFERENCE SHARES IN THE AE. BHPL HAS BROUGHT BACK MONEYS INVESTED AS PREFERENCE SHARES + GUARANTEE CHARGES PAID TO THE BANK. HENCE, THE ALP OF THAT TRANSACTION EQUIVALENT TO THE GUARANTEE COMMISSION EXPENSES PAID IS NOT JUSTIFIED. BHPL NOT CLAIMED GUARANTEE CHARGES PAID AS DEDUCTION AGAINST ANY TAXABLE INCOME. CHAPTER X SECTION 92 AND 92C OF THE INCOME TAX ACT CONSTITUTE ANTI-AVOIDANCE PROVISIONS WHICH RESULT IN DETERMINATION OF ALP AND ADDING BACK THE ALP AND THE PRICE RECORDED IN THE BOOKS OF ACCOUNTS TO THE TOTAL INCOME TO LEVY TAX. IN THE INSTANT CASE BHPL ITSELF HAS NOT CLAIMED IT AS A DEDUCTION FROM ANY INCOME AND GUARANTEE CHARGES ACCORDINGLY HAS BEEN OFFERED TO TAXATION. THE AMOUNT PAID AS GUARANTEE CHARGES HAS ALREADY SUFFERED DISALLOWANCE WHILE FILLING RETURN OF INCOME ITSELF. HENCE, AGAIN ADDITION THE SAME TO TOTAL INCOME RESULTS IN DOUBLE TAXATION. TP STUDY REPORT REJECTED BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 63 OF 66 WITHOUT A SPEAKING ORDER. BHPL HAS FILED TRANSFER PRICING DOCUMENTATION AND HAS UNDERTAKEN T P STUDY ON THE BASIS OF INTEREST SAVER (IS) APPROACH. IN VIEW OF THE FOREGOING, THE UPWARD ADJUSTMENTS ON ACCOUNT OF BANK GUARANTEE OF RS.1,78,86,359/- ARE THEREFORE, DELETED. THIS GROUND OF APPEAL IS THEREFORE, ALLOWED. 36. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FROM A.Y. 2008-09. I.T.A.NO.1415/AHD/2015/A.Y.2009-10/BY ASSESSEE : 37. GROUND NO. 1 & 2 ARE GENERAL IN NATURE; HENCE, DOES NOT REQUIRE OUR SEPARATE ADJUDICATION. 38. GROUND NO. 3 & 4 ARE AGAINST THE CONFIRMATION OF UPWARD ADJUSTMENT OF RS.1,23,03,414/- OUT OF TOTAL UPWARD ADJUSTMENT OF RS.1,94,15,214/- MADE BY AO/TPO ON ACCOUNT OF INTEREST ON LOAN TO AES WHILE DETERMINING ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. 39. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT BOTH PARTIES HAVE AGREED THAT THE FACT FOR THIS ASSESSMENT YEAR ARE IDENTICAL AS IN ASSESSMENT YEAR 2008- 09 IN ASSESSEE`S OWN CASE. THEREFORE, OUR FINDINGS AS GIVEN IN ASSESSMENT YEAR 2008-09 IN GROUND NO. 4 ABOVE, WOULD MUTATIS BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 64 OF 66 MUTANDIS APPLY TO THIS GROUND ALSO. ACCORDINGLY, FOLLOWING THE SAME THESE GROUNDS OF APPEAL OF THE ASSESSEE IS ALLOWED. 40. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR ASSESSMENT YEAR 2009-10. I.T.A.NO.1416/AHD/2015/A.Y. 2010-11/ BY THE ASSESSEE: 41. GROUND NO. 1 & 2 ARE GENERAL IN NATURE; HENCE, DOES NOT REQUIRE OUR SEPARATE ADJUDICATION. 42. GROUND NO. 3 & 4 ARE AGAINST THE CONFIRMATION OF UPWARD ADJUSTMENT OF RS.94,09,829/- OUT OF TOTAL UPWARD ADJUSTMENT OF RS.1,55,78,150/- MADE BY AO/TPO ON ACCOUNT OF INTEREST ON LOAN TO AES WHILE DETERMINING ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. 43. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT BOTH PARTIES HAVE AGREED THAT THE FACT FOR THIS ASSESSMENT YEAR ARE IDENTICAL AS IN ASSESSMENT YEAR 2008- 09 IN ASSESSEE`S OWN CASE. THEREFORE, OUR FINDINGS AS GIVEN IN ASSESSMENT YEAR 2008-09 IN GROUND NO. 4 ABOVE, WOULD MUTATIS MUTANDIS APPLY TO THIS GROUND ALSO. ACCORDINGLY, FOLLOWING THE SAME THESE GROUNDS OF APPEAL OF THE ASSESSEE IS ALLOWED. BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 65 OF 66 44. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR ASSESSMENT YEAR 2010-11. I.T.A.NO.795/AHD/2016/A.Y. 2011-12/ BY THE ASSESSEE: 45. GROUND NO. 1 & 2 ARE GENERAL IN NATURE; HENCE, DOES NOT REQUIRE OUR SEPARATE ADJUDICATION. 46. GROUND NO. 3 & 4 ARE AGAINST THE CONFIRMATION OF UPWARD ADJUSTMENT OF RS.63,06,706/- OUT OF TOTAL UPWARD ADJUSTMENT OF RS.1,17,84,795/- MADE BY AO/TPO ON ACCOUNT OF INTEREST ON LOAN TO AES WHILE DETERMINING ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. 47. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT BOTH PARTIES HAVE AGREED THAT THE FACT FOR THIS ASSESSMENT YEAR ARE IDENTICAL AS IN ASSESSMENT YEAR 2008- 09 IN ASSESSEE`S OWN CASE. THEREFORE, OUR FINDINGS AS GIVEN IN ASSESSMENT YEAR 2008-09 IN GROUND NO. 4 ABOVE, WOULD MUTATIS MUTANDIS APPLY TO THIS GROUND ALSO. ACCORDINGLY, FOLLOWING THE SAME THESE GROUNDS OF APPEAL OF THE ASSESSEE IS ALLOWED. 48. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR ASSESSMENT YEAR 2011-12. BILAKHIA HOLDINGS PVT. LTD. V. ACIT- VAPI/ I.T.A.NO.507/AHD/2013/AY08-09/A.Y. 08-09 I.T.A.NOS.1415 & 1416/AHD/2015/A.Y. 09-10 & 10-11 AND I.T.A.NO.795/AHD/2016/A.Y. 11-12 PAGE 66 OF 66 49. IN SUM UP, THE APPEAL OF THE ASSESSEE FOR A.Y.2008-09 IN I.T.A.NO.507/AHD/2013, A.Y.2009-10 IN I.T.A.NO. 1415/AHD/2015, A.Y.2010-11 IN I.T.A.NO.1416/AHD/2015 AND A.Y.2011-12 IN I.T.A.NO.795/AHD/2016 ARE ALLOWED. 50. THE ORDER PRONOUNCED IN THE OPEN COURT ON 04-02.2020. SD/- SD/- (SANDEEP GOSAIN) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER SURAT: DATED: FEBRUARY 4 TH , 2020/OPM COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/ GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT