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,
BEFORE SHRI R.C.SHARMA, AM
&
SHRI VIJAY PAL RAO, JM
ITA No.7073/Mum/2012
( Assessment Year :2008-09)
M/s Everest Kanto Cylinder Ltd., Vs. ACIT (LTU), Mumbai
204, Raheja Centre, Free Press
Journal Marg, Nariman Point,
Mumbai-400 021
PAN/GIR No. : AAACE 0836 F
( Appellant) .. ( Respondent)
ORDER
issued by the Dispute Resolution Panel (in short the DRP) for the
the assessee :-
Supplementary Ground
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ITA No.7073/2012
2. Rival contentions have been heard and found from record that the
claimed as exempt from tax under section 10(33). The total investment in
represented 13.81% of the total assets. The assessee had sold and
purchased shares and securities during the year. The assessing officer
that assessee has incurred the interest expenditure of Rs.4.83 crores for
applying Rule 8D(ii). On reference to DRP, the DRP upheld action of the
Our attention was also invited Year-wise fund flow statement which was
as under :-
(Rs. in crores)
Particulars Upto 31-Mar-07 31-Mar-08
AY 2006-07 AY 2007-08 AY 2008-09
Profit before Depreciation & Tax 140.11 75.03 57.86
Sources of Funds
Equity share Capital (A) 17.63 19.52 20.23
Reserves and Surplus (B) 133.30 256.01 375.51
Application of Funds
Net Fixed Assets (Including Capital WIP) 93.93 91.25 149.43
Net Working Capital 84.63 156.60 335.72
Investments (refer below table) 13.22 54.30 102.62
Bifurcation of Investments
(Rs. in crores)
Investment in Subsidiaries Upto AY 2007-08 AY 2008-09
AY 2006-07
EKC International (Tianjin) Ltd. (China) 19.76 69.25
(Net
addition
Rs.49.49 cr
EKC International FZE (Dubai) 21.17 21.17
Investment in Associates
Everest Kanto Investment &Finance Ltd 0.09 0.09 0.09
Everest Industrial Gases Private Ltd. 0.00 0.01 0.00
Total (A) 0.09 41.03 90.52
Other investments
Investments in immovable properties 0.00 0.00 0.00
GPT Steel Industries Pvt. Ltd 2.00 2.00 2.00
Solar Explosives Limited 0.45 0.00 0.00
Shivalik Global ltd. 0.30 0.00 0.00
Learned AR also invited our attention to the investment made in UTI fixed
under Rule 8D has been worked out by the AO on the total investment,
disallowance under Rule 8D, since it is not generating any tax free
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income. The assessee has also filed copy of the scheme of UTI fixed
and not eligible for dividend. If we exclude the amount invested by the
Plan was first time filed before Tribunal as an additional evidence along
accept the additional evidence and matter is restored back to the file of
above observations.
5.1 The contention of the learned AR was that the adjustment cannot
be made while computing book profit under Section 115JB of the Act for
Section 115JB and for this, reliance was placed in the decision of the
Honble Supreme Court on the case of Appollo Tyres Ltd., 255 ITR 273.
5.2 On the other hand, learned DR relied on the order of the lower
authorities.
decisions :-
iv) J.K. Paper Ltd (ITA No. 4027 & 40BO/Ahd/200B) & (ITA No.
979/Ahd/2006) (Ahmedabad) ;
FZE (EKC Dubai) and EKC Industries (Tianjin) Limited (,EKC China)
manufacture of cylinders in Dubai & China region which are huge markets
for the assessee. For this purpose assessee approached ICICI Bank,
Bahrain branch and the said bank agreed to provide term loans for
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such corporate guarantee. This was on the basis of internal CUP available
p.a was to be paid by the assessee company to ICICI Bank India for the
business interest of the assessee company in AE and the fact that 0.5%
was fair rate, as per the prevailing market rate. The diagrammatic
6.2 In view of the above, the TPO arrived at a rate of 3% and proposed
which has been contested by the assessee before us. The contention of
the A.R. was that the transaction of giving corporate guarantee to bank on
Chennai Tribunal in case of Redington (India) Limited (ITA Nos 513 &
international transaction, the assessee has recovered from the AE, the
guarantee commission to ICICI Bank India and has charged @ 0.5% to its
authorities.
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ITA No.7073/2012
orders of the authorities below and found that assessee company had
the assessee company to ICICI Bank for the bank guarantee provided. It
provided assessee has paid charges to the bank and also recovered
certain amount from its AE. The Tribunals order relied on the by the
learned AR in case of Bharti Airtel Ltd., the order of Delhi Tribunal dated
transaction of such a nature was not having any bearing on the profits,
the profits, income, losses or assets on the real basis, even if in the
under :-
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ITA No.7073/2012
36. For the reasons set out above, and as we have held that the
issuance of corporate guarantees in question did not constitute
'international transaction' within meanings thereof under section
92B, we uphold the grievance of the assessee and direct the
Assessing Officer to delete the impugned ALP adjustment of Rs
33,10,161. The assessee gets the relief accordingly.
losses or assets of the assessee. However, the facts of the instant case
are clearly distinguishable wherein not only the assessee has incurred
commission from its AE. Thus, the assessee had effect on its income and
guarantee. Accordingly, assessee will not get help of the decision of the
9. Now, coming to the merit of the addition so made, we found that the
precise observation of the bench for the assessment year 2007-08 are as
under :-
.in this case, the assessee has itself charged 0.5% guarantee
commission from its AE, therefore, it is not a case of not charging of
any kind of commission from its AE. The only point which has to be
seen in this case is whether the same is at ALP or not. We have
already come to a conclusion in the foregoing paras that the rate of
3% by taking external comparable by the TPO, cannot be sustained
in facts of the present case. We also find that in an independent
transaction, the assessee has paid 0.6% guarantee commission to
IGIGI Bank India for its credit arrangement. This could be a very
good parameter and a comparable for taking it as internal GUP and
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ITA No.7073/2012
comparing the same with the transaction with the AE. The charging
of 0.5% guarantee commission from the AE is quite near to 0.6%,
where the assessee has paid independently to the IGIGI Bank and
charging of guarantee commission at the rate of 0.5% from its AE
can be said to be at arms length. The difference of 0.1% can be
ignored as the rate of interest on which IGIGI Bank, Bahrain Branch
has given loan to AE (i.e. subsidiary company) is at 5.5%, whereas
the assessee is paying interest rate of more than 10% on its loan
taken with IGIGI Bank in India. Thus, such a minor difference can
be on account of differential rate of interest. Thus, on these facts,
we do not find any reason to uphold any kind of upward adjustment
in ALP in relation to charging of guarantee commission.
As the facts and circumstances of the case during the year under
length price of transaction as per the direction given by the Tribunal in the
10.1 Rival contentions have been heard, record perused and found that
and USD 3 million to EKC China for a period of six months and further
renewable with mutual consent. The assessee has charged interest @7%
p.a. During the year under consideration, the assessee has paid interest
at the rate of 5.17% on Euro Loan availed from Citibank NA. Also, the
were due for redemption in 2012. The contention of the assessee before
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the lower authorities was that funds utilized for such loan was raised
so the assessee has availed term loan at Citibank at 7% p.a. the TPO has
asked the assessee to justify the arms length nature of interest charged
DRP, the DRP confirmed the action of the TPO and assessee is in further
10.2 It was contended by the learned AR that the loan was granted by
EKCL to EKC Dubai & EKC China from the proceeds of the FCCBs.
Funds received under FCCBs were interest free funds available with EKC.
In spite of such interest free funds available with EKCL, it has charged
contention of the learned AR was that funds were provided by EKCL for
its own benefits of financing its 100% subsidiary for growth of its business
quasi-equity. Our attention was invited to the loan granted to EKCL which
was converted into equity during the financial year 2011-12. Accordingly,
it was argued that loan was in the nature of equity investment, the benefits
the argument of the learned AR was that the loan has been availed in
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ITA No.7073/2012
11. We had considered rival contentions and gone through the orders
analysis. For this purpose, the London Inter Bank Offer Rate (LIBOR) is
vii) Siva Industries and Holdings Ltd. vs ACIT, IT Appeal No. 2148
(Mds.) of 2010;
xi) Four Soft Ltd vs. OCIT, IT Appeal No. 1495 of 2011 (Hyderabad
Tribunal)
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12. In light of the above decisions, the rate to be used for undertaking
considered by the learned TPO. The LlBOR rate for March 2008 was
2.6798%. However the assessee has charged 7% from its AE as per the
internal CUP available. Thus, the assessee has charged interest to EKC
Dubai and EKC China at the rate higher than existing LlBOR rates.
Accordingly, the said transaction of providing loan to EKC Dubai and EKC
aside.
25/09/2014
Sd/- Sd/-
( ) ( )
(VIJAY PAL RAO) (R.C.SHARMA)
/ JUDICIAL MEMBER / ACCOUNTANT MEMBER
Mumbai; Dated 25/09/2014
/pkm, PS
Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. / The CIT(A), Mumbai.
4. / CIT
5. /
DR, ITAT, Mumbai
6. Guard file.
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ITA No.7073/2012
//True Copy//
/ BY ORDER,
(Asstt. Registrar)
/ ITAT, Mumbai