M/s. Synchron Research Services Pvt. Ltd., Ahmedabad V. The ACIT, Circle-8(OSD), Ahmedabad

ITA 899/AHD/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8418 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 13-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 27-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R P MAURYA; PRASOON KABRA D
• Assessee Lawyers: SAMEER N DIVETIA
• Keywords: Transfer pricing; Proportionate interest; Revised return
• Section: 143(3); 14A

Judgement Text

ITA NOS. 899/AHD/2014 AND 418/AHD/2015 ASSESSMENT YEARS: 2008-09 AND 2009-10 PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S S GODARA JM] ITA NOS. 899/AHD/2014 AND 418/AHD/2015 ASSESSMENT YEARS: 2008-09 AND 2009-10 SYNCHRON RESEARCH SERVICES PVT LTD ..... ......APPELLANT 31, THE CHAMBER, S G HIGHWAY, BODAKDEV AHMEDABAD 380 054 [PAN: AADCS9873P] VS ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 4(1)(2), AHMEDABAD .......RESPO NDENT APPEARANCES BY SAMEER N DIVETIA FOR THE APPELLANT R P MAURYA AND PRASOON KABRA, FOR THE RESPONDENT DATES OF HEARING : JANUARY 19, 2018 DATE OF PRONOUNCEMENT : APRIL 18, 2018 O R D E R PER PRAMOD KUMAR, AM: 1. THESE APPEALS CALL INTO QUESTION CORRECTNESS OF TWO SEPARATE ORDERS DATED 26 TH DECEMBER 2013 AND 24 TH OCTOBER 2014 PASSED BY THE LEARNED CIT(A) IN THE M ATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX A CT, 1961 FOR THE ASSESSMENT YEARS 2008- 09 AND 2009-10 RESPECTIVELY. AS THESE TWO APPEALS P ERTAIN TO THE SAME ISSUE, INVOLVE SOME COMMON ISSUES AND WERE HEARD TOGETHER, BOTH OF THES E APPEALS ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. WE WILL TAKE UP THE APPEAL FOR THE ASSESSMENT YE AR 2008-09 FIRST. 3. GROUND NO. 1 IS GENERAL AND DOES NOT CALL FOR AN Y SPECIFIC ADJUDICATION. 4. IN GROUND NO. 2, GRIEVANCE OF THE APPELLANT IS A GAINST LEARNED CIT(A)S UPHOLDING THE ARMS LENGTH PRICE ADJUSTMENT IN RESPECT OF INTERES T FREE LOAN OF RS 18,36,53,770, GRANTED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE AND A STE P DOWN SUBSIDIARY BY THE NAME OF SYNEXEL RESEARCH INTERNATIONAL SAS, FRANCE. 5. WHEN THIS APPEAL WAS CALLED OUT FOR HEARING, LEA RNED COUNSEL FOR THE ASSESSEE VERY FAIRLY SUBMITTED THAT HIS GRIEVANCE IS NOT AGAINST THE ALP ADJUSTMENT PER SE BUT IS CONFINED TO THE PLEA THAT AS AGAINST ADOPTING ALP INTEREST RATE OF 10.91%, BASED ON THE DOMESTIC PRIME ITA NOS. 899/AHD/2014 AND 418/AHD/2015 ASSESSMENT YEARS: 2008-09 AND 2009-10 PAGE 2 OF 9 LENDING RATE IN INDIA IN INDIAN CURRENCY (INDIAN PL R), AND THAT THE SHORT PLEA OF THE ASSESSEE IS THAT SINCE INTEREST FREE LOAN WAS GIVEN IN EURO CUR RENCY, THE ALP SHOULD BE ADOPTED AT 4.11% ON THE BASIS OF INTEREST PRIME LENDING RATE PREVALE NT IN EUROPE IN RESPECT OF EURO CURRENCY (EURO PLR). LEARNED COUNSEL ALSO SUBMITS THAT THIS ISSUE IS NO LONGER RES INTEGRA INASMUCH AS THERE ARE LARGE NUMBER OF JUDICIAL PRECEDENTS UP HOLDING SIMILAR PLEA IN THE CASES OF INTEREST FREE ADVANCES BY INDIAN COMPANIES TO THEIR EUROPEAN AES. IN PARTICULAR, OUR ATTENTION WAS INVITED TO THE DECISION OF A COORDINATE BENCH IN TH E CASE OF AURIONPRO SOLUTIONS PVT LTD VS ACIT [(2013) 27 ITR (TRIBUNAL) 276 (MUM)]. THE PLEA JUSTIFYING NOT CHARGING THE INTEREST, IN AN ARMS LENGTH SITUATION, WAS THUS NOT PRESSED BEF ORE US. 6. LEARNED DEPARTMENTAL REPRESENTATIVE DUTIFULLY RE LIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE FIND THAT THE ISSUE IN APPEAL IS SQUARELY COV ERED, IN PRINCIPLE IN FAVOUR OF THE ASSESSEE, BY A DECISION OF THE COORDINATE BENCH, IN THE CASE OF UFO MOVIES INDIA LTD VS ACIT [(2016) 175 TTJ 633 (DEL)] WHEREIN, FOLLOWING THE ESTEEMED VIEWS OF HONBLE DELHI HIGH COURT, IT WAS, INTER ALIA, OBSERVED AS FOLLOWS : 3. SO FAR AS ALP ADJUSTMENT OF RS. 74,20,785 IS CON CERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF PROCEEDINGS BEF ORE THE TRANSFER PRICING OFFICER, IT WAS NOTED THAT THE ASSESSEE HAD ADVANCED A LOAN OF US $ 1,08,50,000 TO ITS SUBSIDIARY EDRIDGE LIMITED, CYPRUS, ON AN INTEREST @ 7% P.A. T HE TPO WAS OF THE VIEW THAT 'THE AE IS NOT OF SUCH A FINANCIAL HEALTH THAT IT COULD HAVE GOT THE LOAN ON ITS OWN', THAT 'ONE CAN REASONABLY CONCLUDE THAT THIS COMPANY (I.E . THE AE) IS AT BEST A CONDUIT' AS THE FUNDS WERE USED BY THE SAID TO HAVE BEEN USED F OR GIVING LOANS TO THE STEP DOWN SUBSIDIARIES WHICH, IN TURN, HAD PURCHASED EQUIPMEN T WITH THE MONEY SO RECEIVED, THAT GIVEN THE FACT THAT IT'S A ONE OFF TRANSACTION AND THAT THE ASSESSEE IS NOT LENDING MONEY IN THE REGULAR COURSE OF BUSINESS, 'IT CAN BE STATED THAT THERE IS HIGH LEVEL OF RISK BORNE BY YOU (I.E. THE ASSESSEE) IN THIS TRANS ACTION', AND SINCE THE ASSESSEE HAS NOT RECEIVED ANY PRINCIPAL REPAYMENT SO FAR, THE BE LIEF THAT THIS TRANSACTION IS A HIGH RISK TRANSACTION IS FURTHER STRENGTHENED. IN THE BA CKDROP OF THESE OBSERVATIONS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE IS FOLLOW ING THE CUP METHOD AND ASSESSEE IS THE TESTED PARTY, THE ARMS LENGTH PRICE OF INTEREST WILL BE 'THE PREVALENT INTEREST RATE THAT COULD HAVE BEEN EARNED BY THE TAXPAYER BY ADVA NCING A LOAN TO AN UNRELATED PARTY IN INDIA WITH THE SAME WEAK FINANCIAL HEALTH AS THAT OF THE TAXPAYER'S AE'. IT WAS ALSO NOTED THAT THE ASSESSEE HAD GIVEN THIS LOA N WITHOUT ANY SECURITY, AND THAT SINCE AN UNSECURED LOAN LIKE THE ONE ADVANCED BY TH E TAXPAYER, WHICH IS WITHOUT ANY GUARANTEE OR SECURITY, IS EQUIVALENT TO A CORPORATE BOND OF BB TO D CATEGORY. BASED ON THE AVERAGE ANNUALISED YIELD INFORMATION OBTAINE D FROM CRISIL, AND AN INTERPOLATION OF THIS DATA ON THE BASIS OF A SERIES OF ASSUMPTIONS, THE TPO CONCLUDED THAT 17.26% P.A., COMPOUNDED ON MONTHLY BASIS IS A REASONABLE UNCONTROLLED PRICE FOR THE LOAN ADVANCED TO THE SUBSIDIARY. AGGRIEVED BY THE ADJUSTMENT PROPOSED ON THIS BASIS, ASSESSEE APPROACHED THE DISPUTE RESOLUTION P ANEL. WHILE THE DRP DID NOT APPROVE THE ACTION OF THE TPO IN BENCHMARKING THE I NTEREST ON THE BASIS OF INTEREST RATE ON RUPEE DENOMINATED LOANS, IT DID 'NOT FIND F AULT WITH THE FINDINGS OF THE TPO ITA NOS. 899/AHD/2014 AND 418/AHD/2015 ASSESSMENT YEARS: 2008-09 AND 2009-10 PAGE 3 OF 9 THAT THE CREDIT RATING OF THE LOAN GIVEN BY THE ASS ESSEE TO ITS SUBSIDIARY SHOULD BE CONSIDERED AS BB' AND PROCEEDED TO ADD THAT 'GENERA LLY, THE INDIAN BANKS ARE CHARGING INTEREST RATE OF 2.5% TO 5% ABOVE LIBOR/EU RIBOR FOR FOREIGN CURRENCY LOANS' AND, THEREFORE, THE DRP WAS 'OF THE VIEW THA T INTEREST RATE OF 4% ABOVE LIBOR WOULD BE REASONABLE FOR THE LOANS OF BB RATING FOR A PERIOD OF FIVE YEARS'. THE TPO WAS, ACCORDINGLY, DIRECTED TO RECOMPUTE THE ALP OF INTEREST ON LOAN ADVANCED BY THE ASSESSEE BY APPLYING INTEREST RATE OF 4% ABOVE LIBO R. ON THIS BASIS, THE TPO COMPUTED THE INTEREST AT AN ARMS LENGTH PRICE OF RS . 3,26,17,723 AS AGAINST INTEREST CHARGED BY THE ASSESSEE AT RS. 2,51,96,838, AND, MA KE AN ALP ADJUSTMENT OF RS. 74,20,785. THE ASSESSEE IS AGGRIEVED AND IS IN APPE AL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 5. WE HAVE NOTED THAT THERE IS NO DISPUTE THAT THE LIBOR RATE, SO FAR AS THE RELEVANT PREVIOUS YEAR WAS CONCERNED, IS TO BE TAKEN AT 4.53 %, AS THE TPO HIMSELF HAS, PURSUANT TO THE DIRECTIONS OF THE DRP TO ADOPT ALP AT LIBOR+4%, TAKEN THE ALP AT 8.53%. THE ORDER DATED 19TH MARCH 2013, A COPY OF W HICH WAS PLACED BEFORE US AT PAGES 426 AND 427 OF THE PAPER-BOOK, CLEARLY EVIDEN CES THIS FACTUAL POSITION. THERE IS ALSO NO DISPUTE THAT THE ASSESSEE HAS ADVANCED THE LOAN TO THE SUBSIDIARY AT 7% PER ANNUM. CLEARLY, THEREFORE, AS LONG AS THE COMPARABL E UNCONTROLLED PRICE OF THE US $ DENOMINATED LENDING IS LESS THAN 247 POINTS (I.E.70 0-453) ABOVE THE LIBOR RATE, THE TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS S UBSIDIARY CANNOT BE SAID TO BE AT LESS THAN ARMS LENGTH PRICE. THE TRANSFER PRICING STUDY FILED BY THE ASSESSEE, HOWEVER, DOES NOT THROW MUCH LIGHT ON THIS ASPECT OF THE MAT TER BEYOND STATING, IN RATHER VAGUE TERMS, THAT 'A STUDY REVEALED THAT AROUND 100 BASIS POINTS INCREASE IN THE LIBOR RATE IS CONSIDERED APPROPRIATE FOR LENDING TO CORPORATES ', AND THAT 'THEREFORE, THE ADJUSTED INTEREST PERCENTAGE IS TO BE TAKEN THE ARM'S LENGTH INTEREST RATE I.E. 5.53%'. SUCH SWEEPING GENERALIZATIONS AND VAGUE JUSTIFICATIONS A S INHERENT IN THE ABOVE COMMENT IN THE TP STUDY, IN SUPPORT OF LIBOR+100 BASIS POIN TS AS ALP, CANNOT MEET ANY JUDICIAL APPROVAL. 6. WHAT IS IMPORTANT, HOWEVER, IS THAT EVEN AFTER T HIS STATED ALP OF LIBOR + 100 BASIS POINTS, THERE IS STILL A CUSHION OF FURTHER 1 47 BASIS POINTS BEFORE THE INTEREST CHARGED CAN BE SAID TO MORE THAN THE ARM'S LENGTH P RICE, AND IT IS AN OLD MATTER. IT IS, THEREFORE, WORTH EXPLORING WHETHER, EVEN WITHIN THE LIMITATIONS OF SOMEWHAT SKETCHY INFORMATION AVAILABLE ON THE FACTS OF THIS CASE, TH E MATTER CAN BE DECIDED ONE WAY OR THE OTHER RATHER THAN SENDING IT BACK TO THE TPO FO R FRESH ADJUDICATION. 7. WHILE EXPLORING SUCH POSSIBILITIES, IT WILL BE U SEFUL TO TAKE NOTE OF THE FACT THAT IN THE CASE OF BHARTI AIRTEL LTD. V. ADDL. CIT [2014] 64 SOT 50 (URO)/43 TAXMANN.COM 50 (DELHI) , AND A COORDINATE BENCH HAD DELETED A SIMILAR ALP ADJUSTMENT ON ACCOUNT OF INTEREST AMOUNTING TO RS. 10,11,786 WHEREIN THE SAME APPROACH OF ADOPTING 400 BASIS POINTS ABOVE THE LIBOR AS ALP WAS ADOPTED. WH ILE DELETING THIS ALP ADJUSTMENT, SPEAKING THROUGH ONE OF US, THE TRIBUNA L HAD, INTER ALIA, OBSERVED AS FOLLOWS: '62. AS FAR AS THE FIRST ADJUSTMENT IS CONCERNED, W HILE THE TPO HAS ADOPTED THE RATE AS 4% OVER LIBOR RATE, HE HAS NOT SET OUT THE SPECIFIC BASIS OF THIS RATE. HE HAS MENTIONED ABOUT SOME INFORMATION GATHERED FROM WEBSITES OF FINANCIAL ITA NOS. 899/AHD/2014 AND 418/AHD/2015 ASSESSMENT YEARS: 2008-09 AND 2009-10 PAGE 4 OF 9 INSTITUTIONS WHICH, ACCORDING TO HIM, STATES THAT, 'FOR THE FOREIGN CURRENCY DENOMINATED TERM LOANS, THE MAXIMUM RATE OF INTERES T IS 4% OVER 6 MONTHS LIBOR', AND THEN PROCEEDED TO ADOPT THIS MAXIMUM IN TEREST RATE AS A FAIR BASIS FOR HIS COMPUTING THE ARM'S LENGTH PRICE. ON THE OT HER HAND, THE ASSESSEE HAS TAKEN TWO SPECIFIC COMPARABLES OF USD BORROWINGS, I .E. L&T AND SERI INFRASTRUCTURE, ON THE INTEREST RATE OF LIBOR + 150 BPS AND 1.4% TO 1.7% BAND OVER LIBOR RESPECTIVELY. THERE IS NO MATERIAL WHATSOEVER, SAVE AND EXCEPT F OR VAGUE OBSERVATIONS ABOUT WEAK FINANCIALS OF THE SUB SIDIARIES - WHICH ARE NOT SUPPORTED BY ANY SPECIFIC FACTS AND PROCEED ON SWEE PING GENERALIZATIONS AND ASSUMPTIONS, TO REJECT THE COMPARABLES TAKEN BY THE ASSESSEE. WHEN A TRANSFER PRICING OFFICER REJECTS COMPARABLES TAKEN BY THE AS SESSEE, HE HAS TO SET OUT SPECIFIC, COGENT AND LEGALLY SUSTAINABLE REASONS FO R DOING SO. ON THIS POINT, THEREFORE, THE STAND OF THE ASSESSING OFFICER CANNO T BE ACCEPTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65. THAT LEAVES US WITH THIRD POINT OF DIFFERENCE B ETWEEN THE ASSESSEE AND THE TPO AND THAT IS WITH REGARD TO ADJUSTMENT OF 177.60 POINTS, AS BALANCING FIGURE, TOWARDS LACK OF SECURITY AND LENDER NOT BEING IN TH E BUSINESS OF BORROWING AND LENDING MONEY. THIS ADJUSTMENT IS JUSTIFIED BY THE TPO ON THE FOLLOWING GROUND: 7.10 ADJUSTMENT BETWEEN A BANKER AND NON-BANKER AS THE TAXPAYER IS NOT IN THE BUSINESS OF LENDING A ND BORROWING MONEY, HIS RISK IS HIGHER IN ADVANCING LOAN TO A SINGLE CUSTOMER THAN A BANK, WHICH SPREADS ITS RISK AMONG ITS VARIOUS CUSTOMERS. THUS, THE DIFFERENCE B ETWEEN BANKER AND NON- BANKER IS TO BE KEPT IN MIND WHILE ARRIVING AT THE ARM'S LENGTH CUP RATE BASED ON BANK RATES. 7.11 ADJUSTMENT FOR SECURITY USUALLY, BANKERS EXTENDING LOANS IN FOREIGN CURRENC Y ALSO INSIST ON SUFFICIENT SECURITY. IN THIS CASE, NO SECURITY IS OFFERED BY T HE AE. KEEPING IN VIEW THE FINANCIAL HEALTH OF THE SUBSIDIARY, IT MAY NOT BE I N A POSITION TO OFFER SECURITY. THUS AN ADJUSTMENT IS REQUIRED TO BE MADE FOR NOT O FFERING A SECURITY. THIS MAY BE COMPUTED AS THE DIFFERENCE BETWEEN THE INTEREST RATES PREVAILING FOR THE BONDS OF EQUIVALENT CREDIT RATING OF THE AE AND SOVEREIGN GOVERNMENT BONDS IN THE COUNTRY IN WHICH THE AE IS LOCATED. THIS CAN ALSO B E CONSIDERED AS THE GUARANTEE COST PAYABLE TO THE TAXPAYER FOR GIVING GUARANTEE F OR EQUIVALENT AMOUNT OF LOAN GIVEN TO THE AE I.E. THE RATE DIFFERENTIAL FOR THE DIFFERENCE IN INTEREST SPREAD BETWEEN THE CREDIT RATING OF THE TAXPAYER AND THE A E. THUS AFTER THE ABOVE ANALYSIS, THE EQUIVALENT INTEREST RATE IS THE INTER EST RATE INCLUDING THE TRANSACTION COST FOR A FOREIGN CURRENCY LOAN, IF GIVEN TO THE A E FOR ITS CREDIT STANDING/RATING. 66. WE SEE NO SUBSTANCE IN THIS ADJUSTMENT EITHER. THE TPO HAS TAKEN THE LENDER AS THE TESTED PARTY, AND YET MADE ADJUSTMENTS FOR H IGHER RISKS ON ACCOUNT OF ASSUMED LACK OF SECURITY AND INCREASED RISK OF SING LE PARTY DEALING. THIS APPROACH OVERLOOKS THE FACT THAT THE ASSESSEE HAS A DVANCED MONIES TO ITS SUBSIDIARIES WHICH ARE UNDER ITS MANAGEMENT AND CON TROL- A FACTOR WHICH ITA NOS. 899/AHD/2014 AND 418/AHD/2015 ASSESSMENT YEARS: 2008-09 AND 2009-10 PAGE 5 OF 9 SUBSTANTIALLY REDUCES THE RISK RATHER THAN INCREASI NG IT. ON THESE FACTS, IT IS DIFFICULT TO UNDERSTAND, MUCH LESS APPROVE, ANY RAT IONALE FOR ADJUSTMENT ON ACCOUNT OF HIGHER RISKS. ON THIS POINT ALSO, WE SEE NO MERITS IN THE STAND OF THE TPO. (EMPHASIS, BY UNDERLINING, SUPPLIED BY US NOW) ' 8. WHEN THE MATTER WAS CARRIED IN FURTHER APPEAL, T HIS TIME BY THE COMMISSIONER, BEFORE HON'BLE DELHI HIGH COURT, THEIR LORDSHIPS WE RE, VIDE JUDGMENT, DATED 25TH FEBRUARY 2015- A COPY OF WHICH WAS PLACED BEFORE US BY THE LEARNED COUNSEL, PLEASED TO APPROVE THE REASONING ADOPTED BY THE TRIBUNAL. I N DOING SO, THEIR LORDSHIP OBSERVED AS FOLLOWS: '8. THE ITAT HAS ALSO TAKEN NOTE OF THE FACT THAT T WO SPECIFIC COMPARABLES OF USD BORROWINGS I.E. L&T AND SERI INFRASTRUCTURE, ON THE INTEREST RATE OF LIBOR HAD BEEN TAKEN INTO CONSIDERATION. THERE IS NO MATE RIAL WHATSOEVER, SAVE AND EXCEPT FOR VAGUE OBSERVATIONS ABOUT WEAK FINANCIALS OF THE SUBSIDIARIES - WHICH ARE NOT SUPPORTED BY ANY SPECIFIC FACTS AND PROCEED ON SWEEPING GENERALIZATIONS AND ASSUMPTIONS, TO REJECT THE COMPARABLES TAKEN BY THE ASSESSEE. WHEN A TRANSFER PRICING OFFICER REJECTS COMPARABLES TAKEN BY THE ASSESSEE, HE HAS TO SET OUT SPECIFIC, COGENT AND LEGALLY SUSTAINABLE REASON S FOR DOING SO. ON THIS POINT, THEREFORE, THE STAND OF THE ASSESSING OFFICER CANNO T BE ACCEPTED. 9. . . . . . . . . . . . . . . . . . . . . . 10. THE TRIBUNAL FURTHER NOTICED THAT THE ASSESSEE ADVANCED MONIES TO THE SUBSIDIARIES WHICH WERE UNDER ITS MANAGEMENT AND CO NTROL, WHICH IN FACT SUBSTANTIALLY REDUCED THE RISK AND IN THESE CIRCUMS TANCES THERE WAS NO RATIONALE OF ADJUSTING ANY AMOUNT OF HIGHER BASIS. 11. THIS COURT IS OF THE OPINION THAT THE REASONING OF THE ITAT ON EACH OF THE HEADS WHICH WENT INTO THE ADJUSTMENT OF RS. 10,11,7 86/- IS REASONABLE AND JUSTIFIED AND DOES NOT CALL FOR ANY INTERFERENCE. ( EMPHASIS, BY UNDERLINING, SUPPLIED BY US)' 9. THAT WAS ALSO A CASE IN WHICH THE LENDER PARENT COMPANY WAS TAKEN AS THE TESTED PARTY, THE LOAN WAS ADVANCED TO A SUBSIDIARY COMPAN Y WITHOUT MUCH TO THE CREDIT OF ITS FINANCIAL CREDENTIALS AND THE LOAN WAS TREATED AS A HIGH RISK LOAN RESULTING IN ADOPTING THE MAXIMUM LIBOR RATE ON WHICH DOLLAR LOA NS WERE ADVANCED. YET, HON'BLE HIGH COURT SPECIFICALLY APPROVED THE TRIBUN ALS REASONING THAT THE 'ASSESSEE ADVANCED MONIES TO THE SUBSIDIARIES WHICH WERE UNDE R ITS MANAGEMENT AND CONTROL, WHICH IN FACT SUBSTANTIALLY REDUCED THE RISK AND IN THESE CIRCUMSTANCES THERE WAS NO RATIONALE OF ADJUSTING ANY AMOUNT OF HIGHER BASIS' . WHEN SUCH ARE THE VIEWS OF THEIR LORDSHIPS, IT IS FUTILE TO SUGGEST THAT THE LOANS A DVANCED BY THE PARENTS TO SUBSIDIARY CAN INDEED BE TAKEN AS BB TO D GRADE INVESTMENTS WH ICH REFERS TO, AS NOTED BY THE TPO HIMSELF AT PAGE 28 OF THE ORDER, INVESTMENTS WI TH SERIOUS RISKS OF INADEQUATE SAFETY, INVESTMENTS OF HIGH RISK, INVESTMENTS OF SU BSTANTIAL RISK AND INVESTMENTS OF DEFAULT. THE APPROACH ADOPTED BY THE DRP CANNOT, TH EREFORE, MEET OUR APPROVAL. 10. SIMILARLY, THE DRPS OBSERVATION TO THE EFFECT T HAT 'GENERALLY, INDIAN BANKS ARE CHARGING INTEREST RATE OF 2.5% TO 5% ABOVE THE LIBO R/EURIBOR FOR FOREIGN CURRENCY LOANS' IS NOT ONLY DEVOID OF ANY BASIS BUT , AS OUR DAY TO DAY EXPERIENCE ON THE BENCH SHOWS, EX FACIE INCORRECT. ITA NOS. 899/AHD/2014 AND 418/AHD/2015 ASSESSMENT YEARS: 2008-09 AND 2009-10 PAGE 6 OF 9 11. THERE ARE ANY NUMBER OF DECISIONS BY THE COORDI NATE BENCHES WHICH SHOW THAT THE INTEREST RATES CHARGED ON FOREIGN CURRENCY, SAY US DOLLARS, LOANS ARE MUCH LOWER THAN THE 250 TO 500 BASIS POINTS ABOVE THE LIBOR HAVING BEEN TO BE GENERALLY APPLICABLE RATES. FOR INSTANCE, IN THE CASES OF BHARTI AIRTEL LTD. (SUPRA), WHICH PERTAINS TO THE ASSESSMENT YEARS 2007-08 AND 2008-09, THE COMPARABL E CASES WERE TAKEN AS 150 BASIS POINTS ABOVE LIBOR AND IN THE RANGE OF 140-17 0 BASIS POINTS ABOVE LIBOR. IN CONTRAST TO THIS COMPARABLE CASE, THE INTEREST CHAR GED IN THE PRESENT CASE IS 247 POINTS ABOVE THE LIBOR RATE. IN THE CASE OF SIVA IN DUSTRIES & HOLDINGS LTD. V. ASSTT. CIT [2012] 26 TAXMANN.COM 96/54 SOT 49 (CHENNAI) , DEALING WITH THE ASSESSMENT YEAR 2006-07 AND WHILE REFERRING TO LIBOR AT 4.42, INTEREST RATE ON ADVANCES TO SUBSIDIARY AT 6%, WHICH WAS THUS 158 POINTS ABOVE T HE LIBOR RATE, WAS HELD TO BE AN ARMS LENGTH PRICE. IN VIEW OF THESE DISCUSSIONS, IT CANNOT BE SAID THAT THE ADVANCE TO SUBSIDIARY, AT 247 BASIS POINTS ABOVE THE LIBOR, IS NOT AT AN ARMS LENGTH PRICE. IN ANY EVENT, ONCE DRP ITSELF STATES THAT THE INDIAN B ANKS ARE CHARGING 250 BASIS ABOVE LIBOR ON SIMILAR LOANS, EVEN THOUGH THIS INTEREST R ATE COULD REACH UPTO 400 BASIS POINTS IN SOME CASES, THERE CANNOT BE ANY GOOD REAS ON FOR HOLDING THAT LOAN ADVANCED TO A SUBSIDIARY AT 247 BASIS POINTS ABOVE THE LIBOR RATE IS NOT AT AN ARMS LENGTH PRICE. THAT APART, AS NOTED EARLIER IN THIS ORDER, ONCE HON'BLE DELHI HIGH COURT, OBSERVES THAT THE 'ASSESSEE ADVANCED MONIES TO THE SUBSIDIARIES WHICH WERE UNDER ITS MANAGEMENT AND CONTROL, WHICH IN FACT SUBSTANTIALLY REDUCED THE RISK AND IN THESE CIRCUMSTANCES THERE WAS NO RATIONALE OF ADJUSTING A NY AMOUNT OF HIGHER BASIS', IT CANNOT BE OPEN TO THE TRANSFER PRICING AUTHORITIES TO CONTEND THAT THIS LOAN SHOULD BE TREATED AS A HIGH RISK LOAN ON WHICH HIGH INTEREST RATE SHOULD BE CHARGED EVEN WITHIN THE RANGE OF INTEREST RATES CHARGED BY THE INDIAN B ANKS GENERALLY. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF TH E CASE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DE LETE THIS ARMS LENGTH PRICE ADJUSTMENT OF RS. 74,20,785 IN RESPECT OF INTEREST CHARGED ON ADVANCES TO THE SUBSIDIARIES. 12. GROUND NOS. 1 TO 5, WHICH PERTAIN TO THE ALP AD JUSTMENT IN RESPECT OF INTEREST CHARGED ON INTEREST TO SIB SUBSIDIARIES, ARE THUS A LLOWED IN THE TERMS INDICATED ABOVE. 8. HAVING UPHELD THE PLEA OF THE ASSESSEE IN PRINCI PLE, WE FIND THAT THE RELEVANT DETAILS IN SUPPORT OF THE EURO PLR BEING TAKEN AT 4.11% ARE NO T BEFORE US. WE ARE, THEREFORE, UNABLE TO UPHOLD OR APPROVE THE RATE AS CANVASSED BY THE ASSE SSEE, EVEN THOUGH WE ACCEPT THE PLEA OF THE ASSESSEE IN PRINCIPLE AND REMIT THE MATTER TO T HE FILE OF THE ASSESSING OFFICER FOR RECOMPUTING THE ALP ADJUSTMENT ON THE BASIS OF EURO PLR AND IN THE LIGHT OF OUR OBSERVATIONS AS ABOVE. LEARNED COUNSEL FOR THE ASSE SSEE IS DIRECTED TO PLACE ALL THE MATERIAL IN SUPPORT OF ITS STAND, ON THE QUANTIFICATION PART ON LY, BEFORE THE ASSESSING OFFICER, AND THE ASSESSING OFFICER SHALL DECIDE THE MATTER TAKING IN TO ACCOUNT THE SAME AND IN THE LIGHT OF SUCH MATERIAL, AS HE MAY BE AVAILABLE TO HIM IN RES PECT OF EURO PLR- THOUGH AFTER CONFRONTING THE ASSESSEE WITH THE SAME, IN ACCORDANCE WITH THE LAW AND AFTER GIVING A REASONABLE OF HEARING TO THE ASSESSEE. LEARNED REPRESENTATIVES HA VE FAIRLY AGREED TO THIS SUGGESTION, EVEN THOUGH THEY HAVE VEHEMENTLY ATTEMPTED TO JUSTIFY TH EIR RESPECTIVE STANDS. THE MATTER THUS STANDS RESTORED, WITH THE DIRECTIONS AS ABOVE, TO T HE ASSESSMENT STAGE ON THIS ISSUE. ITA NOS. 899/AHD/2014 AND 418/AHD/2015 ASSESSMENT YEARS: 2008-09 AND 2009-10 PAGE 7 OF 9 9. GROUND NO. 2 IS THUS ALLOWED IN THE TERMS INDICA TED ABOVE AND FOR STATISTICAL PURPOSES AS INDICATED ABOVE. 10. IN GROUND NO. 3, THE ASSESSEE IS AGGRIEVED THAT THE CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS 31,379 UNDER SECTION 14A OF THE ACT. 11. AS A PLAIN PERUSAL OF THE ASSESSMENT ORDER WOUL D SHOW, THE ASSESSING OFFICER PROCEEDED TO MAKE DISALLOWANCE UNDER SECTION 14A BY OBSERVING THAT THE PROPORTIONATE INTEREST EXPENSES MUST BE DISALLOWED EVEN WHEN NO D IVIDEND INCOME IS EARNED AND THAT IN THE CASE OF CHEMINVEST LTD VS ITO, HONBLE ITAT SP ECIAL BENCH HAS HELD THAT THE DISALLOWANCE UNDER SECTION 14A CAN BE MADE EVEN IN A YEAR IN WHICH NO DIVIDEND INCOME IS EARNED OR RECEIVED BY THE ASSESSEE. THE VIEWS SO E XPRESSED BY THE SPECIAL BENCH (REPORTED IN 121 ITD SB 318, HOWEVER, HAVE BEEN REVERSED BY H ONBLE DELHI HIGH COURT IN THE JUDGMENT REPORTED AS CHEMINVEST LTD VS CIT [(2015) 378 ITR 33 (DEL)] AND IT IS HELD THAT THE EXISTENCE OF TAXABLE INCOME IS A SINE QUA NON F OR INVOKING DISALLOWANCE UNDER SECTION 14A. HONBLE JURISDICTIONAL HIGH COURT, IN THE CASE OF CIT VS CORRTECH ENERGY PVT LTD [(2015) 372 ITR 97 (GUJ)], HAVE ADOPTED THE SAME AP PROACH AND HELD THAT WHEN THERE IS NO TAX EXEMPT EARNINGS, THERE CANNOT BE ANY OCCASION F OR DISALLOWANCE UNDER SECTION 14A. CLEARLY, THEREFORE, THE VERY FOUNDATION OF THE IMPU GNED DISALLOWANCE UNDER SECTION 14A IS DEVOID OF LEGALLY SUSTAINABLE SUBSTANCE. FOR THIS S HORT REASON ALONE DEALING WITH THE BASIC STAND OF THE ASSESSING OFFICER, AND WITHOUT DEALING WITH THE MERITS ANY FURTHER, WE UPHOLD THE PLEA OF THE ASSESSEE AND DELETE THE IMPUGNED DISALL OWANCE OF RS 31,379. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 12. GROUND NO. 3 IS THUS ALLOWED. 13. GROUND NO. 4 IS GENERAL AND DOES NOT CALL FOR A NY ADJUDICATION. 14. IN THE RESULT, THE APPEAL FOR THE ASSESSMENT YE AR 2008-09 IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 15. THE APPEAL FOR THE ASSESSMENT YEAR 2009-10 IS T IME BARRED BY 7 DAYS BUT THE ASSESSEE HAS MOVED A PETITION SEEKING CONDONATION OF DELAY. HAVING PERUSED THE PETITION, AND HAVING HEARD RIVAL CONTENTIONS ON THE SAME, WE ARE INCLINE D TO CONDONE THE DELAY. THE DELAY IS, THEREFORE, CONDONED. 16. GROUND NO. 1 IS GENERAL AND DOES NOT CALL FOR A NY SPECIFIC ADJUDICATION. 17. IN GROUND NO. 2, GRIEVANCE OF THE APPELLANT IS AGAINST LEARNED CIT(A)S UPHOLDING THE ARMS LENGTH PRICE ADJUSTMENT IN RESPECT OF INTERES T FREE LOAN OF RS 18,36,53,770, GRANTED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE AND A STE P DOWN SUBSIDIARY BY THE NAME OF SYNEXEL ITA NOS. 899/AHD/2014 AND 418/AHD/2015 ASSESSMENT YEARS: 2008-09 AND 2009-10 PAGE 8 OF 9 RESEARCH INTERNATIONAL SAS, FRANCE. THE QUANTUM OF ALP ADJUSTMENT IN THIS YEAR IS RS 88,88,843. 18. LEARNED REPRESENTATIVE FAIRLY AGREE THAT WHATEV ER WE DECIDE FOR THE ASSESSMENT YEAR 2008-09 WILL APPLY MUTATIS MUTANDIS FOR THIS ASSESSMENT YEAR AS WELL. AS WE HAVE UPHEL D THE PLEA OF THE ASSESSEE, IN PRINCIPLE, BUT REMITTED TH E MATTER TO THE ASSESSMENT STAGE FOR RECOMPUTATION OF ALP ADJUSTMENT, WITH CERTAIN DIREC TIONS, THE SAME MUST BE DONE FOR THIS ASSESSMENT YEAR AS WELL. WITH THE SAME OBSERVATIONS AND SAME DIRECTIONS, THE ISSUE STANDS RESTORED TO THE ASSESSMENT STAGE FOR ASSESSMENT YEA R 2009-10 AS WELL. WE DIRECT SO. 19. GROUND NO. 2 IS THUS ALLOWED FOR STATISTICAL PU RPOSES IN THE TERMS INDICATED ABOVE. 20. IN GROUND NO. 3, THE ASSESSEE IS AGGRIEVED AGAI NST THE DISALLOWANCE OF RS 3,19,362, BEING DELAYED PAYMENTS OF PF/ESI DUES. 21. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS CONCLUDED AGAINST THE ASSESSEE BY HONBLE JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF CIT VS GUJARAT STATE ROAD TRANSPORT CORPORATION LTD [(2014) 366 ITR 170 (GUJ) ]. WE, THEREFORE, UPHOLD THE DISALLOWANCE AND DECLINE TO INTERFERE IN THE MATTER . 22. GROUND NO. 2 IS THUS DISMISSED. 23. IN GROUND NO. 4, THE ASSESSEE IS AGGRIEVED THAT THE CIT(A) HAS UPHELD EXCLUSION OF FOREIGN EXCHANGE GAIN OF RS 11,60,755 FOR THE PURPO SE OF COMPUTING DEDUCTION UNDER SECTION 80IB. 24. SO FAR AS THIS GRIEVANCE IS CONCERNED, IT IS SU FFICIENT TO TAKE NOTE OF THE FACT THAT THE CIT(A) DECLINED THE IMPUGNED CLAIM ON THE GROUND TH AT IT WAS A FRESH CLAIM OTHERWISE THAN BY WAY OF A REVISED RETURN, AND, ACCORDINGLY, INADM ISSIBLE IN VIEW OF HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF GOETZE INDIA LTD VS CIT[(2006) 284 ITR 323 (SC)]. THERE WAS NO OCCASION TO DEAL WITH THE MERITS, THUS, BEFO RE ANY OF THE AUTHORITIES BELOW. 25. THE LEGAL POSITION IS BY NOW WELL SETTLED IN TH IS REGARD. ADMITTEDLY THERE IS NO BAR ON THIS TRIBUNAL TO ADMIT THE CLAIM AND, AS THE MATTER HAS NOT BEEN EXAMINED ON MERITS AT ANY STAGE, IN REMITTING THE MATTER TO THE FILE OF THE A SSESSING OFFICER FOR ADJUDICATION ON MERITS. THAT IS, BY AND LARGE, THE NORMAL PRACTICE BEING AD OPTED BY THE COORDINATE BENCHES AS WELL. CONSISTENT WITH THE STAND OF THE COORDINATE BENCHES , WHILE WE ADMIT THE CLAIM OF THE ASSESSEE FOR CONSIDERATION, WE REMIT THIS ISSUE ALSO TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION ON MERITS AFTER GIVING A REASONABLE OP PORTUNITY OF HEARING TO THE ASSESSEE, IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING OR DER. 26. GROUND NO. 3 IS ALSO ALLOWED FOR STATISTICAL PU RPOSES IN THE TERMS INDICATED ABOVE. ITA NOS. 899/AHD/2014 AND 418/AHD/2015 ASSESSMENT YEARS: 2008-09 AND 2009-10 PAGE 9 OF 9 27. GROUND NO. 5 IS GENERAL AND DOES NOT CALL FOR A NY ADJUDICATION. 28. IN THE RESULT, THE APPEAL FOR THE ASSESSMENT YE AR 2009-10 IS ALSO PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 29. TO SUM UP, BOTH THE APPEALS ARE PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 18 TH DAY OF APRIL 2018. SD/- SD/- S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, DATED THE 18 TH DAY OF APRIL, 2018 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD