LAQSHYA MEDIA LTD (EARLIER KNOWN AS LAQSHYA MEDIA PRIVATE LIMITED), MUMBAI V. DCIT 10(2)(1), MUMBAI

ITA 7340/MUM/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9090 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 22-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; International transaction; Earning of tax free income; Additional evidence; Question of law; Avoidance of tax; Notional interest; Commercial expediency; TDS; Rule 8D; FORM 26AS
• Section: 271(1)(c); 143(3); 92B; 14A; 115JB; 201; 13; 90

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA ( A M) & SHRI PAWAN SINGH (JM) I.T.A. NO. 7340 /MUM/ 201 7 (ASSESSMENT YEAR 20 13 - 1 4 ) M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) LAQSHYA HOUSE, SARAS WATI BAUG, SOCIETY ROAD, JOGESHWARI - E MUMBAI - 400 060. PAN : AAACL5004C V S . DCIT - 10(2)(1) ROOM NO. 509 AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI RAJAN VORA & SHRI PRANAY GANDHI DEPARTMENT BY SHRI A NAND M OHAN DATE OF HEARING 15 . 1 0 . 201 9 DATE OF PRONOUNCEMENT 06.01.2010 O R D E R PER SHAMIM YAHYA (AM) : - THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE I .T. ACT D ATED 31.10.2017 PERTAINING TO ASSESSMENT YEAR 2013 - 14. 2. T HE ABOVE ORDER HAS BEEN PASSED PURSUANT TO THE DIRECTION OF THE LEARNED DRP DIRECTION DATED 1.9.2017 3. T HE ISSUES ARISING OUT OF THE GROUNDS OF APPEAL ARE AS UNDER : PART I - TRANSFER PRICING GROUND: 1 . ADJUSTMENT OF RS 88,80,000/ - PERTAINING TO PROVIDING OF CORPORATE GUARANTEE (CG) TO ASSOCIATED ENTERPRISE (AE) 2 . ADJUSTMENT OF RS 12,98,09,060/ - PERTAINING TO INTEREST ON LOAN GIVEN TO AE M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 2 PART II - CORPORATE GROUNDS: 1. DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT. 2 . DISALLOWANCE UNDER SECTION 14A R E AD WITH RULE 8D OF RS 5,13,050/ - AND ALSO SECTION 115JB ADJUSTMENT IN THIS REGARD. 3 . MISMATCH IN FORM 26AS DATA 4 . SHORT GRANT OF TDS CREDIT OF RS 1,95,103/ - 5 . PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 4. BRIEF FACTS OF THE CASE ARE THAT LAQSHYA M EDIA P RIVATE L IMITED (LMPL) IS A SPECIALIST OUT OF HOME ADVERTISING COMPANY ENGAGED INTO THE BUSINESS SINCE THE YEAR 1997. THE ASSESSEE ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTION DURING THE FINANCIAL YEAR 2012 - 13 WITH ITS ASSOCIATED ENTERPRISES AE S : - SR.NO. NATURE OF TRANSACTION AMOUNT (RS.) METHOD ADOPTED BY ASSESSEE 1 INTEREST FREE LOAN GIVEN DURING THE YEAR OTHER METHOD 2 RS. 1,90,91 ,655 / - E ARLIER YEARS RS.92,38, 10,856 / - OTHER METHOD 3 FEES FOR TECHNICAL SERVICES RS. 1,09,07,956/ - COST PLUS METHOD 4 REIMBURSEMENT OF EXPENSES RS.5,77,387/ - OTHER METHOD TOTAL 95,43,87,854 / - T HE TRANSFER PRICING OFFICER NOTED THAT ASSESSEE HA S GIVEN LOANS IN TRANCHES TO THE AE AT AN INTEREST RATE OF 13% TO 14% PER ANNUM AS PER THE AGREEMENT IS ENTERED WITH THE AE BUT HAS NOT BENCHMARKED THE INTEREST RECEIVABLE DURING THE YEAR BY STATING THAT THE LOANS GIVEN TO THE AE IS IRRECOVERABLE ON THE DA TE. HOWEVER THE TRANSFER PRICING OFFICER OBSERVED THAT IN THE EARLIER YEARS THE ASSESSEE HAS OFFERED INTEREST INCOME TO TAX ON THE ABOVE STATED LOANS AS PER THE AGREEMENT IS ENTERED WITH THE AE. 5. THE TRANSFER PRICING OFFICER FURTHER OBSERVED THAT THE AS SESSEE HAS PROVIDED CORPORATE G UA RANTEE TO THE TUNE OF 40 MILLION AED WORTH RS . M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 3 59,20,00,000 TOWARDS AE BUT HAS NOT CHARGED ANY GUARANTEE COMMISSION AND HENCE THE SAME WAS NOT BENCHMARKED IN THE TRANSFER PRICING STUDY REPORT. 6. THE TRANSFER PRICING OFFIC ER SO UGHT TO ENQUIRE THE SAME FROM THE ASSESSEE. THE TRANSFER PRIC ING OFFICER MADE FURTHER FOLLOWING OBSERVATIONS ON THE CORPORATE GUARANTEE TO ASSOCIATED ENTERPRISE : LMPL HAD GIVEN CG OF AED 53 MILLION TO ITS AE I.E. LAQSHYA MEDIA INTERNATIONAL (MAURITI US) ('LMI' OR 'AE') ON 1ST DECEMBER, 2008. THE AE, IN TURN, GAVE GUARANTEE TO HSBC BANK MIDDLE EAST LTD, DUBAI OF AED 33 MILLION AND TO NATIONAL BANK OF DUBAI, DUBAI FOR AED 20 MILLION FOR DUE REPAYMENT OF TERM LOAN AVAILED BY RIGHT ANGLE MEDIA (RAM) , A ST EP - DOWN SUBSIDIARY OF THE LMPL ('RAM'), FROM THE SAID BANKS ON THE TERMS AND CONDITIONS AS MENTIONED IN THE FACILITY LETTER DATED 12TH NOVEMBER, 2007 OF HSBC BANK MIDDLE EAST LTD AND FACILITY LETTER DATED 23RD SEPTEMBER, 2007 OF NATIONAL BANK OF DUBAI. THI S CG, PROVIDED TO AE, WAS REDUCED TO AED 51 MILLION VIDE AMENDMENT TO DEED OF GUARANTEE DATED 4 TH JANUARY, 2010 AND FURTHER REDUCED TO AED 40 MILLION VIDE AMENDMENT TO DEED OF GUARANTEE DATED 29 TH APRIL, 2010. THE AE, IN TURN, PROVIDED CG TO HSBC BANK MIDD LE EAST LTD, DUBAI OF AED 25 MILLION AND TO EMIRATES NATIONAL BANK OF DUBAI, DUBAI FOR AED 15 MILLION FOR THE DUE REPAYMENT OF TERM LOAN AVAILED BY RAM, THE STEP - DOWN SUBSIDIARY OF THE LMPL, FROM THE SAID BANKS ON THE TERMS AND CONDITIONS AS MENTIONED IN T HE FACILITY LETTER DATED 1 ST MARCH 2011 OF HSBC BANK MIDDLE EAST LTD. AND FACILITY LETTER DATED 24 TH MARCH, 2011 OF EMIRATES NATIONAL BANK OF DUBAI. 8. T HE TRANSFER PRICING OFFICER THEREAFTER NOTED THE SUBMISSIONS OF THE ASSESSEE. HOWEVER , HE OBSERVED TH AT SUBMISSIONS OF THE ASSESSEE ARE CONSIDERED BUT THE SAME WERE NOT TO BE ACCEPTED, DUE TO FOLLOWING FACTS . DETAILS OF CORPORATE GUARANTEE GIVEN BY THE ASSESSEE TO AE : - 1 NAME OF THE AE LAQSHAYA MEDIA INTERNATIONAL (MAURITIUS) 2 COUNTRY OF THE AE MAURI TIUS 3 BANK NAME AND COUNTRY NOT APPLICABLE AS THE CORPORATE GUARANTEE GIVEN TO AE AND NOT TO THE BANK 4 CURRENCY AED (ARAB EMIRATES DIRHAM) 5 INTEREST RATE AT WHICH THE LOAN WAS TAKEN BY THE AE NOT APPLICABLE AS THE LOAN TAKEN BY THE STEP DOWN SUBSID IARY M/S. RIGHT ANGLE MEDIA FZ LLC 6 EXCHANGE RATE DURING THE YEAR RS. 14.80 (AS ON 31.03.2013) M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 4 7 WHETHER ANY SECURITY WAS GIVEN BY THE ASSESSEE COMPANY TO THE LENDER BANK? NOT APPLICABLE AS THE ASSESSEE COMPANY HAS ISSUED TH E CORPORATE GUARANTEE TO ITS AE AND NOT TO THE LEN DER BANK OF STEP - DOWN SUBSIDIAR Y 8 WHETHER ANY SECURITY WAS TAKEN BY THE ASSESSEE COMPANY FROM THE AE? NO 9 WHETHER THE AE HAS TAKEN ANY LOA N FROM THE THIRD PARTY / BANK WIT HOUT CORPO RATE GUARANTEE? AE HAS NOT TAKEN ANY LOAN FROM THIRD PAR T Y. BUT AE AS USED SET CORPORATE GUARANTEE IN TURNED PROVIDE GUARANTEE TO HSBC MIDLIST LTD., DUBAI AND NATIONAL BANK OF DUBAI, DUBAI FOR DUE PAYMENT OF TERM LOAN AVAILED BY RIGHT ANGEL MEDIA FZLLC, ST ATE SUBSIDIARY OF THE COMPANY FORM THE SAID BANKS. THE TPO NOTED AS UNDER: THE ASSESSE E HAS STATED THAT IT HAS WITHDRAWN CORPORATE GUARANTEE W.E.F.01/04/2012. THE ASSESSEE WAS REQUIRED TO SUBMIT DOCUMENTARY EVIDENCE IN THE FORM OF LETTER /CERTIFICATE FRO M BANK TO SUBSTANTIATE ITS CLAIM OF WITHDRAWAL OF CORPORATE GUARANTEE W.E.F. 01/04/2012. I N THIS REGARD THE ASSESSEE SUBMITTED COPY OF LETTER ADDRESSED TO HDFC BANK LTD, WORLI. THE LETTER HAS DTD. 07/08/2013. THE ASSESSEE WAS POINTED OUT THIS FACT THAT LET TER IS DTD.07/08/2013, HOW CAN THE BACK DATED WITHDRAWAL FROM 01/04/2012 AS CLAIMED BY ASSESSEE CAN BE ACCEPTED. THE ASSESSEE SUBMITTED COPY OF BOARD RESOLUTION DTD. 12/06/2012. THE ASSESSEE WAS REQUIRED TO PRODUCE EVIDENCE TO PROVE THE BANK HAS ACCEPTED W ITHDRAWAL OF THE CORPORATE GUARANTEE W.E.F 01/04/2012. THE ASSESSEE COULD NOT PRODUCE DOCUMENTARY EVIDENCE OR CONFORMATION FORM THE BANK OF ACCEPTANCE OF WITHDRAWAL OF CORPORATE GUARANTEE W.E.F. 01/04/2012. IN THE ABSENCE OF EVIDENCE OF ACCEPTANCE OF WITHD RAWAL OF CORPORATE GUARANTEE W.E.F.01/04/2012 BY THE BANK, ASSESSEE'S CLAIM OF ITS WITHDRAWAL W.E.F. 01/04/2012 CANNOT BE ACCEPTED. SINCE THE GUARANTEE WAS VALID TILL 01/07/2013 THE CORPORATE GUARANTEE FEE IS CHARGEABLE FOR THE ENTIRE FINANCIAL YEAR 2012 - 1 3 . 9. T HEREAFTER , THE TRANSFER PRICING OFFICER REJECTED THE ASSESSEES CLAIM THAT CORPORATE GUARANTEE IS NOT AN INTERNATIONAL TRANSACTION AND THAT IT HAS NOT INCURRED ANY COST FOR PROVIDING GUARANTEE TO THE BANKS. THEREAFTER , THE TRANSFER PRICING OFFICE R REJECTED THE ASSESSEES RELIANCE UPON SOME OF THE CASE LAWS. THEREAFTER , HE REFERRED TO DECISIONS WHERE CORPORATE GUARANTEE HAS BEEN M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 5 HELD TO BE INTERNATIONAL TRANSACTION UNDER SECTION 92B. THEREAFTER , THE TRANSFER PRICING OFFICER PROCEEDED TO BENCHMARK T HE CORPORATE GUARANTEE BY CUP APPROACH. FINALLY REFERRING TO CERTAIN DECISIONS THE TRANSFER PRICING OFFICER CAME TO THE CONCLUSION THAT IT WOULD BE APPROPRIATE TO CHARGE 1.5% FROM THE AE (AVERAGE BANK GUARANTEE FEE CHARGED BY BANK LESS 0.50%). ACCORDINGLY , THE TRANSFER PRICING OFFICER COMPUTED ARMS - LEN GTH GUARANTEE FEE AT RS 88, 80, 000/. T HEREAFTER , THE TRANSFER PRICING OFFICER DEALT WITH THE ISSUE OF INTEREST ON LOAN GIVEN TO ASSOCIATED ENTERPRISE . I N THIS REGARD , TRANSFER PRICING OFFICER NOTED THAT ASSES SEE HAS PROVIDED LOAN IN EARLIER YEAR TO THE TUNE OF RS 92,38,10,856 AND DURING THE YEAR AND FURTHER DURING THE YEAR IT HAS PROVIDED RS 1,90,91,655 TO AE BUT IT HAS NOT CHARGED ANY INTEREST. 10. THE ASSESSING OFFICER OBTAINED RESPONSE FROM THE ASSESSEE IN THIS REGARD HOWEVER , HE HELD THAT THE SAME WAS NOT ACCEPTABLE AND HE COMPUTED THE INTEREST RECEIVABLE ON OUTSTANDING LOAN ISSUED BY THE ASSESSEE TO ITS AE AT RS 12,98,09,060 BENCHMARKING THE SAME BY ADOPTING CUP METHOD. THE OBSERVATIONS OF THE TRANSFER P RICING OFFICER IN THIS REGARD ARE AS UNDER : - AT THE OUTSET, THE DECISIONS RELIED BY THE ASSESSEE NOT CHARGING OF INTEREST ON LOAN, CITING THE REASON THAT IT IS NOT AN INTERNATIONAL TRANSACTION CANNOT BE ACCEPTED AS PER THE PROVISIONS OF SECTION 92B OF TH E ACT, DUE TO THE FACT THAT NON - CHARGING OF INTEREST HAS DIRECT IMPACT ON THE INCOME OF THE ASSESSEE. FURTHER, IN THE EARLIER YEARS, THE ASSESSEE ITSELF HAS BENCHMARKED THE INTEREST RECEIVABLE ON THE ABOVE LOAN TRANSACTIONS @13 TO 14% INTEREST RATE AND OFF ERED THE SAME AS INCOME. IT IS FURTHER SEEN FROM THE ANNUAL ACCOUNTS OF LAQSHVA MEDIA INTERNATIONAL MAURITIUS, FOR YEAR ENDING 31/03/2013. THE COMPANY HAS RECEIVED INTEREST OF USD 24,63.219 FROM THE LOANS ADVANCED TO GU L F MEDIA HOLDING @ 15% PER ANNUM AND LOAN ADVANCED TO AIRPORT MEDIA HOLDING (A) 13.25% OUT OF THE LOAN GIVEN BY THE ASSESSEE LAQSHYA MEDIA PVT LTD. TO LAQSHVA MEDIA INTERNATIONAL (MAURITIUS). LAQSHYA MEDIA INTERNATIONAL (MAURITIUS) HAS ACCOUNTED FOR THIS REVENUE OF USD 24,63,219 AS INTEREST I NCOME AND ALSO PROVIDED FOR 20.77.285 USD AS INTEREST EXPENSES PAYABLE TO LAQSHVA MEDIA PVT. LTD . FOR F.Y. 2012 - 13 (PERIOD RELEVANT TO A.Y. 2013 - 14). THUS, ASSESSEE'S CONTENTION OF NOT CHARGING INTEREST ON LOAN ADVANCED CANNOT BE ACCEPTED THE AE IS EARNING INTEREST (8)15% ON LOANS ADVANCED OUT OF LOAN TAKEN FROM ASSESSEE AND CLAIMING INTEREST EXPENSES PAYABLE TO LAQSHYA MEDIA PVT LTD, WHEREAS LAQSHVA MEDIA M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 6 PVT. LTD, IS CLAIMING INTEREST IS WAIVED WHICH CANNOT BE ACCEPTED IN V I EW OF THE ABOVE FACTS. 5.17.2 FURTHER, IT IS NOTABLE THAT, THE VARIOUS CASE LAWS, WHICH THE ASSESSEE HAS RELIED ON THIS ISSUE, DO NOT PERTAIN TO DETERMINATION OF ALP OF TRANSACTION OF LOAN TO AE AND HENCE ARE NOT APPLICABLE TO THE PROCEEDINGS BEFORE THE UNDERSIGNED. THESE CASES DEAL WI TH TAXABILITY OR OTHERWISE OF THE AMOUNTS, WHICH MATTER, IS NOT WITHIN THE DOMAIN OF TPO AND ARE NOT RELEVANT FOR ALP DETERMINATION. IT IS NOTABLE THAT THE PROVISIONS OF CHAPTER X ARE SPECIAL PROVISIONS FOR AVOIDANCE OF TAX DUE TO THE OVERSEAS TRANSACTIONS WITH THE AES. HENCE, THE CLAIM OF THE ASSESSEE FOR NOT CHARGING OI INTEREST O N THE PRETEXT OF NON - RECOVERABIL ITY OF LOAN IS NOT RELEVANT FOR DETERMINATION OF ALP OF THE INTERNATIONAL TRANSACTION. 5.17.3 FURTHER, THE ASSESSEE'S ALTERNATIVE SUBMISSION THAT THE LOANS SHOULD BE BENCHMARKED AT AN INTEREST RATE OF LIBOR CONSIDERING THE VIEW TAKEN BY HON'BLE TRIBUNALS AND HIGH COURTS IN THE VARIOUS CASES FOR BENCHMARKING THE INTEREST ON LOANS CANNOT BE ACCEPTED DUE TO THE FACT THAT ALL THE LOANS WERE GIVEN AND T HE REPAYMENT OF SUCH LOANS BY THE AE IS BASED ON THE VALUE OF INDIAN CURRENCY. HEPCE, WHEN THE AMOUNT HAS BEEN ADVANCED IN INR AND HAS TO BE REPAID IN IS THE RATES AS PER INDIAN MARKET WHICH WOULD BE RELEVANT AND NOT THE LIBOR+ RATES, AS CLAIMED BY THE ASS ESSEE. IN THE AGREEMENT FOR ADVANCING LOAN, THE INTEREST RATE HAS BEEN SPECIFIED AS 13% AND 14%. HENCE, ASSESSEE'S ALTERNATIVE REQUEST TO CHARGE LIBOR RATE CANNOT BE ACCEPTED. FURTHER, IN THE EARLIER YEARS, THE ASSESSEE ITSELF HAS; BENCHMARKED THE INTERE ST RECEIVABLE ON THE ABOVE LOAN TRANSACTIONS @ 13 TO 14% INTEREST RATE AND OFFERED THE SAME AS INCOME, WHICH HAS BEEN ACCEPTED BY THE REVENUE TO BE AT ALP. ACCORDINGLY, FOR THIS YEAR AS WELL, THE RATES AS PER THE AGREEMENT OF THE ASSESSEE ARE CONSIDERED AP PROPRIATE TO DETERMINE THE ALP OF THE INTEREST TO BE RECEIVED ON THE LOAN ADVANCED. 5.17.5 THE DETAILS OF LOAN OUTSTANDING AT THE YEAR END 31.03.2012 IS AS UNDER : SR NO NATURE OF TRANSACTIONS DETAILS OF AE AMOUNT (RS.) STATUS 1 LOANS LAQSHYA MEDIA I NTERNATIONAL, MAURITIUS LOANS GRANTED DURING THE YEAR RS. 1,90,91,655 / - OUTSTANDING LOANS GRANTED IN EARLIER YEARS RS. 92,38,10,850 / - OUTSTANDING M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 7 5.17.6 ACCORDINGLY, THE INTEREST RECEIVABLE ON THE ABOVE OUTSTANDING LOAN ISSUED BY THE ASSESSEE TO ITS AE IS BENCHMA RKED AS PER CUP METHOD AS UNDER : SR . NO AMOUNT OF LOAN INTEREST RATE AS PER THE ORIGINAL AGREEMENT INTEREST RECEIVABLE (RS) 1 76,81,00,940 14% 10,75,34,132 2 15,57,09,915 13% 2,02,42,289 3 1,90,91,655 14% 20,32,638 TOTAL 9429 02505 TOTAL 12,98,09,060 5.18 THE ALP INTEREST ON LOAN ADVANCED BY ASSESSEE TO ITS AE IS DETERMINED AT RS.12,98,09,060/ - . ACCORDINGLY, THE ABOVE AMOUNT OF RS.12,98,09,060/ - IS TREATED AS ADJUSTMENT AGAINST THE TOTAL INCOME OF THE ASSESSEE OF TH E CURRENT YEAR AGAINST THE INTEREST RECEIVABLE FROM THE OUTSTANDING LOAN OF AE. A GAINST THE ABOVE TRANSFER PRICING ORDER ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL. 11. THE DRP REFERRED TO THE ASSESSEE SUBMISSION IN THIS REGARD. HOWEVER , IT FOUN D THAT IT WAS IN AGREEMENT WITH THE TPO THAT THE TRANSACTION RELATING TO THE PROVISION OF THE GUARANTEE AND CONSEQUENTIAL CHARGING OF THE GUARANTEE COMMISSION FROM THE AE BY THE ASSESSEE WILL FALL WITHIN THE DEFINITION OF THE TERM INTERNATIONAL TRANSACTION UNDER SECTION 90 2B OF THE ACT. IT ALSO REJECTED THE ASSESSEES CONTENTION THAT MERELY BECAUSE THE CORPORATE GUARANTEE HAS NOT BEEN ENCAS HED OR ACTED UPON BY THE LENDERS IT DOESNT MEAN THAT THERE WAS NO ASSUMPTION OF RISK BY THE ASSESSEE OR THE ASSET S OF THE ASSESSEE WERE NOT PUT TO USE. IT NOTED THAT THE AE HAS RECEIVED BENEFIT IN THE FORM OF READY ACCEPTABILITY OF ITS OWN CORPORATE GUARANTEES GIVEN TO THE BANKS AND ULTIMATELY RAM GETS FAVOURED BY WAY OF LOANS WHICH IT COULD NOT HAVE CLAIMED ON ITS OWN B OOK STRENGTH. HENCE , IT HELD THAT ASSESSEE HAD INCURRED RISKS IN PROVIDING GUARANTEES TO THE AE AND ACCORDINGLY IT SHOULD HAVE BENCHMARKED THE TRANSACTION FOR DETERMINATION OF ARM THAT THE PRICE. IT ALSO REJECTED THE ASSESSEES OBJECTION THAT CORPORATE GRA NTEE WAS A PART OF THE OVERALL FINANCIAL M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 8 STRUCTURING AGREEMENT BETWEEN THE ASSESSEE AND THE AE AND WAS A SORT OF SHAREHOLDER ACTIVITY. IT NOTED THAT THE ASSESSEE CLAIMS RAM TO BE ITS STEP DOWN SUBSIDIARY BUT IT IS ALSO NOTED THAT THE HOLDING COMPAN Y OF RAM IS GULF MEDIA HOLDING M AURITIUS IN WHICH LMI HAS ONLY 75% HOLDING. THEREFORE IT HELD THAT RAM IS NOT HUNDRED PERCENT OWNED STEP DOWN SUBSIDIARY. IT ALSO NOTED THAT IT IS ALSO NOT CLEAR OF FROM THE ABSENCE OF THE DETAILS FILED BY THE ASSESSEE AS TO WHAT KI ND OF THE GUA RANTEE WAS GIVEN BY LMI TO RAM. THE DRP FURTHER REJECTED THE ASSESSEES CONTENTION THAT THE CORPORATE GRANTEE WAS GIVEN OWING TO THE SIGNIFICANT ECONOMIC, STRATEGY, BUSINESS RELATIONSHIP WITH THE AE FOR THE PROTECTION OF THE GOODWILL, REPUTATI ON AND INVESTMENT AS WELL AS DEVELOPMENT OF THE BUSINESS OF THE ASSESSEE. IT OBSERVED THAT ASSESSEE HAS NOT SHOWN AS TO HOW GIVING A CORPORATE GUARANTEE TO LMI WAS MANDATORY OR HOW IT LED TO THE DEVELOPMENT OF BUSINESS OF THE ASSESSEE IN INDIA/ABROAD. THE DRP ALSO REJECTED THE ASSESSEES CONTENTION THAT ALP OF GUARANTEE FEE HAS BEEN COMPUTED ON AD HOC BASIS. IT NOTED THAT ASSESSEE HAS NOT DISCHARGED ITS ONUS TO BENCHMARK THE TRANSACTION AND SINCE DIRECT CUP WAS NOT AVAILABLE WITH THE TPO, HE HAS ADOPTED AN INDIRECT CUP BY OBTAINING THE RATES OF GUARANTEES GIVEN BY THE INDIAN BANKS. THE DRP ALSO REFERRED THE TPO HAS GIVEN DUE CONSIDERATION TO THE JURISDICTIONAL HIGH COURT ORDER IN THE CASE OF EVEREST CANTO CYLINDER LTD VERSUS DCIT 378 ITR 57 WHEREIN FOLLOWING WAS HELD 'IN THE MATTER OF GUARANTEE COMMISSION, THE ADJUSTMENT MADE BY THE TPO WERE BASED ON INSTANCES RESTRICTED TO THE COMMERCIAL BANKS PROVIDING GUARANTEES AND DID NOT CONTEMPLATE THE ISSUE OF A CORPORATE GUARANTEE. NO DOUBT THESE ARE CONTRACTS OF GU ARANTEE, HOWEVER, WHEN THEY ARE COMMERCIAL BANKS THAT ISSUE BANK GUARANTEES WHICH ARE TREATED AS THE BLOOD OF COMMERCE BEING EASILY ENCASHABLE IN THE EVENT OF DEFAULT, AND IF THE BANK GUARANTEE HAD TO BE OBTAINED FROM COMMERCIAL BANKS, THE HIGHER COMMISSIO N COULD HAVE BEEN JUSTIFIED. IN THE PRESENT CASE, IT IS ASSESSEE COMPANY THAT IS ISSUING CORPORATE GUARANTEE TO THE EFFECT THAT IF THE SUBSIDIARY AE DOES NOT REPAY LOAN AVAILED OF IT FROM ICICI, THEN IN SUCH EVENT, THE ASSESSEE WOULD MAKE GOOD THE AMOUNT A ND REPAY THE LOAN. THE CONSIDERATIONS WHICH APPLIED FOR ISSUANCE OF A CORPORATE GUARANTEE ARE DISTINCT AND SEPARATE FROM THAT OF BANK GUARANTEE AND ACCORDINGLY WE ARE OF THE VIEW THAT COMMISSION CHARGED CANNOT BE CALLED IN QUESTION, IN THE MANNER TPO HAS D ONE. IN OUR VIEW M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 9 THE COMPARISON IS NOT AS BETWEEN LIKE TRANSACTIONS BUT THE COMPARISONS ARE BETWEEN GUARANTEES ISSUED BY THE COMMERCIAL BANKS AS AGAINST A CORPORATE GUARANTEE ISSUED BY HOLDING COMPANY FOR THE BENEFIT OF ITS AE, A SUBSIDIARY COMPANY. IN VIE W OF THE ABOVE DISCUSSION WE ARE OF THE VIEW THAT THE APPEAL DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW AND IT IS DISMISSED'. 12. T HEREAFTER DRP NOTED THAT KEEPING IN VIEW THE ABOVE DISTINCTION MADE BY THE HONBLE HIGH COURT BETWEEN A GUARANTEE FEE AN D A CORPORATE GUARANTEE, THE TPO IN THE PRESENT CASE HAS GIVEN A DOWN W A RD ADJUSTMENT OF 0.5 PERCENT ON THE AVERAGE BANK GUARANTEE RATES OF 2% DETERMINED BY HIM. HENCE IT CONFIRMED THE DETERMINATION OF 1.5%. IT ALSO REJECTED THE ASSESSEES CONTENTION THAT CORPORATE GUARANTEE SHOULD BE BENCHMARKED AT 0 .5% IN VIEW OF JURISDICTIONAL HIGH COURT ORDER. FOR THIS IT NOTED THAT HONBLE HIGH COURT HAS NOT GIVEN ANY FINDING ON THE APPROPRIATENESS OF THE RATE OF 0 .5% . 13. L ASTLY THE DRP REFERRED TO THE ASSESSEES ARG UMENT THAT SINCE IT HAS WITHDRAWN THE CORPORATE GUARANTEE PROVIDED TO LMI WITH EFFECT FROM 1/4/2012 NO CORPORATE GUARANTEE EXISTED FOR THE YEAR UNDER CONSIDERATION . A LTERNATIVELY , IT NOTED THAT ASSESSEE HAS CLAIMED THAT THE ADJUSTMENT ON ACCOUNT OF CORPOR ATE GUARANTEE SHOULD BE RESTRICTED TO THE DATE ON WHICH THE GROUNDS OF CORPORATE GUARANTEE WAS RECTIFIED B Y TH E B OARD OF D IRECTORS I.E. 20/6/2012. THE DRP NOTED THAT THIS CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE BECAUSE THE CORPORATE GUARANTEE HAS BEEN GIVEN TO LMI AND IN TURN IT HAS BEEN COMMUNICATED TO THE BANKS IN DUBAI. THAT THEREFORE FOR ANY WITHDRAWAL OF THE CORPORATE GUARANTEE TO BE EFFECTIVE, THE SAME WOULD TAKE EFFECT FROM THE DATE OF WITHDRAWAL OF THE CORPORATE GRANTEE IS COMMUNICATED TO THE B ANKS. THE DRP NOTED THAT IN THIS REGARD THE ASSESSEE ACCEPTS THAT THE BANKS WERE INFORMED ABOUT THE WITHDRAWAL OF THE CORPORATE GUARANTEE ONLY ON 7/8/2013 WHICH IS AFTER THE CLOSE OF THE PREVIOUS YEAR UNDER CONSIDERATION. THAT THEREFORE FOR THE FINANCIAL Y EAR 2012 - 13 IN THE EYES OF LAW CORPORATE GRANTEE WAS IN EXISTENCE AND COULD BE VALIDLY INVOKED AGAINST THE ASSESSEE . DRP ALSO NOTED THAT THOUGH THE ASSESSEE HAS CLAIMED THAT ITS STATUTORY AUDITORS HAD REMOVED THE MENTION OF CORPORATE GUARANTEES FROM ITS FI NAL ACCOUNTS, THE SAME IS NOT CORRECT. THE M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 10 BALANCE SHEET OF THE ASSESSEE AS AT 31/03/2013 MENTIONS THE CORPORATE GUARANTEES ON BEHALF OF SUBSIDIARIES UNDER THE HEAD 'CONTINGENT LIABILIT IES AND COMMITMENTS'. IT NOTED THAT IT IS ALSO RELEVANT TO NOTE THAT TH E DRP FOR AY 2011 - 12 AND 2012 - 13 HAVE ALSO DISMISSED SIMILAR ARGUMENTS OF THE ASSESSEE ON THE ISSUE OF CORPORATE GUARANTEE. HENCE, IT CONCLUDE D THAT THE OBJECTION NO.1 OF THE ASSESSEE IS DISMISSED. 14. O N THE ISSUE OF ASSESSEES OBJECTION RELATING TO A DJUSTMENT OF RS. 13,98, 09,060 / - MADE BY THE TRANSFER PRICING OFFICER ON ACCOUNT OF INTEREST CHARGEABLE ON INTERES T FREE LOANS GIVEN TO AES THE D ISPUT E R ESOLUTION P ANEL REFERRED TO THE ORDER OF DRP FOR ASSESSMENT YEAR 2012 - 13. FINDING ITSELF IN AGREEMENT WITH ITS EARLIER DECISION IT REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE. AGGRIEVED WITH THE TRANSFER PRICING ADJUSTMENT ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 15. A DJUSTMENT PERTAINING TO PROVISION OF CORPORATE GUARANTEE TO AE LEARNED COUNSEL OF THE ASSESSEE REITERATED THE CONTENTIONS AS MADE BEFORE THE DRP. HE SUBMITTED THAT CORPORATE GUARANTEE IS NOT AN INTERNATIONAL TRANSACTION. FURTHERMORE , HE REITERATED THAT THE CORPORATE GUARANTEE HAS BEEN DULY WITHDRAWN DURING THE YEAR. HOWEVER HE FAIRLY CO NCEDED THAT ON IDENTICAL ISSUE FOR THE EARLIER YEAR ITAT HAD HELD IN ASSESSEE OWN CASE THAT CORPORATE GUARANTEE RATE SHOULD BE 0 .5%. THE LEARNED COUNSEL FURTHER SUBMITTED THAT A MISCELLANEOUS APPLICATION FILED AGAINST THE ABOVE ORDER OF THE ITAT HAS ALSO B EEN DISMISSED. 16. UPON CAREFUL CONSIDERATION WE FIND THAT ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012 13 , V IDE ORDER DATED 14/11/18 , HAS DEALT WITH THE ISSUE. IN PARAGRAPH 4 OF THE SAID ORDER THE ITAT HA S HELD AS UNDER: THOUGH THE LEARNED AR UR GED THAT THE SAID TRANSACTION WAS NOT AN INTERNATIONAL TRANSACTION BUT AT THE SAME TIME, FAIRLY CONCEDED THAT THE STATED ISSUE STOOD PARTLY COVERED IN ASSESSEES FAVOUR BY THE ORDER OF M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 11 THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010 11 AND ALSO FOR ASSESSMENT YEAR 2011 12 WHEREIN THE ADJUSTMENT AGAINST THE SAME HAS BEEN SUSTAINED TO THE EXTENT OF 0.50% IN TERMS OF THE JUDGEMENT OF HONOURABLE BOMBAY HIGH COURT RENDERED IN CIT VERSUS EVEREST CANTO CYLINDERS LTD 378 ITR 57. THERE BEING NO CHA NGE IN MATERIAL FACTS OR CIRCUMSTANCES, TAKING THE SAME VIEW WE RESTRICT THE RIGHT OF IMPUGNED ADDITIONS TO .50% AS AGAINST 2.25% TAKEN BY THE LOWER AUTHORITIES. THIS GROUND STANDS PARTLY ALLOWED. THE LEARNED AO IS DIRECTED TO MODIFY THE FINAL ASSESSMENT O RDER TO THAT EXTENT. 17. I N OUR CONSIDERED OPINION THE RATIO FROM THE ABOVE DECISION IN ASSESSEES OWN CASE IS ALSO APPLICABLE IN THE PRESENT ASSESSMENT YEAR. AS REGARDS THE DIFFERENCE FROM THE PRECEDING YEAR , AS SUBMITTED BY THE LEARNED COUNSEL OF THE ASSESSEE THAT THERE WAS WITHDRAWAL OF THE CORPORATE GUARANTEE, WE ARE IN AGREEMENT WITH THE OBSERVATION OF THE AUTHORITIES BELOW THAT THIS CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED BECAUSE THE CORPORATE GUARANTEE HAS BEEN GIVEN TO LMI AND , IN TURN , IT HAS BEEN CO MMUNICATED TO THE BANKS IN THE D UBAI. AS RIGHTLY NOTED , ANY WITHDRAWAL OF THE CORPORATE GUARANTEE WOULD BE EFFECTIVE ONLY WHEN THE WITHDRAWAL OF THE CORPORATE GUARANTEE IS COMMUNICATED TO THE BANKS. IN THIS REGARD ASSESSEE HAD ACCEPTED THAT BANK S WERE INFORMED ABOUT THE WITHDRAWAL OF THE CORPORATE GUARANTEE ON 7/8/2013 WHICH IS AFTER THE DATE OF THE PREVIOUS YEA R UNDER CONSIDERATION. THEREFORE AUTHORITIES BELOW ARE QUITE CORRECT IN HOLDING THAT IN THE EYES OF LAW CORPORATE GUARANTEE WAS IN EXISTE NCE AND COULD BE VALIDLY INVOKED AGAINST THE ASSESSEE. THE ABOVE VIEW IS ALSO C ORROBORA TED BY THE FACT THAT THE BALANCE SHEET OF THE ASSESSEE AS ON 31/3/2013 MENTIONED THE CORPORATE GUARANTEES ON BEHALF OF SUBSIDIARIES UNDER THE HEAD CONTINGENT LIABILITIE S AND COMMITMENTS . FURTHERMORE , EVEN INFORMATION TO THE RBI FOR THE AFORESAID WITHDRAWAL WAS COMMUNICATED IN THE NEXT FINANCIAL YEAR IN THE MONTH OF AUGUST. 18. IN THE BACKGROUND OF AFORESAID DISCUSSION IN OUR CONSIDERED OPINION , THE VIEW TAKEN BY THE IT AT , AS ABOVE , IS FULLY APPLICABLE AND WE CON CU R WITH THE SAME AS WE FIND THAT FACTS ARE IDENTICAL. WE ORDER ACCORDINGLY . M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 12 19. A DJUSTMENT PERTAINING TO INTEREST ON LOAN TO AE L EARNED COUNSEL OF THE ASSESSEE REITERATED THE SUBMISSIONS THAT NO ADJUSTMENT ON ACCOUNT OF INTEREST ON LOAN TO AE IS WARRANTED. HE MADE VARIOUS SUBMISSIONS IN THIS REGARD. HOWEVER LEARNED COUNSEL FAIRLY ACCEPTED THAT ITAT IN ASSESSEES OWN CASE OWN CASE FOR AY 2012 - 13 IN ITA NO. 1984/MURN/2017 DATED 14 NOVEMBER, HAS DECIDED AS UNDER: '5.6 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND RELEVANT MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE THAT PURSUANT TO CONTRACTUAL TERMS, THE ASSESSEE HAD ADVANCED LOANS TO ITS AE IN FURTHERANCE OF BUSINESS INTEREST I.E. FOR THE PURPOSE OF - FURTHER L ENDING TO STEP DOWN SUBSIDIARY AS WELL AS TO ACQUIRE THE STAKE IN ANOTHER ENTITY. IT IS ALSO UNDISPUTED FACT THAT AS PER THE CONTRACTUAL TERMS, THE ASSESSEE WAS ENTITLED FOR INTEREST RANGING FROM 13% - 14% AND THE SAME HAS ALSO BEEN RECOGNIZED AS INCOME IN T HE EARLIER YEARS. HOWEVER, FOR THE IMPUGNED A Y, NO INTEREST HAS BEEN CHARGED BY THE ASSESSEE PRIMARILY IN VIEW OF THE FACT THAT THE AFORESAID LOANS BECAME DOUBTFUL DUE TO LOSSES SUSTAINED BY ITS AE. THE PRIMARY ARGUMENT OF LD. AR REST ON THE PREMISE THAT THE LOANS BEING STRESSED ASSET / NON - PERFORMING ASSETS AND THEREFORE, ARE TO BE BENCHMARKED AT NIL RATE OF INTEREST. HOWEVER, THE FACT REMAINS THE SAME THAT THE ASSESSEE HAS ADVANCED LOAN PURSUANT TO LOAN AGREEMENTS / ARRANGEMENTS TO ITS AE AND WAS ENTITLE D TO CERTAIN RATE OF INTEREST. THESE LOAN TRANSACTIONS AS ENTERED INTO BY THE ASSESSEE WITH THE AE SQUARELY FALLS WITHIN THE AMBIT OF SECTION 92(1) / 92B AS AN INTERNATIONAL TRANSACTIONS AS ACCEPTED BY THE ASSESSEE IN ITS TP STUDY AND THE STATUTORY PROVISI ONS MANDATES THAT THE INCOME FROM SUCH TRANSACTIONS IS TO BE COMPUTED ON THE PRINCIPLE OF ARM'S LENGTH PRICE IRRESPECTIVE OF THE FACT THAT NO SUCH INCOME HAS ACTUALLY ACCRUED TO THE ASSESSEE. THIS BEING SO, THE ARGUMENT OF PRINCIPLES OF COMMERCIAL EXPEDIEN CY OR NOTIONAL INCOME OR REVENUE NEUTRALITY AS RAISED BEFORE US FAILS SINCE AS LONG AS THE TRANSACTION IS AN INTERNATIONAL TRANSACTION WITHIN THE FRAMEWORK OF LAW, THE COMPUTATION OF INCOME THERE - FROM HAS TO BE ON THE BASIS OF ARM'S LENGTH PRINCIPLE. THIS CONCLUSION OR OUR DRAWS STRENGTH FROM THE RATIO OF DECISION OF KOLKATA TRIBUNAL (SPECIAL BENCH) RENDERED UNDER SIMILAR CIRCUMSTANCES IN INSTRUMENTARIUM CORPORATION LIMITED VS. ADIT[71 TAMXANN.COM 193] WHEREIN HON'BLE BENCH HELD AS UNDER - 37. IN OUR CONSI DERED VIEW, THE COMMERCIAL EXPEDIENCY OF A LOAN TO SUBSIDIARY IS WHOLLY IRRELEVANT IN ASCERTAINING ARM'S LENGTH INTEREST ON SUCH A LOAN. THERE IS INDEED NO BAR ON ANYONE ADVANCING AN INTEREST FREE LOAN TO ANYONE BUT WHEN SUCH TRANSACTIONS ARE COVERED BY TH E INTERNATIONAL TRANSACTIONS BETWEEN THE ASSOCIATED ENTERPRISE, SECTION M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 13 92 OF THE ACT MANDATES THAT THE INCOME FROM SUCH TRANSACTIONS IS TO BE COMPUTED ON THE BASIS OF ARM'S LENGTH PRICE. THE JUDICIAL PRECEDENTS RELIED BY THE ASSESSEE, SUCH AS IN THE CASE OF SA BUILDERS LTD. (SUPRA), IN SUPPORT OF THE PROPOSITION THAT INTEREST FREE ADVANCE TO THE SUBSIDIARY, IN WHICH ASSESSEE HAS DEEP INTEREST, ARE JUSTIFIED ON THE GROUNDS OF COMMERCIAL EXPEDIENCY ARE IN THE CONTEXT OF THE QUESTION WHETHER SUCH A USE OF BOR ROWED FUNDS CAN BE SAID TO BE FOR THE PURPOSES OF BUSINESS, AND, ACCORDINGLY, WHETHER INTEREST ON BORROWINGS FOR FUNDS SO USED CAN BE ALLOWED AS A DEDUCTION IN COMPUTATION OF BUSINESS INCOME OF THE ASSESSEE. THAT IS NOT THE ISSUE HERE, AND THESE JUDICIAL P RECEDENTS ON THE COMMERCIAL EXPEDIENCY, THEREFORE, HAVE NO RELEVANCE IN COMPUTATION OF ARM'S LENGTH PRICE OF LOAN GIVEN TO AN ASSOCIATED ENTERPRISE. SIMILARLY, LEARNED COUNSEL'S CONTENTION THAT A NOTIONAL INCOME CANNOT BE TAXED, AND RELIANCE ON SHOORJI VAL LABHDAS & CO. 'S CASE (SUPRA) IN THIS REGARD, IS WHOLLY MISPLACED BECAUSE THAT PROPOSITION IS IN THE CONTEXT OF TAX LAWS IN GENERAL, WHEREAS, TRANSFER PRICING PROVISIONS, BEING ANTI ABUSE PROVISIONS WITH THE SANCTION OF THE STATUTE, COME INTO PLAY IN THE S PECIFIC SITUATION OF CERTAIN TRANSACTIONS WITH THE ASSOCIATED ENTERPRISE. THE GENERAL PROVISIONS OF THE LAW HAVE TO GIVE WAY TO THESE SPECIFIC ANTI ABUSE PROVISIONS. WHILE A NOTIONAL INTEREST INCOME CANNOT INDEED BE BROUGHT TO TAX IN GENERAL, THE ARM'S LEN GTH PRINCIPLE REQUIRES THAT INCOME IS COMPUTED, IN CERTAIN SITUATIONS, ON THE BASIS OF CERTAIN ASSUMPTIONS WHICH ARE INHERENTLY NOTIONAL IN NATURE. WHEN THE LEGAL PROVISIONS ARE NOT IN PARI MATERIA, AS THE PROVISION OF NORMAL COMPUTATION OF INCOME AND THE PROVISION OF COMPUTATION OF INCOME IN THE CASE OF INTERNATIONAL TRANSACTIONS BETWEEN THE ASSOCIATED ENTERPRISES, WHAT IS HELD TO BE CORRECT IN THE CONTEXT OF ONE SET OF LEGAL PROVISIONS HAS NO APPLICATION IN THE CONTEXT OF THE OTHER SET OF LEGAL PROVISIONS . KEEPING IN VIEW THE SAME, WE REJECT THE VARIOUS CONTENTIONS RAISED BY LD. AR, IN THIS REGARD. ''5.7 NOW THE ONLY QUESTION THAT SURVIVES FOR OUR CONSIDERATION IS APPLICABLE INTEREST RATE AGAINST THE SAME. THE LD. AR HAS SUPPORTED THE ARGUMENT THAT THE S AME SHOULD BE BENCHMARKED AT LIBOR WITH THE FOLLOWING JUDICIAL PRONOUNCEMENTS: - (I) COTTON NATURALS INDIA PVT. LTD. [55 TAXMANN.COM 523 HON'BLE DELHI HC] (II) TATA AUTO - COMP SYSTEMS LTD [374ITR 516 HON'BLE BOMBAY HIGH COURT] ( II I) TRANSPORT CORPORATION OF INDIA LTD. [ITA 117/HYD/2016 HYDERABAD TRIBUNAL] (IV) PIRAMAL GLASS LIMITED [ITA NO. 157/MUM/2016 MUMBAI TRIBUNAL] M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 14 (V) INSTRUMENTARIUM CORPORATION LTD. [ITA 1584/KOL/2009 KOLKATA TRIBUNAL] THE LD. AR SUBMITTED THAT THE ASSESSEE HAD ADVANCED LOANS IN FORE IGN CURRENCY I.E. US DOLLARS AND THEREFORE, THE BENCHMARKING WAS TO BE DONE AT LIBOR IN TERMS OF ABOVE JUDICIAL PRONOUNCEMENTS. TO SUPPORT THE SAME, ADDITIONAL EVIDENCES IN THE SHAPE OF OUTWARD REMITTANCE ADVICES ISSUED BY THE BANK AND OTHER DOCUMENTS HAS BEEN PLACED ON PAGE NUMBERS 633 TO 646 OF THE PAPER BOOK. IN CONTRAST TO THIS, LD. DRP AT PARA 3.26.1 OF ITS DIRECTIONS, UPON PERUSAL OF LOAN AGREEMENT, HAD OPINED THAT THE LOAN WAS REPAYABLE IN INDIAN CURRENCY AND THEREFORE, THE SAME WAS TO BE BENCHMARKED AS PER INDIAN RATES IN TERMS OF JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN COTTON NATURALS INDIA PVT. LTD. [SUPRA]. SINCE ADDITIONAL EVIDENCES HAVE BEEN PLACED BEFORE US FOR THE FIRST TIME WHICH ARE GERMANE TO THE ADJUDICATION OF THE ISSUE AND THE F ACT AS TO THE CURRENCY IN WHICH THE LOAN WAS GRANTED AND THE CURRENCY IN WHICH IT WAS REPAYABLE IS NOT QUITE CERTAIN, THE ISSUE REQUIRES RE - APPRECIATION BY LOWER AUTHORITIES. FOR THE AFORESAID LIMITED PURPOSE, THE MATTER STAND REMITTED BACK TO THE FILE OF LD. AO / TPO WITH A DIRECTION TO THE ASSESSEE TO PROVIDE REQUISITE DETAILS & INFORMATION TO SUBSTANTIATE THE CLAIM. THIS GROUND STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES.' 4.8 FURTHER, AGAINST THE SAID ORDER, APPELLANT HAD FILED THE MISCELLANEOUS A PPLICATION (MA) WITH THE HON'BLE IT AT TO MAKE THE CERTAIN RECTIFICATION IN THE ABOVE ORDER PASSED BY THE HON'BLE TRIBUNAL. THE HON'BLE TRIBUNAL PASSED THE ORDER FOR THE MA ON 12TH MARCH 2019 (REFER PAGE NO 339 TO 343 OF PAPER - BOOK) WHICH IS DULY SERVED TO THE ASSESSEE AS WELL AS TO THE DEPARTMENT WHEREIN THE HON'BLE ITAT WHILE GIVING DIRECTIONS TO CALCULATE THE ALP WITHIN THE FRAMEWORK OF LAW KEEPING IN VIEW THE PRINCIPLE LAID DOWN IN PARA 5.6 OF THE SAID ORDER HAS HELD AS UNDER: '4. PROCEEDING FURTHER, I N PARA 5.7, THE MATTER OF QUANTIFICATION OF APPROPRIATE APPLICABLE RATE HAS BEEN REMITTED BACK TO THE FILE OFLD. AO/ TPO WITH CERTAIN OBSERVATIONS IN THE LIGHT OF ADDITIONAL EVIDENCES SUBMITTED BY THE ASSESSEE. IT IS MADE CLEAR THAT THE ARM'S LENGTH PRICE OF THE STATED TRANSACTIONS SHALL BE DETERMINED WITHIN THE FRAMEWORK OF LAW KEEPING IN VIEW THE PRINCIPLE LAID DOWN IN PARA 5.6 OF THE SAID ORDER. NE EDLESS TO ADD THAT THE ASSESSEE IS FREE TO AGITATE THE APPLICABLE RATE OF STATED TRANSACTIONS. M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 15 IN VIEW O F THE ABOVE, THE ASSESSEE RESPECTFULLY SUBMITS THAT THE MATTER MAY BE REMITTED BACK TO THE FILE OF THE TPO, TO DETERMINE THE ALP IN LINE OF THE ASSESSEES PLEA. S INCE FACTS ARE IDENTICAL FOLLOWING THE PR E CED ENCE FROM ITAT DECISION IN ASSESSEES OWN CASE WE HOLD THAT NO ADJUSTMENT IN THIS REGARD IS TO BE MADE. WE DIRECT ACCORDINGLY 20. CORPORATE TAX DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE A CT O N THIS ISSUE IT WAS NOTED BY THE ASSESSING OFFICER THAT ASSESSEE HAS GIVEN INTEREST FREE LOANS T O ITS SUBSIDIARIES WITHOUT CHARGING ANY INTEREST. THE ASSESSEES EXPLANATION THAT ASSESSEE HAD SUFFICIENT OWN FUNDS TO GIVE INTEREST - FREE LOAN TO SUBSIDIARY COMPANIES WAS REJECTED. HENCE DISALLOWANCE OF INTEREST WAS DONE AMOUNTING TO R S 4,51,66,441. 21. T HE DISPUTE RESOLUTION PANEL FOLLOWING ITS EARLIER DECISION UPHELD THE ASSESSING OFFICERS ACTION . A GAINST THIS ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. 22. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE REITERAT ED THAT IN ASSESSEES OWN CASE ITAT FOR ASSESSMENT YEAR 20 0 9 10 TO ASSESSMENT YEAR 2012 13 HAS HELD THAT NO DISALLOWANCE IN THIS REGARD IS WARRANTED AS THE INTEREST FREE LOAN ADVANCED TO THE SUBSIDIARIES WAS OUT OF COMMERCIAL EXPEDIENCY . F URTHERMORE , THE TRIBUNAL HAD ALSO HELD THAT ASSESSEES INTEREST FREE FUNDS TO GRANT LOANS WERE SUFFICIENT AND IN THIS REGARD IT HAD PLACED RELIANCE UPON HONB LE BOMBAY HIGH COURT DECISION IN THE CASE OF CIT VS HDFC BANK. IN THE SE CIRCUMSTANCES LEARNED COUNSEL CONTENDE D THAT NO DISALLOWANCE IN THIS REGARD IS WARRANTED . HE FURTHER CONTENDED THAT FACTS ARE IDENTICAL AND ASSESSEES INTEREST FREE FUNDS ARE MORE THAN THE ADVANCES GIVEN TO AES. M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 16 23. UPON CAREFUL CONSIDERATION WE FIND THAT SINCE FACTS ARE IDENTICAL AND DRP H AS ALSO FOLLOWED ITS EARLIER YEAR ORDER WHICH HAS BEEN REVERSED BY THE ITAT, RESPECTFULLY FOLLOWING THE ABOVE SAID PR E CEDE NT WE DIRECT THAT NO DISALLOWANCE IN THIS REGARD IS TO BE MADE . 24. A PROPOS DISALLOWANCE UNDER SECTION 14 A T HE ASSESSING OFFICER HAD MADE DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D ( 2 )( III ) AMOUNTING TO RS 5,13,050. THE SAME WAS ALSO ADDED BACK WHILE COMPUTING BOOK PROFIT UNDER SECTION 115 JB. THE DRP ALSO CONFIRMED THE ADDITION . A GAINST THIS ORDER ASSESSEE IS IN APPEAL BEFORE US. 25. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE CONTENDED THAT SINCE THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DISALLOWANCE UNDER SECTION 14 A IS NOT WARRANTED. IN THIS REGARD IS PLACED RELIANCE UPON SEVERA L CASE LAWS INCLUDING THE FOLLOWING : P RINCIPAL CIT VERSUS BALLARPUR INDUSTRIES LTD ITA NO. 51 OF 2016 ( BOM ) C HEM I NVEST LTD VERSUS CIT 378 ITR 33 ( DELHI ) U PON CAREFUL CONSIDERATION WE FIND THAT SINCE THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DISALLO WANCE IN THIS REGARD IS NOT WARRANTED IN ACCORDANCE WITH THE CASE LAWS AND REFERRED ABOVE. WE DIRECT ACCORDINGLY 26. A S REGARDS THE DISALLOWANCE WITH REGARD TO COMPUTATION UNDER SECTION 115 JB LEARNED COUNSEL OF THE ASSESSEE CONTENDED THAT AS HELD BY HON BLE S PECIAL B ENCH OF THE ITAT IN THE CASE OF ACIT VS . V IREET I N VESTMENT S P RIVATE L IMITED FOR COMPUTATION OF BOOK PROFIT PROVISIONS OF SECTION 14 A CANNOT BE IMPORTED INTO CLAUSE F OF THE EXPLANATION TO SECTION 115 JA OF THE A CT. 27. UPON CAREFUL CONSIDER ATION WE ARE OF THE CONSIDERED OPINION THAT FOR COMPUTATION OF BOOK PROFIT UNDER SECTION 1 1 5JB DISALLOWANCE UNDER SECTION M/S. LAQSHYA MEDIA LIMITED (EARLIER KNOWN AS LAQSHYA MEDIA PVT. LTD.) 17 14 A CANNOT BE ACCOUNTED FOR AS HELD BY THE SPECIAL BENCH ABOVE . WE DIRECT ACCORDINGLY. 28. OTHER ISSUES RAISED A CONSEQUENTIAL IN NAT URE. THE ASSESSING OFFICER SHALL GIVE EFFECT TO THE SAME CONSEQUENTIALLY. 29. IN T HE RESULT , ASSESSEES APPEAL STANDS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 6 TH JANUARY 2020 . SD/ - SD/ - ( PAWAN SINGH ) (SH A MIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 6 / 1 / 20 20 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR ) PS ITAT, MUMBAI