NOTIFICATION

CBDT notifies Rule 10CB relating to time limit for repatriation of excess money u/s 92CE

2017-TII-47-HC-MUM-TP

CIT Vs AURIONPRO SOLUTIONS LTD: BOMBAY HIGH COURT (Dated: June 9, 2017)

Income Tax - LIBOR - loans - working capital advances - CUP method - interest.

The assessee is engaged in the business of software development and web designing services. AO noted that the assessee had given loans of Rs. 15.65 crores to its AEs in USA, Singapore and Bahrain and claimed the said loans as working capital advances to its 100% subsidiary outside India. TPO found that as in a third party comparable situation, advances would bear interest, there was a need to charge a mark up as per CUP method. Accordingly, TPO proposed to benchmark the loans at dollar denominated LIBOR plus mark up of 3%. The assessee contended that no cost had been incurred by it and hence no interest was charged by them. However, the TPO relying upon the decision of the Tribunal in the cased of M/s Perot Systems TSI vs DCIT, held that in a comparable uncontrolled situation, funds given as advances would be liable to interest and thus benchmarked the transaction by taking an interest rate of LIBOR plus 3%. DRP took interest rate prevailing in India on corporate bond for benchmarking the loan transaction and treated the AE equal to unrated bonds having very high risk. Thus, the DRP took the rate of interest at 14% per annum as reasonable and representative of the market. Upon appeal, the Tribunal held that even though the TPO took ALP as LIBOR + 3%; however, the appropriate rate would be LIBOR plus 2%. Accordingly, the AO/TPO was directed to determine the Arm’s Length interest by considering the LIBOR plus 2% on the monthly closing balance of advances during the financial year relevant to the AY under consideration. Revenue preferred an appeal against the same.

Having heard the parties, the High Court held that,

Whether when advances are made to a company situated abroad then arms length interest will be determined by applying LIBOR rate - YES: HC

+ in case of Deputy Commissioner of Income-Tax, Circle 2(3), Mumbai vs. Tech Mahindra Ltd. the Tribunal held that ".....In Siva Industries & Holdings Ltd.'s case, coordinate Bench was making a choice between the PLR (Prima Lending Rate in India) and the LIBOR (London Inter Bank Offered Rate). The coordinate Bench held that “once the transaction between the assessee and the Associated Enterprises is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transactions”, and accordingly proceeded to take into account interest rate in terms of LIBOR basis." In the present case also, the advances were made to the company situated abroad. The LIBOR rate naturally will be considered to determine the Arms Length interest, the same would be reasonable and proper in applying the commercial principle. The Tribunal has directed the appropriate rate would be LIBOR plus 2% instead of LIBOR plus 3% applied by the TPO.

Revenue's appeal dismissed

2017-TII-46-HC-MUM-TP

DELOITTE CONSULTING INDIA PVT LTD Vs ACIT: BOMBAY HIGH COURT (Dated: June 9, 2017)

Income Tax - quantum appeal - penalty - substantial question of law

The assessee preferred appeal relating to penalty imposed u/s 271(1)(c) of the Act. Assessee's quantum appeal was admitted by the Court.

Having heard the parties, the High Court held that,

+ the fact that quantum appeal is admitted other grounds of appeal also give rise to substantial question of law and the appeal is accordingly admitted. The other grounds relate to reference made by ACIT to TPO u/s 92CA, addition made under Chapter X of the Act, determination of ALP in respect of reimbursement of marketing expenses and reimbursement of cost incurred by Deloitte in relation to 5 employees seconded to the assessee.

Assessee's appeal admitted

2017-TII-45-HC-MAD-TP

INNO ESTATES PVT LTD Vs DRP: MADRAS HIGH COURT (Dated: June 16, 2017)

Income Tax - Section 144C

Keywords - Real estate - residential plots - compulsory convertible debentures - barred by limitation.

The petitioner is a Private Limited Company engaged in the business of Real Estate Development of Residential Plots. The petitioner filed its return for the AY 2012-13 declaring 'Nil' income. The case was selected for scrutiny and a notice u/s 143(2) was served. During scrutiny proceedings, it was noted that the petitioner Company had entered into an international transaction with its AE and the value of the same exceeded Rs.15 crores. Case was referred to TPO who issued a SCN. The petitioner filed a detailed reply. TPO calculated the ALP and ordered adjustment in the income of the assessee amounting to Rs.3,67,55,978 towards excess interest paid on Compulsory Convertible Debentures. Draft assessment order was issued. Petitioner filed their objections before DRP. The objections were filed on 29.04.2016 i.e., after 30 days time limit. Since there was one day delay in filing the objections, DRP refused to condone the delay and thus, rejected the objections. A final assessment order u/s 144(3) r/w/s 144(C)(13) was passed by making the adjustment as proposed by the TPO. Consequently a demand of Rs.1,76,32,760/- was made. The petitioner contended that AO ought to have passed the final order on or before 31.05.2016 as contemplated u/s 144C(4) since the objection was not filed within time. However, in this case, the final order was passed on 18.11.2016 and thus, it is barred by limitation.

Having heard the parties, the High Court held that,

Whether once the objection is filed before the DRP  within the period of limitation, consideration of the same is vested only with the DRP and AO cannot decide such objection - YES: HC

+ a perusal of Section 144C(2) would show that the assessee, on receipt of the draft order, shall file his objections within 30 days of the receipt of the draft order with DRP and the AO. Only when no objections are received within the period specified, the AO shall complete the assessment on the basis of the draft order. In this case, by communication dated 27.04.2016, the petitioner, by attaching the entire set of documents filed before the DRP, asserted and made the AO to believe that the objection was filed in time. Therefore, the AO is justified in deferring the matter till an order is passed by the DRP. It is to be noted that what is contemplated u/s 144C(2) is the filing of the objections by the assessee with the DRP, if he is not accepting the draft assessment order. Of course, the said provision also contemplates filing of such objection before the AO as well. If such objection is filed in time, then the DRP alone shall proceed to decide the matter. Therefore, AO cannot proceed to pass the final order till the DRP passes an order. Once the objection is filed within the period of limitation, consideration of the same is vested only with the DRP and as such the AO cannot decide such objection. Therefore, filing of such objection before the AO within time itself will not get over the period of limitation, if such filing before the DRP was after such period.

Whether dismissal or rejection of the objection filed by the assessee before DRP and communication of the same has to be treated and construed as a direction given to the AO to complete the assessment as per draft order - YES: HC

+ the next contention raised by the petitioner is that the order passed by the DRP does not contain any directions to the AO and therefore, the final order passed by the AO cannot be treated as the one passed in accordance with Section 144C(13). In this regard it was held that once, the DRP has chosen to reject the objections either on merits or on the ground of delay, it goes without saying that resultant position of such rejection is nothing but confirmation of the draft order passed by the AO. Consequently, the final order passed by AO is certainly an order passed u/s 144C(13), more particularly, when the DRP in its order clearly stated that the directions are communication to the assessee and the departmental authorities as per the provision of Section 144C(5). Hence, the dismissal or rejection of the objection and communication of the same has to be treated and construed as a direction given to the AO to complete the assessment as per draft order. Only when the panel choses to reduce or enhance the variation proposed, it can give any specific directions. Therefore, the petitioner is not justified in contending that the final order is not an order passed u/s  144C(13).

Whether assessee can file an appeal before the Appellate Authority in terms of Section 246(1)(a) when the final order is passed by the AO u/s 144C(13) & the same is passed well with the period of limitation - YES: HC

+ the next question that would arise for consideration is as to what is the remedy available to the petitioner as against the order passed u/s 144C(13). The final order passed by AO is the one passed u/s 144C(13) of the said Act. The said order was passed well within the period of limitation. In such a situation, the petitioner is entitled to file an appeal before the Appellate Authority as contemplated under Section 246(1)(a), which covers an order passed against the assessee u/s 144.

Assessee's writ petition dismissed

2017-TII-44-HC-MUM-TP

CIT Vs METTLER TOLEDO INDIA PVT LTD: BOMBAY HIGH COURT (Dated: June 7, 2017)

Income Tax - Section 92C(2)

Keywords - Weighing equipments - marketing - manufacturing - TNMM.

The assessee is engaged in the business of marketing, manufacturing, sales and services of weighing equipments. During the relevant year, it carried out international transaction with its AE for purchase of goods, import of finished goods and other services. The assessee had selected one company namely Avery India Ltd. as a comparable company to benchmark its international transaction by applying TNMM as MAM. Assessee computed the profit margin of the comparable by using PLI at 5.45%. AO considered the operating margin at 9.60% and addition of Rs.58,57,133/- was made to the purchase made by the assessee. The assessee had calculated its operating margin at 6.18 %. Even the operating margin calculated by the TPO is considered as 9.60%, the same comes within the ambit and purview of arm's length. Revenue contended that Section 92C(2) has not been properly considered by the Commissioner of Income Tax (Appeals) and the Tribunal. Arm's length purchase price as worked out by the TPO in his order falls beyond (+)/(-) 5% range and consequently falls outside the scope of second proviso to Section 92C(2). It was also contended that it was an error on the part of the CIT(A) to discard the comparison of two companies made by the TPO, no reasons were put forth while discarding the said two comparable instances to be considered as Benchmark. The Tribunal also persisted with the same error.

Having heard the parties, the High Court held that,

Whether the grounds not agitated before lower authorities and being questions of fact, can be raised as substantial questions of law before the High Court - NO: HC

+ the CIT(A)  and the Tribunal had considered the said aspect in a plausible manner. This appeal has to be considered on the substantial questions of law. The grounds which were never agitated before the CIT(A) and the Tribunal and those grounds based on the facts, cannot be agitated in the present appeal.

Revenue's appeal dismissed