ACIT,Central Circle-26, New Delhi V. Shyam Telecom Ltd., New Delhi

ITA 6030/DEL/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9736 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 24-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Assessee Lawyers: ROHIT JAIN
• Keywords: Transfer pricing; International transaction; Notional interest
• Section: 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘I’ : NEW DELHI) SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.6030 /Del./2017 (ASSESSMENT YEAR : 2012-13) ACIT, Central Circle 26, vs. M/s. Shyam Telecom Ltd., New Delhi. A-60, Naraina Industrial Area, Phase-I, New Delhi – 110 028. (PAN : AAACS0297E) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Rohit Jain, Advocate Ms. Shivangi Jain, CA REVENUE BY : Shri Ravi Kant Gupta, Senior DR Date of Hearing : 01.06.2022 Date of Order : 07.06.2022 ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : This appeal by the Revenue is directed against the order of the ld. CIT (Appeals)-38, New Delhi dated 08.06.2017 and pertains to Assessment Year 2012-13. 2. The grounds raised by the Revenue read as under :- “1. The Ld. CIT(A) has erred in relying on the case of CIT vs Cotton Natural (I) (P.) Ltd.(55 taxman. Com 523 Delhi High Court) because the case of the assessee under reference pertains to interest on loan and its taxability and not on the issues raised in the order relied upon. Hence, SBI Market Lending Rate will be applicable because money has been loaned from an Indian Rupee Account. ITA No.6030/Del./2017 2 2. The ld. CIT(A) has deleted the addition without considering the fact that loan advanced to the AE has benchmarked the interest rate to its AE with SBI PLR as the loan has been advanced from India in Indian Currency of the recipient AE that is in US Dollars. 3. That the grounds of appeals are without prejudice to each other.” 3. Brief facts of the case are that the Assessing Officer (AO) in this case passed an order relating to transfer pricing adjustment on international transactions relating to loans advanced to the subsidiary company. The assessee has offered rate of interest of 3.5% but AO chose to apply 13.87%. The order of AO in this regard may gainfully refer hereunder :- “4.3 A show cause notice was issued on 26.12.2014 as to why an adjustment, on lines of adjustment made in the order issued under section 92CA(3) for the assessment year 2010-11 on account of transfer price on the international transaction relating to the loan advanced to the subsidiary company in this year should not be made in the assessment year 2012-13 as well considering the fact that neither there has been any change in their international transaction with the subsidiary nor there has been loan. 4.4 In response to the said show cause notice the assessee filed reply vide 31.12.2014, the extract of the reply is reproduced as under: "The assessee had extended an interest free advance to its AE, STI to meet its working capital requirements in the US. During the subject AY, some amount had been paid off by STI and the balance was standing as recoverable in the books of the assessee as on March 31, 2012. Notional interest on the same, computed @ 3.5% was offered to tax by the assessee as a notional income in its computation of income for the subject AY. The assessee, in a similar scenario in AY 2010-11 had added a notional interest which was computed @ 3.5% on the outstanding amount, to its computation of income for that year. The Ld. Transfer Pricing Officer (IPO) during the course of Transfer Pricing assessment under section 92CA of the Act for 2010-11 held that the assessee had not charged an arm's length interest on the advance. According to the TPO, the assessee should have charged an interest @ 13.87 (12.37 plus 1.5%) from its associated Enterprises. Shyam Telecom Inc (STI) and not @ 3.5% which is the rate adopted by the assessee. As per the Ld. TRP, it is the Prime Lending Rate (PLR) of the India banks that should be applied for ITA No.6030/Del./2017 3 benchmarking the interest transaction. The average of the highest (12.5%) and the lowest (12.25%) charged by the banks is 12.37%. Further as the risk faced by the assessee is much more than the risk faced by the banks who lend money in the normal course of business, addition of 200 basis points was made to the interest rate of 12.37% thus bring the overall interest rate to 13.87%. In view of the aforesaid similar adjustment was made by the Ld. AO in the AY 2011-12. It is respectfully submitted that the addition made by the Ld. TPO for AY 2010-11, taking the interest rate as 13.897% instead of 3.5% as considered by the assessee is not in the right spirit of law. 4.5 However, the submissions of the assessee are not acceptable as there is no change in the nature of transactions and terms & conditions, hence the addition as made in the assessment years 2010- 11 and 2011-12 needs to be followed in the current year as well. 4.6 In view of the above findings of the adjustment is made in the arm's length interest on the loan advanced as follows: Average amount of loan advanced 17,79,31,914 Amount of interest to be charged@ 13.87% 2,46,79,156 Less: 3.5% offered by the assessee 62,27,617 Balance amount to be charged by the assessee from AE on arm's length basis 1,84,51,539 Accordingly, TP adjustment to the tune of Rs.1,84,51,539/- is made under section 92C(3) of the Act to the taxable income of the assessee.” 4. Against the above, assessee filed an appeal before the ld. CIT (A). Considering the submissions of the assessee, ld. CIT (A) found that similar issue was decided in earlier year wherein Hon’ble Delhi High Court order in case of CIT vs. Cotton naturals (I)(P.) Ltd. 55 taxmann.com 523 (Delhi) was referred. Ld. CIT (A) also referred to his order for AY 2010-11 wherein it was mentioned that in the case of appellant for AYs 2008-09 & 2009-10, Revenue has consistently taken LIBOR plus markup thereon as the basis of determination of interest on the international transaction of loan to foreign AE. ITA No.6030/Del./2017 4 Hence, ld. CIT (A) held that respectfully following the decision of Hon’ble Delhi High Court in case of CIT vs. Cotton Naturals (I)(P.)Ltd. (supra) and the order of the ITAT in case of Bharti Airtel vs. ACIT vide ITA No.5636/Del/2011, the grounds of appeal are allowed. We may gainfully refer relevant part of the ld. CIT(A)’s order as under :- “3.2 I have carefully considered the order of Ld. TPO for the AY 2010-11, the assessment order and the submissions of appellant. It is seen that TPO determined arm's length interest at an amount of Rs. 2,46,79,156/- on the amount of loan in Indian Rupee to the AE (which is Rs.17,79,31,914/-. An adjustment of Rs.62,27,617/- (@3.50%) had already been offered by the appellant as notional interest income in its computation of income. Therefore, the Ld. AO has held that the balance amount of Rs.1,84,51,539/- is required to be adjusted and added as income in the appellant's case for under charging of interest in extending the loan to the AE. Hon'ble Delhi High Court has decided the) issue in favour of appellant in the case of CIT vs. Cotton Naturals (I) (P.) Ltd. reported in 55 taxmann.com 523 (Delhi High Court] and ITAT Delhi has followed this order of Delhi High Court in the case of Bharti Airtel vs. ACIT vide ITA No 5636/Del/2011. I find that an identical issue has been decided by me in favour of the appellant for A. Y. 2010-11 vide order dated 24.03.2017 in Appeal No. 50/2015-16, in which order it was held as under: “5.2 I have carefully considered the submissions of appellant and the order of Ld. TPO. It is seen that in the case of appellant for AY 2007-08 to 2009-10 the Revenue is consistently taken LIBOR Plus markup thereon as the basis of determination of interest on the International Transaction of loan to foreign AE. Respectfully following the judicial pronouncements of Hon'ble Delhi High Court in the case of Cotton Naturals (Supra) and Bharti Airtel (Supra), these grounds of appeal are allowed." 3.3 Since the facts are similar in the present appeal, following the above decision, transfer price addition of Rs.1,84,51,539/- u/s 92C(3) on account of notional interest receivable made by the AO /TPO is ordered to be deleted. Hence, grounds of appeal 1 and 2 are allowed. 5. Against the above order, the Revenue is in appeal before us. 6. We have heard both the parties and perused the record. Ld. counsel of the assessee pleaded that the issue is covered in favour of the assessee by ITA No.6030/Del./2017 5 assessee’s own case for earlier years. Upon careful consideration, we note that in the present case, the assessee has offered rate of interest of 3.5% on international transaction of loans advance to its AE. How this rate has been arrived at is not specified. AO has considered the same @ 13.87%. which was done on the basis of addition of 200 basis point on the interest rate of 12.30% being Indian bank, SBI Prime Lending Rate. We note that Hon’ble Delhi High Court has disproved the comparison with prevailing rates in Indian banking system for international transaction in the case of Cotton Naturals (supra). 7. Similar issue in assessee’s own case travelled with ITAT for AYs 2011- 12, 2013-14 & 2014-15. ITAT in the said order dated 04.04.2022 has referred to the order of ITAT in assessee’s own case for AYs 2008-09, 2009-10 and noted that LIBOR with certain markup was to be applied after taking into account the decision of Hon’ble Delhi High Court in case of Cotton Natural (I)(P.) Ltd. Following the same, ITAT chose to remit the issue before them to the AO to consider appropriate LIBOR rate plus markup. The ITAT in the said case has taken note that the ld. CIT (A) has applied LIBOR plus certain basis points on those years. For AY 2015-16 in assessee’s own case, the ITAT has found that the identical issue arose in Revenue’s appeal for AYs 2011-12, 2013-14 & 2014-15 and it was noted that the coordinate Bench after noting the decisions of AYs 2008-09 & 2009-10 has decided the issue in favour of the assessee. As noted by us herein above in the decisions referred by the ITAT, the issue has not been fully decided in favour of the assessee rather the issue is remitted to the file of AO for application of LIBOR plus appropriate markup ITA No.6030/Del./2017 6 for credit rating of the AE. Hence, the submission of the ld. counsel of the assessee that the application of 3.5% rate by the assessee has already been decided in favour of the assessee in earlier years is not correct, as it is not emanating as to whether this rate is arrived at on the basis of LIBOR rate plus appropriate markup as per the credit rating of AE as directed by ITAT in earlier years, after taking into consideration Hon’ble Delhi High Court decision in Cotton Naturals (I)(P.) Ltd. (supra). Further, ld. CI T(A) has also not commented how the rate of 3.5% was arrived at as to whether the same was in accordance with ITAT decision in earlier years. 8. Since ITAT in assessee’s own case had earlier remitted the issue to the file of AO with certain directions, we find it appropriate to remit this issue to the file of AO. The AO shall follow the directions of the ITAT as referred above and decide accordingly. 9. In the result, the appeal of the Revenue is allowed for statistical purposes. Order pronounced in the open court on this 7 th day of June, 2022. Sd/- sd/- (ANUBHAV SHARMA) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated the 7 th day of June, 2022 TS ITA No.6030/Del./2017 7 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT (A) 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.