ACIT, Circle-16(1), Hyderabad V. Northgate Technologies Limited, Hyderabad

ITA 634/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2874 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 30-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKARA RAO
• Assessee Lawyers: S RAGHUNATHAN
• Keywords: Transfer pricing; Cost of acquisition; Fair market value; Valuation report; Notional interest
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 672/HYD/2012 ASSESSMENT YEAR: 2007-08 NORTHGATE TECHNOLOGIES LTD., HYDERABAD. (PAN AABCN 7753P) VS. DY. COMMISSIONER OF INCOME-TAX, CIRCLE 16(1), HYDERABAD. APPELLANT RESPONDENT ITA NO. 634/HYD/2012 ASSESSMENT YEAR: 2007-08 DY. COMMISSIONER OF INCOME-TAX, CIRCLE 16(1), HYDERABAD. VS. NORTHGATE TECHNOLOGIES LTD., HYDERABAD. (PAN AABCN 7753P) APPELLANT RESPONDENT A SSESSEE BY: SRI S. RAGHUNATHAN RE VENUE BY: SRI D. SUDHAKARA RAO DATE OF HEARING: 22 / 0 4 / 2013 DATE OF PRONOUNCEMENT: /06/2013 O R D E R PER CHANDRA POOJARI, AM: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD, DATED 15/02/2012 FOR ASSESSMENT YEAR 2007-08. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY ENGAGED IN THE BUSINESS OF INFORMATION TECHNOLOGY ENABLED SERVICES, FILED ITS RETURN OF IN COME FOR THE YEAR UNDER CONSIDERATION ON 03/11/2007 ADMITTIN G TOTAL INCOME OF RS. 1,50,72,101/- AFTER CLAIMING DEDUCTION U/S 10A AMOUNTING TO RS. 51,05,98,237/-. I.T.A. NOS. 672 & 634/HYD/2012 M/S NORTHGATE TECHNOLOGIES LTD. ==================== 2 THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY DETERMINING THE TOTAL INCOME AT RS. 21,80,92,100/-. 3. BEFORE THE CIT(A), THE ASSESSEE CHALLENGED THE I SSUE RELATING TO REDUCING THE BANDWIDTH CHARGES, LEASED LINE CHARGES, INTERNET CHARGES ETC. FROM EXPORT TURNOVER WHILE CALCULATING DEDUCTION U/S 10A OF THE IT ACT, SHOULD ALSO BE REDUCED FROM TOTAL TURNOVER. THE ASSESSEE ALSO CHALLENGED THE TP ADJUSTMENT TOWARDS INTEREST ON FU NDS GIVEN TO SUBSIDIARIES AND ALSO INTEREST ON LOANS GI VEN TO SUBSIDIARIES. 4. THE ASSESSING OFFICER DISALLOWED COMMUNICATION, INTERNET, TRAVELLING AND OTHER EXPENDITURE FROM EXP ORT TURNOVER WHILE CALCULATING THE DEDUCTION U/S 10 OF THE ACT. THE CIT(A) RELYING UPON THE DECISION IN THE C ASE OF PATNI TELECOM PVT. LTD. VS. ITO [2008] 22 SOT 26 (H YD.), ON WHICH RELIANCE PLACED BY THE ASSESSEE, HELD THAT THE COMMUNICATION CHARGES, INTERNET CHARGES AND TRAVELL ING EXPENDITURE SHOULD BE REDUCED BOTH FROM EXPORT TURNOVER AS WELL AS FROM TOTAL TURNOVER FOR THE PUR POSE OF CALCULATION OF EXEMPTION U/S 10A OF THE ACT. 5. AS REGARDS THE ADDITION WITH REGARD THE INTEREST ON FUNDS GIVEN TO SUBSIDIARIES OF RS. 18,36,38,251/-, THE CIT(A) DELETED THE ADDITION ON THE GROUND THAT THER E IS NO EVIDENCE TO SHOW THAT THE THIS AMOUNT WAS ACTUAL LY A LOAN GIVEN BY THE ASSESSEE. 6. AS REGARDS THE ADDITION WITH REGARD TO THE INTER EST ON LOAN GIVEN TO SUBSIDIARIES OF RS. 2,31,66,591/-, THE CIT(A) CONFIRMED THIS ADDITION BY HOLDING THAT THE I.T.A. NOS. 672 & 634/HYD/2012 M/S NORTHGATE TECHNOLOGIES LTD. ==================== 3 ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM BY SHOWIN G EVIDENCE REGARDING THE LOWER LEVEL OF RISK IN ITS L OANS, THEREFORE, THERE WAS NO REASON TO INTERFERE IN THE ARMS LENGTH INTEREST CALCULATIONS AT WHICH ASSESSING OFF ICER HAS CALCULATED THE NOTIONAL INTEREST. 7. AGAINST THE ORDER OF THE CIT(A) BOTH THE REVENUE AND THE ASSESSEE ARE IN APPEAL BEFORE US. 8. GROUND NO. 1 OF REVENUES APPEAL IS THAT CALCULATION OF ELIGIBLE EXEMPTION U/S 10A OF THE AC T. 9. THE ASSESSEE HAD CLAIMED EXEMPTION U/S 10A OF TH E IT ACT AND IT HAD NOT EXCLUDED COMMUNICATION AND INTERNET CHARGES ATTRIBUTABLE TO THE DELIVERY OF CO MPUTER SOFTWARE AND EXPENSES INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA. THE ASSESSING OFFICER EXCLUDED THE SAID ELEMENTS FROM E XPORT TURNOVER. THE SPECIAL BENCH OF THIS TRIBUNAL AT CH ENNAI IN THE CASE OF ITO VS. SAK SOFT LTD. (2009) 313 ITR (AT ) 353 (CHENNAI) (SB) HELD THAT THE ABOVE ELEMENTS ARE TO BE REDUCED BOTH FROM EXPORT TURNOVER AS WELL AS FRO M TOTAL TURNOVER FOR THE PURPOSE OF CALCULATION OF EXEMPTION U/S 10A OF THE ACT. 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. THE SPECIAL BENCH IN THE CA SE OF SAK SOFT LTD. (SUPRA) HELD THAT FOR THE PURPOSE OF APPLYING THE FORMULA UNDER SUB-SECTION (4), THE FRE IGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DE LIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN I.T.A. NOS. 672 & 634/HYD/2012 M/S NORTHGATE TECHNOLOGIES LTD. ==================== 4 PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA ARE TO THE EXCLUDED BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND DENOMINATOR RESPECTIVELY IN THE FORMULA.. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND THE OR DER OF THE CIT(A) IS HEREBY CONFIRMED ON THIS ISSUE. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 11. THE NEXT GROUND OF THE REVENUE IS AS FOLLOWS: THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE TPO HAS DETERMINED ARM/S LENGTH INTEREST @ 14% ON RS. 131,17,01,796/- AMOUNTING TO RS. 18,36,38,251/- I.E. INTEREST ON FUNDS GIVEN TO ITS SUBSIDIARIES IN THE FORM OF SHARE PREMIUM. 12. THE FACTS RELATING TO THIS GROUND ARE THAT THE ASSESSEE MADE INVESTMENTS AGGREGATING TO RS. 139,24,84,460/- IN ITS SUBSIDIARIES CONSISTING OF S HARE CAPITAL OF RS. 8,07,87,664/- AND SHARE PREMIUM OF R S. 131,17,01,796/-. IN ADDITION TO THIS, THE ASSESSEE ALSO HAD GIVEN FUNDS TO ITS SUBSIDIARIES AT RS.16,54,75, 651/-. THE ASSESSING OFFICER OBSERVED THAT THERE WAS ABSOL UTELY NO JUSTIFICATION WITH REGARD TO PAYMENT OF SHARE PR EMIUM AND IT IS A DEEMED LOAN GIVEN WITHOUT INTEREST. ACC ORDING TO THE TPO IT IS NOT AN ARMS LENGTH TRANSACTION. 13. ON APPEAL, THE CIT(A) OBSERVED AS FOLLOWS: 7.6 THE FIRST ISSUE IS WHETHER THE SHARE PREMIUM PAI D WAS ACTUALLY A DISGUISED LOAN AS HAS BEEN HELD BY THE TRANSFER PRICING OFFICER. ACCORDING TO THE ORDER OF T HE TRANSFER PRICING OFFICER, THERE IS NOT A SHRED OF EVI DENCE TO PROVE THAT THE SHARE PREMIUM WAS ACTUALLY A LOAN. T HE TRANSFER PRICING OFFICER HAS NOT EVEN ANALYZED THE ACCOUNTS OF THE SUBSIDIARIES, NOR HAS HE CALCULATED AT A NY STAGE, THE SHARE VALUE OF THE SUBSIDIARIES IN QUESTION. H E HAS MERELY STATED THAT THE 'TAXPAYER COULD NOT EXPLAIN I.T.A. NOS. 672 & 634/HYD/2012 M/S NORTHGATE TECHNOLOGIES LTD. ==================== 5 THE ECONOMIC RATIONALE BEHIND THE PAYMENT OF HUGE AMOUNTS OF SHARE PREMIUM IN THE SUBSIDIARIES IN QUESTION WITH REFERENCE TO RECOGNIZED METHODS OF SHARE PRICE VALUATION.' WITH THESE CONJECTURES THE TRANSFER PRICING OFFICER CONCLUDED THAT THE SHARE PREMIUM WAS ACTUALLY A LOAN. 7.6.1 FROM THE ABOVE DISCUSSION, I DO NOT FIND ANY EVIDENCE WHATSOEVER WHICH WOULD GIVE ME ANY INDICATION TO CONCLUDE THAT THE SHARE PREMIUM WAS ACTUALLY A LOAN. EVEN IN THE FUTURE NO INTEREST PAYMENTS HAD BEEN RECEIVED NOR IS THERE ANY ACCOUNTING TREATMENT WHICH SHOWS THAT THIS AMOUNT WAS ACTUALLY A DEBT. THEREFORE, I DO NOT AGREE WITH THE CONTENTION OF THE TPO OR ASSESSING OFFICER THAT THE SHARE PREMIUM WAS A DEBT. 7.6.2 HAVING SAID THAT, IT WOULD BE IN THE FITNESS OF THINGS TO ANALYZE THE ENTIRE TRANSACTION AND TO GET TO THE RO OT OF THE MATTER. 7.6.3 NORTHGATE INDIA PROVIDES ONLINE ADVERTISEMENT SOLUTIONS TO ADVERTISERS AND PUBLISHERS. THE COMPANY GENERATES AUDIENCES FOR ADVERTISER'S CAMPAIGNS THROUGH NETWORKS OF THIRD PARTY WEBSITES ITS OWN PUBLISHING WEB MEDIA AND OTHER ONLINE PUBLISHING PARTNERS. THE COMPAN Y OFFERS PRODUCTS AND SERVICES THAT ENABLE MARKETERS TO ADVERTISE AND SELL THEIR PRODUCTS THROUGH MOST OF THE ONLINE MARKETING CHANNELS LIKE DISPLAY ADVERTISING, LEAD GENERATION AND MARKETING. THE COMPANY ALSO OFFERS TECHNOLOGY INFRASTRUCTURE TOOLS AND SERVICES THAT ENABLE ADVERTISERS AND ADVERTISING AGENCIES TO IMPLEMENT AND MANAGE THEIR OWN ONLINE DISPLAY ADVERTISING. THIS SERVICE FACILITATES THE ONLINE MANAGEMENT OF WEBSITE ADVERTISEMENT INVENTORY BY PUBLISHERS. SNAPSHOT OF COMPANY'S FINANCIAL PERFORMANCE DURING AY 2007-08 TABLE A - PARTICULARS AMOUNT IN INR OPERATING INCOME (EXCLUDING OTHER INCOME) 805,721,743 EXPENDITURE (EXCLUDING EXCHANGE LOSS AND FINANCE 300,844,253 CHARGES) (TC) OPERATING PROFIT (OP) 504,877,490 I.T.A. NOS. 672 & 634/HYD/2012 M/S NORTHGATE TECHNOLOGIES LTD. ==================== 6 7.6.4 DURING THE YEAR IN QUESTION, THE APPELLANT PAID 8 CRORES AS VALUE FOR PURCHASE OF SHARES AND ~131 CRORES AS SHARE PREMIUM. I FIND THAT THE APPELLANT HAD VALUED THE SHARES OF THE SUBSIDIARIES ON THE BASIS OF DISCOUNTED CASH FLOW METHOD AND NET ASSET VALUE METHOD. DURING THE COURSE OF APPEAL PROCEEDINGS, THE TRANSFER PRICING OFF ICER WAS ASKED TO COMPUTE THE ACCURATE SHARE PRICES OF THE VARIOUS SUBSIDIARIES IN QUESTION. THE TPO EXPRESSED H IS INABILITY TO BE ABLE TO DO THAT. ACCORDINGLY, THE APP ELLANT WAS ASKED TO PROVIDE DETAILS OF THE PROJECTED EARNI NGS AND THE ACTUAL EARNINGS FOR THE VARIOUS YEARS SO AS TO HAVE AN IDEA OF THE SHARE PRICES. THE DISCOUNTED CASH FLOW METHOD TAKES INTO ACCOUNT THE PRESENT VALUE OF THE FUTURE CASH FLOWS. 7.6.5 FROM THE ABOVE, IT IS CLEARLY SEEN THAT THERE WAS VAST VARIATION IN THE ACTUAL EARNINGS AND WHAT HAVE BEEN PROJECTED BY THE APPELLANT IN THE DCS CALCULATIONS. FOR EXAMPLE, FOR THE FY 2006-07, IN THE CASE OFAXIL1 EU ROPE LIMITED THE APPELLANT HAD PROJECTED A PROFIT WHICH WAS 4229% OR 42 TIMES OF THE ACTUAL PROFITS. SIMILARLY, FOR AXILLLNC FOR THE FY 2006-07 THE PROJECTION IS 283% OF THE AC TUAL PROFITS. SIMILAR IS THE CASE WITH ALL THE PROJECTIO NS SHOWN IN THE CHART ABOVE. A SIMPLE PERUSAL OF THE AFOREMENTI ONED CHART WILL CLEARLY SHOW THAT WHEN THE DISCOUNTED CA SH FLOW METHOD IS APPLIED THE SHARE PRICE PROJECTIONS WILL NOWHERE BE CLOSE TO THE PRICES WHICH THE APPELLANT HAS SHOWN O N WHICH A HUGE SHARE PREMIUM OF 131 CRORES HAS BEEN PAID. 7.6.6 DURING THE COURSE OF APPEAL PROCEEDINGS, THE APPELLANT EXPLAINED THAT THERE WAS A GENERAL DOWNTREND IN ECO NOMY IN THE SUBSEQUENT YEARS AND AS SUCH THE PROJECTIONS OF PROFITS WERE PROVEN TO BE INACCURATE. 7.6.7 AFTER HAVING PERUSED THE CONSIDERED THE FACTS AND ARGUMENTS CAREFULLY, FIND THAT THE SHARE PRICE CALC ULATIONS ARE NOT ACCURATE AND IN FACT THERE WAS ABSOLUTELY NO RE ASON TO GIVE SUCH A HUGE SHARE PREMIUM. CLEARLY, THE APPELL ANT HAS RESORTED TO HUGE OVER PROJECTIONS OF THE FUTURE EAR NINGS IN ORDER TO SHOW AN INFLATED SHARE PRICE RELATING TO T HE SUBSIDIARIES. THIS HAS RESULTED IN AN ABSOLUTELY WR ONG TRANSFER OF FUNDS FROM THE APPELLANT TO THE SUBSIDIARIES. THIS NEEDS TO BE CONSIDERED FOR TAXATION IN THE HAN DS OF THE SUBSIDIARIES. HOWEVER, SINCE THE AMOUNTS HAVE BEEN DRAWN FROM THE RESERVES OF THE APPELLANT AND THE RE IS NO DEBIT IN THE PROFIT AND LOSS ACCOUNT, THERE IS NO ELEMENT OF INCOME IN THE HANDS OF THE APPELLANT. FURTH ER, I HAVE ALREADY HELD THAT THERE IS NO EVIDENCE TO SHOW T HAT THIS AMOUNT WAS ACTUALLY A LOAN GIVEN BY THE APPELLANT. THEREFORE, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCE S, THE ADDITION OF 18,36,38,251/- MADE ON ACCOUNT OF I.T.A. NOS. 672 & 634/HYD/2012 M/S NORTHGATE TECHNOLOGIES LTD. ==================== 7 IMAGINARY INTEREST EARNINGS IS ORDERED TO BE DELETED . 14. AGAINST THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 15. THE LEARNED DR SUBMITTED THAT THE FUNDS GIVEN T O SUBSIDIARIES WITHOUT ANY INTEREST IS NOT PROPER, BU T, AT LEAST INTEREST COULD HAVE BEEN CHARGED @14% PER ANN UM AND THE FUND HAS BEEN GIVEN TO THE SUBSIDIARIES IN THE GUISE OF SHARE PREMIUM, WHICH IS NOTHING BUT INTERE ST FREE LOAN. 16. ON THE OTHER HAND, THE LEARNED COUNSEL SUBMITTE D THAT THE CIT(A) HAS ANALYSED THE DISCOUNTED CASH FL OW (DCF) METHOD, BASED ON THE COMPARISON OF PROJECTED EARNINGS, BEFORE INTEREST AND TAX AS PER THE VALUAT ION REPORT WITH THE ACTUAL EBIT. HE MENTIONED THAT THE VALUATION REPORT CARRIED OUT BY THE VALUER REPRESEN TS THE REVENUES AND THE CASH FLOWS WHICH WOULD BE ADDITION ALLY GENERATED BY THE GROUP AS A WHOLE THROUGH THESE SUBSIDIARIES LOCATED AT U.S., U.K., AND HONG KONG. HE DREW OUR ATTENTION TO PAGE 10 OF THE VALUATION REPO RT PLACED AT PAGES 97,115,132 OF THE PAPER BOOK WHEREI N THE VALUER HAS COMPUTED GROSS PROFIT (REVENUE COS T OF REVENUES) AND COST OF THE REVENUE IS DEFINED TO INC LUDE THE TRAFFIC ACQUISITION COST, BANDWIDTH COST, DATA CENTER CHARGES, TRAFFIC COST AND SOFTWARE CHARGES. OF THE ABOVE, THE DATA CENTER CHARGES, IS THE COST ASSOCIATED WI TH RUNNING THE DATA CENTER BY THE ASSESSEE COMPANY. HE SUBMITTED THAT PROFIT EARNED THROUGH THESE SUBSIDIA RIES WERE, BASED ON THE FUNCTION, ASSETS AND RISK ANALYS IS, STAND ALLOCATED BETWEEN THE ASSESSEE AND ITS SUBSIDIARIES IN THE MANNER PROVIDED IN THE TRANSFER I.T.A. NOS. 672 & 634/HYD/2012 M/S NORTHGATE TECHNOLOGIES LTD. ==================== 8 PRICING REPORT. ACCORDING TO HIM, MARGIN OF PROFIT AT THE SUBSIDIARIES LEVEL REVEALED WERE ONLY 2%, 1%, 2% AN D 1% WHILE THE MARGIN WITHOUT PROFITS RETAINED AT THE AS SESSEE LEVEL WAS 66%. IN THIS CONNECTION, HE DREW OUR ATTE NTION TO THE FOLLOWING COMPARISON TABLE: INR (CRORE) PARTICULARS MARCH 2005* MARCH 2006* MARCH 2007 MARCH 2008 SALES TURNOVER 51.79 81.92 80.57 61.94 OPERATING EXPENSES (OE) 42.02 51.74 27.77 13.38 OPERATING PROFITS (OP) 9.77 30.18 52.80 48.56 % OF OP/SALES TURNOVER 19% 37% 66% 78% % OF OP/OE 23% 58% 190% 363% * THE PREVIOUS YEAR (2005 & 266) IMMEDIATELY PRECED ING THE FINANCIAL YEAR 2006-07, IN WHICH THE INVESTMENT S IN SUBSIDIARIES WERE MADE. 17. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. THE MAIN CONTENTION OF THE DEPARTMENT IS THAT THE FUND TRANSFERRED TO THE SUBSIDIARIES ON ACCOUNT OF SHARE PREMIUM WITHOUT AN Y INTEREST AND THE ASSESSEE COULD NOT FURNISH ANY SUC H ANALYSIS TO SHOW THAT THE PREMIUM PAID WAS AT ARMS LENGTH. THE ASSESSEE HAS TO PROVE THE AMOUNTS ADVAN CED WAS ACTUALLY TOWARDS PREMIUM AND TO SUBSTANTIATE TH AT THE SHARES OF THE SUBSIDIARIES ACTUALLY COMMAND SUC H PREMIUM IN THE OPEN MARKET IN TERM OF FAIR MARKET V ALUE WORKED OUT AS PER THE GUIDELINES ISSUED BY THE CONT ROLLER OF CAPITAL ISSUES IN THE CASE OF UNQUOTED SHARES. T HE PRESCRIBED METHODS FOR DETERMINATION OF FAIR MARKET VALUE ARE EITHER BY NET ASSET VALUE (NAV) OR BY PRO FIT EARNING CAPACITY VALUE (PECV) METHODS. THE TAXPAYER FAILED TO FURNISH THE VALUATION OF THE SUBSIDIARY COMPANIES IN WHICH SHARES WERE ACQUIRED AS PER THES E I.T.A. NOS. 672 & 634/HYD/2012 M/S NORTHGATE TECHNOLOGIES LTD. ==================== 9 TWO METHODS. UNLESS THE PRICE PAID AS PREMIUM IS JUSTIFIED IN AN ARMS LENGTH SITUATION, THE SAME WI LL BE TREATED AS NIL UNDER CUP METHOD AS NO INDEPENDENT PARTY WOULD LIKE TO PAY SUCH HUGE AMOUNTS IN THE FO RM OF PREMIUM WITHOUT ANY BASIS. THEREFORE, THE MONIES PARKED WITH ITS SUBSIDIARIES IN THE FORM OF SHARE PREMIUM HAVE TO BE TREATED AS LOAN TRANSACTIONS. VI DE ORDER SHEET NOTING DATED 28/06/2010 AND 14/10/2010, THE TAX PAYER WAS ASKED TO JUSTIFY THE FUNDS GIVEN TO ITS AES IN THE FORM OF SHARE PREMIUM ON THE ABOVE LINES . THERE IS NO COMPLIANCE FROM THE TAXPAYER. BEING SO, THE TPO/ASSESSING OFFICER COMPUTED NOTIONAL INTEREST ON THAT AND DISALLOWED THE SAME. HOWEVER, THE CIT(A) CONSIDERED CERTAIN DATAS FURNISHED BY THE ASSESSEE AND ALLOWED THE CLAIM OF THE ASSESSEE. IN OUR OPINION, IT IS APPROPRIATE TO REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE ISSUE AFRESH. TH E ASSESSEE IS DIRECTED TO PLACE ALL THE NECESSARY EVI DENCES BEFORE THE ASSESSING OFFICER WHAT WAS PLACED BEFORE THE CIT(A) FOR CONSIDERING THE SAME BY THE ASSESSING OF FICER WHILE ADJUDICATING THE ISSUE. 18. THE ASSESSEES GROUND IS AGAINST THE ACTION OF THE CIT(A) IN CONFIRMING THE ADDITION ON ACCOUNT OF INT EREST ON LOANS GIVEN TO SUBSIDIARIES OF RS. 2,31,66,591/- . 19. AT THE TIME OF HEARING, THE LEARNED COUNSEL FO R THE ASSESSEE HAS CANVASSED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN CASE OF M/S FOUR SOFT LTD. IN ITA NO. 1495/HYD/2010 FOR AY 2006-07 VIDE ORDER DATED 9 TH SEPTEMBER, 2011. I.T.A. NOS. 672 & 634/HYD/2012 M/S NORTHGATE TECHNOLOGIES LTD. ==================== 10 20. ON THE OTHER HAND, THE LEARNED DR HAS RELIED UP ON THE ORDER OF THE CIT(A). 21. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN CASE OF M/S FOU R SOFT LTD (SUPRA) WHEREIN THE COORDINATE BENCH HELD AS FO LLOWS: 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE DO NO T FIND ANY MERIT IN THE ARGUMENTS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WE FIND THAT THE ALP IS TO BE DETERMINED FOR THE INTERNATIONAL TRANSACTI ON, THAT IS, ON INTERNATIONAL LOAN AND NOT FOR THE DOMESTIC LOAN. HENCE, THE COMPARABLE, IN RESPECT OF FOREIGN CURRENCY LOAN IN THE INTERNATIONAL MARKET, IS TO BE LIBOR BASED WHICH IS INTERNATIONALLY RECOGNISED AND ADOPTED. IN OUR CONSIDERED VIEW, THE DRP RIGHTLY DIRECTED THE ASSESSING OFFICER TO ADOPT THE LIBOR PLUS FOR THE PURPOSE OF TP ADJUSTMENT. OUR VIEW IS FORTIFIED BY THE DECISION OF THE MADRAS BENCH IN THE CASE OF SIVA INDUSTRIES [SUPRA]. WE DO NOT FIND ANY MERIT IN THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE DRP SHOULD HAVE ADOPTED THE EURIBOR FOR THE PURPOSE OF THE TP ADJUSTMENTS, AS WE FIND THAT THE MOSTLY USED AND RECOGNISED BENCHMARK RATE FOR INTERNATIONAL LOAN IS LIBOR BASED. HENCE, THE DRP RIGHTLY DIRECTED THE ASSESSING OFFICER TO ADOPT THE LIBOR RATES. WE CONFIRM THE DIRECTIONS OF THE DRP. HOWEVER, BY CONSIDERING THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ACTUAL LIBOR WAS 4.42% AS AGAINST THE 5.78% APPROVED BY THE DRP, WE FIND IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER, TO VERIFY THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE COMPANY. IN VIEW OF THIS MATTER, WE REMIT THIS MATTER TO THE FILE OF TH E ASSESSING OFFICER TO VERIFY THE ACTUAL AVERAGE LIBO R PREVAILED IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND ADOPT THE INTEREST RATE 4.42% IF THE CLAIM OF THE ASSESSEE IS FOUND CORRECT. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS PARTLY ALLOWED FOR STATISTICAL PURPOS E. I.T.A. NOS. 672 & 634/HYD/2012 M/S NORTHGATE TECHNOLOGIES LTD. ==================== 11 22. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICA L TO THE CASE DECIDED BY THE COORDINATE BENCH CITED SUPR A, WE REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING O FFICER TO CONSIDER THE SAME IN LINE WITH THE MATERIAL PLACED BY THE ASSESSEE BEFORE THE CIT(A) AND DECIDE THE ISSUE IN THE LIGHT OF THE DECISION OF THE COORDINATE BENCH (SUPR A). THE ASSESSEE IS DIRECTED TO PLACE ALL THE MATERIAL EVID ENCE BEFORE THE ASSESSING OFFICER IN SUPPORT OF ITS CLAI M. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 23. IN THE RESULT, APPEAL OF THE ASSESSEE BEING ITA NO. 672/HYD/12 IS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE BEING ITA NO. 634/HYD/12 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17/06/2013. SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 17 TH JUNE, 2013 KV COPY FORWARDED TO: 1. NORTHGATE TECHNOLOGIES LTD., 8 - 2 - 334, 1 ST FLOOR, SDE SERENE CHAMBERS, ROAD NO. 5, BANJARA HILLS, HYDERABAD 500 034. 2. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 16(1), HYDERABAD. 3. THE CIT(A) - V , HYDERABAD 5. THE C IT - IV HYDERABAD 6. THE DR , ITAT, HYDERABAD