Lambda Therapeutic Research Ltd. Vs DCIT (ITAT Ahmedabad)
We find that the assessee has not demonstrated any benefit derived from its associated enterprises namely Lambda USA whereas it has advanced interest free loan of EURO 49,999/-. Thus, the question arises whether there is a need to make any adjustment on account of notional interest under the provisions of section 92C of the Act. In this regard we note that admittedly there was no benefit accrued to the assessee in the year under consideration but considering the interrelated activities carried out by the assessee along with associate enterprises, in our considered view it is not necessary that the benefit will arise in the year in which such loans and advances were provided without interest. A drug normally takes 8 to 10 years’ time for its development. Furthermore, this associated enterprise was set up for the activities which are directly connected with the assessee as discussed/elaborated in the preceding paragraph. In our view, the generation of the benefit in terms of money in the year under consideration only cannot be a criteria for making any adjustment under the transfer pricing provisions in the given facts and circumstances. Such income may arise in subsequent years.
It is also important to note that the assessee has given advances to Lambda Therapeutic Research Z.O.O. Poland which have been converted into equity. Thus, what is inferred is this that the loans and advances were given primarily as the investment in equity. In such cases there cannot be any adjustment on account of interest free loans/advances.
It is also significant to note that the Ld. CIT-A in his order has given a finding that there was no benefit derived by the assessee with respect to the amount of interest free loans and advances given to UK AE. However, on perusal of the details submitted by the assessee, we note that there was the benefit derived by the assessee from such associated enterprises which has been elaborated somewhere in the preceding paragraph. Thus, such finding of the Ld. CIT-A is factually incorrect. At the time of hearing the Ld. DR has also not controverted the fact of benefit derived by the assessee.
In view of the above and after considering the facts in totality, we hold that no adjustment under the transfer pricing provisions is required to be made with respect to the interest free loans and advances by the assessee to its associated enterprises in the given facts and circumstances.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned cross appeals have been filed at the instance of the Assessee and the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-2, Ahmedabad, dated 17/11/2017 arising in the matter of assessment order passed under s. 143(3) r.w.s. 144C of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2012-2013.
ITA No. 91/Ahd/2018, an appeal by the Assessee for A.Y. 2012-13
2. The assessee has raised the following grounds of appeal:
1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of the AO of disallowing employee’s contribution towards ESIC amounting to Rs.2,29,053/- u/s 36(l)(va) of the Act.
2. The learned CIT(A) has erred both in law and on the facts of the case in holding that giving loan which is in the nature of “quasi capital”, is an “international transaction” falling within the purview of transfer pricing provisions.
3. Alternatively and without prejudice, the learned CIT(A) has erred both in law and on the facts of the case in confirming the action of the AO of making an addition of Rs. 43,04,408/- as proposed by TPO on account of interest free loans and advances to Lambda Therapeutic Ltd., UK.
4. Alternatively and without prejudice, the learned CIT(A) has erred in confirming the marking up of LIBOR rate by average comparable rate and by Forex risk.
5. The learned CIT(A) has erred both in law and on the facts of the case in holding that Corporate Guarantee given to associate enterprise is an international transaction” falling within the purview of transfer pricing provisions.
6. Alternatively and without prejudice, the learned CIT(A) has erred both in law and on the facts of the case in confirming the adoption of Cost Plus Method as the most appropriate method for benchmarking the guarantee transaction.
7. Alternatively and without prejudice, the learned CIT(A) has erred both in law and on the facts of the case in confirming the upward adjustment to the extent of Rs.6,45,748/- @ 24.7% markup on account of corporate guarantee given to associate enterprise while determining arm’s length price under the provisions of transfer pricing.
8. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.
9. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s.234A/B/C of the Act.
10. The learned CIT(A) has erred in law and on facts of the case in confirming action o f the Id. AO in initiating penalty u/s.271 (l)(c) of the Act.
The appellant craves leave to add, amend, alter, edit, delete, modify change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
3. The first issue raised by the assessee in ground No. 1 of its appeal is that the learned CIT-A erred in confirming the addition of Rs. 2,29,053/- on account of late payment of employees contribution towards ESIC.
4. At the outset, we note that the learned Counsel for the assessee before us submitted that the impugned issue has been covered against the assessee by the order of the Hon’ble Gujarat High court in case of CIT vs. Gujarat State Road Transport Corporation reported in (2014) 366 ITR 170 (Guj), where it was held as under:
8. In view of the above and for the reasons stated above, and considering section 36(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section (2) applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees’account in the relevant fund or funds on or before the “due date” mentioned in explanation to section 36(1)(va). Consequently, it is held that the learned tribunal has erred in deleting respective disallowances being employees ‘ contribution to PF Account / ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees’accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees’ contribution to the employees’ account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act.
4.1 Therefore, respectfully following the same we confirm the addition made by the AO in this regard. Accordingly the ground of appeal raised by the Assessee is hereby dismissed.
5. The second issue raised by the assessee vide ground No. 2 to 4 in its appeal is that the learned CIT-A erred in confirming the addition of Rs. 43,04,408 made by TPO/AO on account of interest free loan advances provided to its AE.
6. The facts in brief are that the assessee in the present case is a limited company and engaged in the business of facilitating the clinical research services to the pharmaceuticals industries. The assessee in the year under consideration has provided interest-free loans and advances to its associated enterprises as detailed under:
