EVEREST KANTO CYLINDER LTD., MUMBAI V. ASSTT. CIT (LTU), MUMBAI

ITA 550/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88502 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 02-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 23-01-2014
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Keywords: Transfer pricing; International transaction; Earning of tax free income; Wholly owned subsidiary
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.550/MUM/2014 ASSESSMENT YEAR: -2009-10 M/S EVEREST KANTO CYLINDER LTD. 204, RAHEJA CENTRE, FREE PRESS JOURNAL MARG, NARIMAN POINT, MUMBAI 400 021. VS ASST. COMMISSIONER OF INCOME TAX (LTU), 29 TH CENTER NO. 1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI 400 005. PAN:- AAACE0836F APPELLANT RESPONDENT ITA NO.1386/MUM2014 ASSESSMENT YEAR: -2009-10 ASST. COMMISSIONER OF INCOME TAX (LTU), 29 TH CENTER NO. 1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI 400 005. VS M/S EVEREST KANTO CYLINDER LTD. 204, RAHEJA CENTRE, FREE PRESS JOURNAL MARG, NARIMAN POINT, MUMBAI 400 021. PAN:- AAACE0836F APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THESE CROSS APPEALS ARE DIRECTED AGAINST THE ASSESS MENT ORDER DATED 2.01.2014 PASSED U/S 143(3) R.W.S 144C (13) OF INCO ME TAX ACT, IN PURSUANT TO ASSESSEE BY SHRI RAJAN VORA REVENUE BY SHRI. S.D. SRIVASTAVA DATE OF HEARING 11.02.2015 DATE OF PRONOUNCEMENT 27.02.2015 M/S EVEREST KANTO CYLINDER LTD. 2 | P A G E DIRECTIONS OF DRP U/S 114C (5) OF THE INCOME TAX AC T FOR THE A.Y. 2009-10. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THIS APPEA L:- 1. THE LD. ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DISALLOWING RS. 6,93,10/- U/S. 14AOF THE I.T ACT PU RSUANT TO THE DIRECTIONS OF THE DRP. 2. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW ON THE FACTS OF THE CASE IN MAKING AN ADDITION OF RS. 7,30,18,425/- ON ACCOUNT O F GUARANTEE COMMISSION PURSUANT TO THE DIRECTIONS OF THE DRP 3. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW A ND ON THE FACTS OF THE CASE IN MAKING AN ADDITION OF RS. 10,36,69,267/- ON ACCOU NT OF INTEREST CHARGED TO ASSOCIATE ENTERPRISES PURSUANT TO THE DIRECTIONS OF DRP. 2. GROUND NO. 1 IS REGARDING DISALLOWANCE U/S 14A. 3. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAS EARNED DIVIDEND INCOME OF RS. 2,42,038/- WHICH IS CLAIMED AS EXEMPT U/S 10(33) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER ASKED THE ASSESSEE TO SUBMIT THE WORKING OF DISALLOWANCE U/S 14A. THE ASSESSEE SUBMITTED THE SUO MOTU WORKING OF DISALLOWANCE U/S 14A AT RS. 3, 10,601/- BASED ON THE DECISION OF THIS TRIBUNAL FOR THE A.Y. 2007-08. THE ASSESSING OFFICER DID NOT ACCEPT THE WORKING OF DISALLOWANCE U/S 14A SUBMITTE D BY THE ASSESSEE AND APPLIED RULE 8D AND ACCORDINGLY MADE A DISALLOWANCE OF RS. 6,93,102/- COMPRISING OF DISALLOWANCE ON ACCOUNT OF INTEREST E XPENDITURE U/S 8D(2)(II) AT RS. 4,34,802/- AND TOWARDS ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) AT RS. 2,58,300/-. THE ASSESSEE OBJECTED THE PROPOSED DISA LLOWANCE BEFORE THE DRP. HOWEVER, THE DRP HAS SUSTAINED THE DISALLOWANCE U/S 14A MADE BY THE ASSESSING OFFICER. M/S EVEREST KANTO CYLINDER LTD. 3 | P A G E 4. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT UP TO THE A.Y. 2007-08, THE TRIBUNAL HAS HELD THAT THE ASSESSEE WAS HAVING SUFFICIENT NON INTEREST BEARING FUND FOR MAKING THE INVESTMENT. FOR THE A.Y. 2008-09, THE INVESTMENT WAS MADE BY THE ASSESSEE IN FOREIGN SUBSIDIARIES, THEREFORE, TO THE EXTENT OF INVESTMENT MADE BY THE ASSESSEE IN THE A. Y. 2008-09, NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF BALANCE INTEREST EXPENDITU RE IN VIEW OF THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE. EVEN FOR THE A.Y. 2008-09, THE TRIBUNAL OBSERVED THAT DISALLOWANCE UNDER RULE 8D HAS BEEN WORKED OUT BY THE ASSESSING OFFICER ON THE TOTAL INVESTMENT WHICH INCLUDED INVESTMENT MADE IN THE MUTUAL FUNDS WITH GROWTH SCHEME DOES NOT YIELD ANY DIVIDEND INCOME. T HEREFORE, THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT NO FRESH INVESTME NT WAS MADE FOR THE A.Y. 2009- 10 AND ACCORDINGLY NO DISALLOWANCE CAN BE MADE ON A CCOUNT OF INTEREST EXPENDITURE U/S 14A OF THE INCOME TAX ACT. AS FAR AS THE DISALL OWANCE OF ADMINISTRATIVE EXPENSES IS CONCERNED, HE HAS SUBMITTED THAT OUT OF RS. 92.7 4 CRORES, INVESTMENT OF RS. 90.52 CRORES IS IN THE SUBSIDIARIES OF THE ASSESSEE WHIC H TOO IN THE FOREIGN SUBSIDIARIES. THEREFORE, TO THE EXTENT OF INVESTMENT IN THE SUBSI DIARY NO DISALLOWANCE IS CALLED FOR U/S 14A ON ACCOUNT OF ADMINISTRATIVE EXPENSES. THUS THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE DISALLOWANCE IF AT ALL CAN BE MADE ON ACCOUNT OF ADMINISTRATIVE EXPENSES, THE SAME MAY BE BY CONS IDERING THE INVESTMENT TO THE EXTENT OF RS. 2.23 CRORES ONLY AND SHOULD BE RESTRI CTED TO RS. 1.13 LAKHS. 5. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON TH E ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT FOR THE A.Y. UNDER CONSIDERATION RULE 8D IS APPLICABLE, THEREFORE, THE DISALLOWANCE U/S 14A TO BE WORKED OUT AS PROVIS IONS OF RULE 8D. M/S EVEREST KANTO CYLINDER LTD. 4 | P A G E 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS FURNISHED THE DETAILS OF I NVESTMENT MADE DURING THE A.Y. 2006-07 TO THE A.Y. 2009-10 AS UNDER:- PARTICULARS 31-MAR- 06 31-MAR-07 31-MAR-08 31-MAR-09 AY 2006-07 AY 2007-08 AY 2008-09 AY 2009-10 INVESTMENT IN SUBSIDIARIES EKC INTERNATIONAL (TIANJIN) LTD. 0.00 19.76 69.25 69.25 EKC INTERNATIONAL FZE 0.00 21.17 21.17 21.17 INVESTMENT IN ASSOCIATES EVEREST KANTO INVESTMENT AND FINANCE LTD. 0.09 0.09 0.09 0.09 EVEREST INDUSTRIAL GASES PRIVATE LTD. 0.00 0.01 0.00 0.00 TOTAL (A) 0.09 41.03 90.52 90.52 OTHER INVESTMENTS GPT STEEL INDUSTRIES PVT. LTD. 2.00 2.00 2.00 2.00 SOLAR EXPLOSIVE LTD. 0.45 0.00 0.00 0.00 SHIVALIK GLOBAL LTD. 0.30 0.00 0.00 0.00 MUTUAL FUND UTI FIXED MATURITY PLAN/GROWTH ORIENTED SCHEMES 0.00 10.00 10.00 0.00 OTHER MUTUAL FUNDS/ DIVIDEND ORIENTED SCHEMES 10.37 1.27 0.10 0.23 TOTAL (B) 13.12 13.27 12.10 2.23 GRAND TOTAL (A+B) 13.22 54.30 102.62 92.74 7. FROM THE ABOVE DETAILS, IT IS CLEAR THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS NOT MADE ANY FRESH INVESTMENT EXCE PT A SUM OF RS. 13 LAKH IN THE MUTUAL FUND SCHEME. OUT OF THE TOTAL INVESTMENT OF RS. 92.7 CRORES, THE INVESTMENT M/S EVEREST KANTO CYLINDER LTD. 5 | P A G E OF RS. 90.52 CRORES IS IN THE SUBSIDIARY AND FURTHE R THE INVESTMENT MADE IN THE SUBSIDIARIES PERTAINS TO THE FOREIGN SUBSIDIARIES O F THE ASSESSEE TO THE EXTENT OF RS. 90.43 CRORES. THERE IS A REDUCTION OF OVERALL INVES TMENT DURING THE YEAR UNDER CONSIDERATION. UP TO THE A.Y. 2007-08, THE TRIBUNAL HAS GIVEN THE FINDING THAT THE ASSESSEES OWN FUND WAS SUFFICIENT FOR MAKING THE I NVESTMENT AND, THEREFORE, NO DISALLOWANCE WAS CALLED FOR ON ACCOUNT OF INTEREST EXPENDITURE U/S 14A. THERE IS NET REDUCTION IN THE INVESTMENT DURING THE YEAR TO THE EXTENT OF RS. 10 CRORES DESPITE THE FRESH INVESTMENT OF RS. 13 LAKHS. SINCE THERE I S NO INCREASE IN INVESTMENT DURING THE YEAR UNDER CONSIDERATION AND EVEN FOR THE A.Y. 2008-09, THEREFORE, IN VIEW OF THE EARLIER ORDER OF THIS TRIBUNAL FOR THE A.Y. 200 6-07 AND 2007-08, NO DISALLOWANCE IS CALLED FOR U/S 14A ON ACCOUNT OF INTEREST EXPEND ITURE. AS REGARDS THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES U/S 14A IS CONCERNED, SI NCE THE MAJORITY OF INVESTMENT IS IN THE SUBSIDIARIES OF THE ASSESSEE AND THAT TOO IN THE FOREIGN SUBSIDIARIES AND THE DIVIDEND INCOME OF THE FOREIGN SUBSIDIARIES IS NOT A TAX EXEMPT INCOME BUT IT IS A TAXABLE INCOME, THEREFORE, THE PROVISIONS OF SECTIO N 14A ARE NOT APPLICABLE TO THE EXTENT OF INVESTMENT MADE IN FOREIGN SUBSIDIARIES. THEREFORE, FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2)(III), THE AVERAGE INVESTMENT IS TO BE TAKEN INTO ACCOUNT BY IGNORING THE INVESTMENT MADE BY THE ASSESSEE IN THE FOREIGN SUBSIDIARIES. IF THE INVESTMENT IN THE FOREIGN SUBS IDIARIES IS EXCLUDED FROM THE TOTAL INVESTMENT OF RS. 92.74 CRORES, THE BALANCE COMES T O RS. 2.32 CRORE. THE ASSESSEE ITSELF HAS DISALLOWED A SUM OF RS. 1.13 LAKH U/S 14 A. ACCORDINGLY THE ASSESSING OFFICER IS DIRECTED TO WORK OUT THE DISALLOWANCE U/S 14A AS PER RULE 8D2(III) BY TAKING AVERAGE INVESTMENT BY EXCLUDING THE INVESTMENT IN F OREIGN SUBSIDIARIES. M/S EVEREST KANTO CYLINDER LTD. 6 | P A G E 8. THE LD. AUTHORIZED REPRESENTATIVE HAS FURTHER CO NTENDED THAT THE ASSESSING OFFICER HAS MADE THE ADDITION OF RS. 6,93,102/- COM PUTED U/S 14A FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB WHICH IS NOT JUSTIFI ED. HE HAS RELIED UPON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT 255 ITR 273 AS WELL AS THE DECISION OF THIS TRIBUNAL IN ASSESSE ES OWN CASE FOR A.Y.2008-09. 9. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT NO SUCH GROUND HAS BEEN RAISED BY THE ASSESSEE IN THE PRESENT APPEAL. EVEN NO SUCH GROUND WAS RAISED BEFORE THE DRP. 10. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, WE NOTE THAT WHEN THE INCOME OF THE ASSESSE E IS ASSESSED UNDER THE NORMAL PROVISIONS OF THE ACT FOR THE A.Y. UNDER CONSIDERAT ION THEN THIS ISSUE AS RAISED BY THE LD. AUTHORIZED REPRESENTATIVE DURING THE COURSE OF ARGUMENT IS ONLY ACADEMIC IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 10. GROUND NO. 2 IS REGARDING ADDITION MADE ON ACCO UNT OF TP ADJUSTMENT ON GUARANTEE COMMISSION. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING HIGH PRESSURE SEAMLESS GAS CYLINDERS AND CNG CYLINDERS. FOR THE A .Y. UNDER CONSIDERATION, THE ASSESSEE HAS PROVIDED GUARANTEE TO ITS ASSOCIATE EN TERPRISES NAMELY EKC DUBAI AND M/S EVEREST KANTO CYLINDER LTD. 7 | P A G E EKC CHINA FOR TAKING TERM LOAN FROM BANKS. THE ASSE SSEE HAS CHARGED GUARANTEE COMMISSION AT THE RATE OF 0.5% PER ANNUM FROM EKC DUBAI, HOWEVER, NO GUARANTEE COMMISSION WAS CHARGED FROM EKC CHINA BECAUSE OF TH E ALLEGED REGULATIONS PROHIBITING SUCH GUARANTEE COMMISSION. APART FROM THIS, THE ASSESSEE HAS ALSO PROVIDED CORPORATE GUARANTEE TO CP INDUSTRIES FOR B ORROWING USD 45 MILLION TO MAKE OVERSEAS ACQUISITION. THE ASSESSEE HAS NOT RE COVERED ANY GUARANTEE COMMISSION ON THE GUARANTEE GIVEN TO CPI USA ON THE GROUND THAT THE LOAN TAKEN BY CPI IS IN THE NATURE OF QUASI EQUITY. THE ASSESSEE HAS BENCH MARKED ITS GUARANTEE COMMISSION BY APPLYING CUP METHOD AND STATED THAT YES BANK, HAD PROVIDED SIMILAR FINANCIAL ARRANGEMENT TO THE ASSESSEE AND CHARGED 0 .5% FOR THE SAID FINANCIAL ARRANGEMENT, THEREFORE, INTERNAL COMPARABLE HAS BEE N USED TO DETERMINE THE ARM LENGTH RATE FOR COMMISSION CHARGED BY THE ASSESSEE TO EKC DUBAI AE. AS REGARDS THE GUARANTEE PROVIDED TO EKC CHINA, THE ASSESSEE SUBMI TTED THAT THE CHINESE AE WOULD NOT BE ABLE TO REMIT THE GUARANTEE COMMISSION TO TH E AE NOR WOULD IT BE ALLOWED A DEDUCTION UNDER THE TRANSFER PRICING REGULATIONS IN CHINA. THEREFORE, THE ASSESSEE DID NOT CHARGE THE GUARANTEE FEE TO CHINESE AE AS I T COULD BE CHARGED ONLY IF PERMISSIBLE TO PAY UNDER THE AE COUNTRY LAWS. FOR CORPORATE GUARANTEE GIVEN TO CP INDUSTRIES FOR BORROWING USD 45 MILLION, THE ASSESS EE SUBMITTED THAT THE LOAN TAKEN BY THE CP INDUSTRIES IS CLASSIFIED IN THE NATURE OF QUASI EQUITY WHICH IS FOR MAKING ACQUISITIONS OF BUSINESS OF OTHER COUNTRY. THE BORR OWING MADE BY CP INDUSTRY IS FOR THE PURPOSE OF ACQUIRING THE ASSESTS OF REUNION IND USTRIES INC. WHICH IS AKIN TO SHAREHOLDERS FUNDS. THEREFORE, THE ASSESSEE DID NOT CHARGE ANY FEE TO CP INDUSTRIES FOR GUARANTEE GIVEN. THE TPO DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND DETERMINED THE ARM LENGTH GUARANTEE COMMISSION IN R ESPECT OF VARIOUS GUARANTEE M/S EVEREST KANTO CYLINDER LTD. 8 | P A G E PROVIDED BY THE ASSESSEE AND MADE THE ADJUSTMENT OF RS. 10,57,40,708/-, WHICH IS SUMMARIZED IN THE TABLE BELOW:- PARTICULARS EKCL INDIA EKC DUBAI EKC CHINA CP INDUS TRIES AMOUNT OF CORPORATE GUARANTEE (IN USD) 2,35,00,000 40,00,000 4,50,00,000 CREDIT RATINGS ASSIGNED BY TPO AA+ A+ BBB CCC YIELD RATE FOR 5 YEARS UNSECURED BONDS 10.38% P.A. 11.43% P.A. 14.35% P.A. - YIELD RATE FOR 5 YEARS UNSECURED US BONDS 5.03% - - 9.58% GUARANTEE COMMISSION TO BE CHARGED (DIFFERENCE ) 1% (11.43-10.38) 4% (14.35-10.38) 4.5% (9.58-5.03) NO OF DAYS 365 365 347 ADJUSTMENT PROPOSED BY TPO 56,54,125 76,80,000 9,24,06,576 11. THE ASSESSEE CHALLENGED THE PROPOSED ADJUSTMENT BY RAISING THE OBJECTION BEFORE THE DRP. THE DRP DETERMINED THE ALP OF GUARA NTEE FEE AT RS. 1% FOR THE GUARANTEE GIVEN TO EKC DUBAI AND 3% FOR GUARANTEE G IVEN TO EKC CHINA AND CPI USA. ACCORDINGLY, THE DRP DIRECTED THE ASSESSING OFFICER TO RESTRICT THE ADJUSTMENT. THE ASSESSING OFFICER IN THE FINAL ORDER RESTRICTED THE ADJUSTMENT AT RS. 7,30,80,525/-. THUS BOTH ASSESSEE AS WELL AS REVENUE ARE AGGRIEVED BY THE DIRECTIONS OF DRP AND FINAL ORDER OF ASSESSING OFFICER AND FILED THE RESP ECTIVE APPEALS ON THIS ISSUE BEFORE US. THE REVENUE IN ITS APPEAL HAS RAISED FOLLOWING GROUNDS:- 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. DRP ERRED IN RESTRICTING THE RATE @3% AS AGAINST 4% MADE BY TPO ON ACCOUNT OF CORPORATE GUARANTEE M/S EVEREST KANTO CYLINDER LTD. 9 | P A G E GIVEN TO EKC INDUSTRIES (TIANJIN )CO. LTD. CHINA, W ITHOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. DRP ERRED IN RESTRICTING THE RATE @3% AS AGAINST 4.5% MADE BY TP O ON ACCOUNT OF CORPORATE GUARANTEE GIVEN TO CP INDUSTRIES, USA WITHOUT APPRE CIATING THE FACTS OF THE CASE 12. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS INDEPENDENT SANCTION LETTER O F CREDIT AGREEMENT WITH YES BANK INDIA IN RESPECT OF INLAND AND FOREIGN LC WHE RE A GUARANTEE COMMISSION OF 0.5% PER ANNUM WAS TO BE PAID BY THE ASSESSEE TO YE S BANK INDIA FOR THE BANK GUARANTEE PROVIDED BY THE BANK. THUS 0.5% WAS THE F AIR RATE AS PER THE PREVAILING MARKET RATE. THE LD. AUTHORIZED REPRESEN TATIVE HAS REITERATED ITS CONTENTION REGARDING NO COMMISSION RECEIVED FROM EK C CHINA BECAUSE OF REGULATORY PROHIBITION IN THE SAID COUNTRY. HE HAS SUBMITTED THAT AS PER CHINESE REGULATION ANY OVERSEAS GUARANTEES UNLESS REGISTERE D WITH SAFE WILL NOT BE ELIGIBLE FOR LEVY OF GUARANTEE COMMISSION AND SUBSE QUENT REMITTANCE OF COMMISSION CHARGES. HE HAS FURTHER CONTENDED THAT I T WAS NOT POSSIBLE TO REGISTER THE AFORESAID GUARANTEE GIVEN BY THE ASSES SEE TO CITI BANK WITH THE STATE ADMINISTRATION OF FOREIGN EXCHANGE (SAFE) AUT HORITIES IN CHINA. SINCE IT WAS PROVIDED TO CITI BANK NA BRANCH INDIA AND THUS IT FAILED OUT OF CHINESE INTERNATIONAL REGULATIONS, ACCORDINGLY, THE ASSESSE E COULD NOT CHARGE ANY GUARANTEE COMMISSION FROM ITS AE AT CHINE. AS REGAR DS THE CORPORATE GUARANTEE GIVEN TO CPI, THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE HAS NOT RECEIVED ANY GUARANTEE COMMISSION ON GUARAN TEE GIVEN TO CPI USA AS THE VERY NATURE OF LOAN TAKEN BY THE CPI IS QUASI E QUITY. M/S EVEREST KANTO CYLINDER LTD. 10 | P A G E 13. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON T HE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE TRANSFER PRICING PROVI SION IS DEEMING PROVISION FOR DETERMINING THE ARMS LENGTH PRICE IN RESPECT OF T HE TRANSACTION BETWEEN THE TWO ASSOCIATED ENTERPRISES. EVEN, THOUGH, THE ASSES SEE HAS NOT RECEIVED ANY GUARANTEE COMMISSION FROM ITS AE IN CHINA AND USA, THE GUARANTEE COMMISSION HAS TO BE ASSESSED IN THE HANDS OF THE ASSESSEE AT ARMS LENGTH AS MANDATED BY THE TRANSFER PRICING PROVISIONS UNDER CHAPTER X OF THE INCOME TAX ACT. 14. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT FOR A.Y. 2007-08 AS WELL AS FOR A.Y. 2008-09, AN IDENTICAL ISSUE WAS CONSIDERED AND DECI DED BY THIS TRIBUNAL IN ASSESSEES OWN CASE. FOR THE A.Y. 2008-09, THE TRI BUNAL VIDE ITS ORDER DATED 25.09.2014 IN ITA NO. 7073/MUM/2012 HAS HELD IN PAR A 9 AS UNDER:- 9 . NOW, COMING TO THE MERIT OF THE ADDITION SO MADE, WE FOUND THAT THE ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN I MMEDIATELY PRECEDING YEAR IN ASSESSEES OWN CASE, WHEREIN CHARGING OF 0. 5% GUARANTEE COMMISSION FROM AE WAS HELD TO BE QUITE NEAR TO 0.6 %, WHERE ASSESSEE HAS PAID INDEPENDENTLY TO THE ICICI BANK AND CHARGING O F GUARANTEE COMMISSION @0.5% FROM ITS AE WAS HELD TO BE AT ARMS LENGTH. T HE PRECISE OBSERVATION OF THE BENCH FOR THE ASSESSMENT YEAR 2007-08 ARE AS UN DER :- 'THE UNIVERSAL APPLICATION OF RATE OF 3 PERCENT FOR GUARANTEE COMMISSION CANNOT BE UPHELD IN EVERY CASE AS IT IS LARGELY DEP ENDENT UPON THE TERMS AND CONDITIONS, ON WHICH LOAN HAS BEEN GIVEN, RISK UNDE RTAKEN, RELATIONSHIP BETWEEN THE BANK AND THE CLIENT, ECONOMIC AND BUSIN ESS INTEREST ARE SOME OF THE MAJOR FACTORS WHICH HAS TO BE TAKEN INTO CONSID ERATION. ' .IN THIS CASE, THE ASSESSEE HAS ITSELF CHARGED 0. 5% GUARANTEE COMMISSION FROM ITS AE, THEREFORE, IT IS NOT A CASE OF NOT CHA RGING OF ANY KIND OF M/S EVEREST KANTO CYLINDER LTD. 11 | P A G E COMMISSION FROM ITS AE. THE ONLY POINT WHICH HAS TO BE SEEN IN THIS CASE IS WHETHER THE SAME IS AT ALP OR NOT. WE HAVE ALREADY COME TO A CONCLUSION IN THE FOREGOING PARAS THAT THE RATE OF 3% BY TAKING E XTERNAL COMPARABLE BY THE TPO, CANNOT BE SUSTAINED IN FACTS OF THE PRESENT CA SE. WE ALSO FIND THAT IN AN INDEPENDENT TRANSACTION, THE ASSESSEE HAS PAID 0.6% GUARANTEE COMMISSION TO IGIGI BANK INDIA FOR ITS CREDIT ARRANGEMENT. THI S COULD BE A VERY GOOD PARAMETER AND A COMPARABLE FOR TAKING IT AS INTERNA L GUP AND COMPARING THE SAME WITH THE TRANSACTION WITH THE AE. THE CHARGING OF 0.5% GUARANTEE COMMISSION FROM THE AE IS QUITE NEAR TO 0.6%, WHERE THE ASSESSEE HAS PAID INDEPENDENTLY TO THE IGIGI BANK AND CHARGING OF GUA RANTEE COMMISSION AT THE RATE OF 0.5% FROM ITS AE CAN BE SAID TO BE AT A RMS LENGTH. THE DIFFERENCE OF 0.1% CAN BE IGNORED AS THE RATE OF INTEREST ON W HICH IGIGI BANK, BAHRAIN BRANCH HAS GIVEN LOAN TO AE (I.E. SUBSIDIARY COMPAN Y) IS AT 5.5%, WHEREAS THE ASSESSEE IS PAYING INTEREST RATE OF MORE THAN 1 0% ON ITS LOAN TAKEN WITH IGIGI BANK IN INDIA. THUS, SUCH A MINOR DIFFERENCE CAN BE ON ACCOUNT OF DIFFERENTIAL RATE OF INTEREST. THUS, ON THESE FACTS , WE DO NOT FIND ANY REASON TO UPHOLD ANY KIND OF UPWARD ADJUSTMENT IN ALP IN RELA TION TO CHARGING OF GUARANTEE COMMISSION. AS THE FACTS AND CIRCUMSTANCES OF THE CASE DURING T HE YEAR UNDER CONSIDERATION ARE PARI MATERIA, RESPECTFULLY FOLLOW ING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DIRECT THE AO T O COMPUTE ARMS LENGTH PRICE OF TRANSACTION AS PER THE DIRECTION GIVEN BY THE TRIBUNAL IN THE ABOVE ORDER FOR A.Y. 2007-08. 15. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL AN D ALSO CONSIDERING THE INTERNAL CUP BEING THE GUARANTEE COMMISSION PAID BY THE ASSESSEE TO THE ICICI BANK FOR OBTAINING GUARANTEE, WE HOLD THAT THE ARM S LENGTH GUARANTEE COMMISSION IN RESPECT OF ALL THREE TRANSACTIONS OF GUARANTEE TO ITS AE AT DUBAI, CHINA AND USA SHALL BE TAKEN AT 0.5%. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE ADJUSTMENT ON ACCOUNT OF GU ARANTEE COMMISSION BY TAKING THE ARMS LENGTH GUARANTEE COMMISSION AT 0.5 %. 16. THIS GROUND OF THE ASSESSEES APPEAL IS PARTLY ALLOWED AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. M/S EVEREST KANTO CYLINDER LTD. 12 | P A G E 17. GROUND NO. 3 IS REGARDING ADDITION ON ACCOUNT O F TP ADJUSTMENT IN RESPECT OF LOAN ADVANCED TO EKC DUBAI AND EKC CHINA. 18. THE ASSESSEE PROVIDED LOAN TO ITS AE AT DUBAI A ND CHINA AND CHARGED THE INTEREST ON THE SAME AS PER DETAILS GIVEN BELOW:- PARTICULARS AMOUNT (IN USD) DATE OF GIVING LOAN INTEREST RATE EKC DUBAI 10 MILLION 29 OCTOBER 2007 7% EKC DUBAI 10 MILLION 9 APRIL 2008 LIBOR + 1% EKC DUBAI 1 MILLION 12 APRIL 2008 LIBOR + 1% EKC DUBAI 2.5 MILLION 12 APRIL 2008 LIBOR + 1% EKC CHINA 2 MILLION 29 DECEMBER 2007 7% EKC CHINA 0.5 MILLION 19 FEBRUARY 2007 7% EKC CHINA 0.5 MILLION 23 MARCH 2008 7% 19. THE ASSESSEE HAS BENCH MARKED ITS TRANSACTION O F PROVIDING LOAN TO AE AT DUBAI BY USING CUP METHOD OF LIBOR+0.5%. THE ASSESS EE HAS CHARGED INTEREST TO ITS DUBAI AE FOR ONE LOAN OF USD 10 MILLION AT 7% INTEREST RATE AND LIBOR +1% IN RESPECT OF REMAINING LOAN. AS REGARDS THE L OAN ADVANCED TO AE AT CHINA, THE ASSESSEE HAS BENCH MARKED THE LOAN TRANSACTION BY USING CUP METHOD IN THE RANGE OF 5.58 TO 6.84. SINCE THE ASSESSEE HAS CHARG ED THE INTEREST AT THE RATE OF 7% FROM ITS AE AT CHINA, THEREFORE, THE ASSESSEE CL AIMED ITS TRANSACTION AT ARMS LENGTH. THE TPO DID NOT ACCEPT THE ARMS LENGTH PRI CE DETERMINED BY THE ASSESSEE AND HAS DETERMINED THE ARMS LENGTH INTERE ST RATE AT 10.25% AND MADE THE RESPECTIVE ADDITIONS. THE ASSESSEE RAISED OBJEC TION BEFORE THE DRP BUT COULD NOT SUCCEED AS THE DRP HAS UPHELD THE ADJUSTMENT PR OPOSED BY THE TPO/ASSESSING OFFICER. M/S EVEREST KANTO CYLINDER LTD. 13 | P A G E 20. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE LOANS WERE GRANTED TO ITS AE AT DUBAI AND CHINA FROM THE PROCEEDS OF ZERO COUPON FOREIGN CURRENCY CONVERTIBLE BONDS WHIC H WERE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. DESPITE SUCH INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE IT HAS CHARGED INTEREST AT THE RATE OF 7% /LIBOR +1% FROM AE AND ACCORDINGLY THERE IS NO ADDITIONAL COST INCURRED BY THE ASSESSEE ON SUCH FUND GIVEN TO THE AE. HE HAS FURTHER SUBMITTED THAT PROV IDING THE FUND TO THE AE IN THE NATURE OF SHARE HOLDERS ACTIVITY, THEREFORE, PROVID ING ASSESSEES OWN FUND FOR FINANCING 100% SUBSIDIARY FOR THE BENEFIT IN THE FO RM OF GROWTH OF HIS BUSINESS IN DIFFERENT COUNTRIES DOES NOT REQUIRE ANY TRANSFE R PRICING ADJUSTMENT. 21. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON T HE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT IT MAKES NO DIFFERENCE WHE THER THE FUND WAS INTEREST BEARING FUND OR ASSESSEES OWN FUND WHEN THE TRANSA CTION IS AN INTERNATIONAL TRANSACTION THEN THE SAME HAS TO BE TESTED AS PER T HE PROVISIONS OF TRANSFER PRICING REGULATIONS. 22. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, AT THE OUTSET, WE NOTE THAT AN IDENTICAL IS SUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09 IN PARA 11 AND 12 AS UNDER:- M/S EVEREST KANTO CYLINDER LTD. 14 | P A G E 11 . WE HAD CONSIDERED RIVAL CONTENTIONS AND GONE THRO UGH THE ORDERS OF LOWER AUTHORITIES. AS PER OUR CONSIDERED OPINION, A PPROPRIATE INTERNATIONAL RATES SHOULD BE USED FOR THE PURPOSE OF THE COMPARA BILITY ANALYSIS. FOR THIS PURPOSE, THE LONDON INTER BANK OFFER RATE (LIBOR) I S AN INTERNATIONALLY RECOGNIZED RATE FOR BENCHMARKING LOANS DENOMINATED IN FOREIGN CURRENCY. FOR THIS PURPOSE, RELIANCE MAY BE PLACED ON THE FOLLOWI NG DECISION OF THE COORDINATE BENCH :- I) GREAT EASTERN SHIPPING CO.LTD (ITA NO 397/M/2012 ) DATED 10 JANUARY 2014; II) MAHINDRA & MAHINDRA LIMITED (ITA NO 7999/M/2011 ) DATED 8 JUNE 2012; III) HINDUJA GLOBAL SOLUTIONS LIMITED (ITA NO 254/M /2013) DATED 5 JUNE 2013 IV) AURIONPRO SOLUTIONS LIMITED (ITA NO 7872/M/2011 ) DATED 12 APRIL 2013; V) AUROBINDO PHARMA LTD (ITA NO 1866/HYD/2012) DATE D 29 NOVEMBER 2013; VI) COTTON NATURALS (I) PVT. LIMITED (ITA NO 5855/D EL/2012) DATED 8 FEBRUARY 2013; VII) SIVA INDUSTRIES AND HOLDINGS LTD. VS ACIT, IT APPEAL NO. 2148 (MDS.) OF 2010; VIII) BHARTI AIRTEL LTD (ITA NO 5816/0EL/201Z) DATE D 11 MARCH 2014 IX) INFOTECH ENTERPRISES LIMITED (ITA NO 115/HYD/20 11) DATED 16 JANUARY 2014; X) KOHINOOR FOODS LTD (ITA NOS 3688-3691/0EL/2012 A ND ITA NOS 3868-3869/0EL/2012) DATED 21 JULY 2014; AND XI) FOUR SOFT LTD VS. OCIT, IT APPEAL NO. 1495 OF 2 011 (HYDERABAD TRIBUNAL) 12 . IN LIGHT OF THE ABOVE DECISIONS, THE RATE TO BE U SED FOR UNDERTAKING AN ADJUSTMENT SHOULD BE LLBOR AND NOT THE AVERAGE YIEL D RATES CONSIDERED BY THE LEARNED TPO. THE LLBOR RATE FOR MARCH 2008 WAS 2.6798%. HOWEVER THE ASSESSEE HAS CHARGED 7% FROM ITS AE AS PER THE INTE RNAL CUP AVAILABLE. THUS, THE ASSESSEE HAS CHARGED INTEREST TO EKC DUBA I AND EKC CHINA AT THE RATE HIGHER THAN EXISTING LLBOR RATES. ACCORDINGLY, THE SAID TRANSACTION OF PROVIDING LOAN TO EKC DUBAI AND EKC CHINA IS AT ARM 'S LENGTH. ADDITIONS MADE BY THE AO ARE ACCORDINGLY SET ASIDE. 23. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE, WE HOLD THAT THE ARMS LENGTH RATE IN RESPECT OF LOAN PROV IDED TO THE AE SHOULD BE LIBOR + 2%. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTE D TO RECOMPUTED THE ARMS M/S EVEREST KANTO CYLINDER LTD. 15 | P A G E LENGTH RATE IN RESPECT OF THE LOAN TRANSACTION TO EACH AE OF THE ASSESSEE BY CLUBBING ALL THE LOAN TRANSACTIONS OF EACH AE AND T HEN COMPARE THE INTEREST CHARGED BY THE ASSESSEE WITH ARMS LENGTH RATE AT L IBOR +2%. IT APPEARS THAT AS REGARDS THE TRANSACTIONS OF LOAN TO ITS AE AT CHINA , THE SAID TRANSACTION IS AT ARMS LENGTH AS THE AS HAS CHARGED THE INTEREST AT 7%, TH EREFORE, ONLY WITH RESPECT TO THE TRANSACTION OF LOAN TO AE AT DUBAI ARE REQUIRED TO BE RE-COMPUTED FOR THE PURPOSE OF TP ADJUSTMENT. 24. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUCNED IN THE OPEN COURT ON THIS 27 TH DAY OF FEBRUARY 2015. SD/- SD/- (D.KARUNAKARA RAO) (VIJAY PAL RAO) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) MUMBAI DATED 27-02-2015 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI