ASK RESOURCES INDIA PVT. LTD.,CHENNAI V. .DCIT CORPORATE CIRCLE 1(1), CHENNAI

ITTPA 1/CHNY/2019

AI Insights

The case involves ASK Resources India Pvt. Ltd., which appealed against the assessment order for the Assessment Year 2014-15. The appeal arose from the assessment order passed by the Assessing Officer under sections 143(3), 144C(5), and 92CA of the Income-tax Act, 1961, following directions from the Dispute Resolution Panel (DRP). The primary issues in the appeal included the classification of M/s. ASK Re Ltd., Hong Kong as Associated Enterprises, the appropriateness of the Transfer Pricing Officer's method in determining the Arm's Length Price, and the disallowance made under Section 14A. The Tribunal's decision addressed these issues by rejecting the application of TNMM and upholding the CUP method, leading to the deletion of the downward adjustment and the disallowance under Section 14A.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 107093 (ITAT-CHENNAI)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 18-12-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Other Referred Cases: DLF Holding Ltd. v. DCIT, ACIT v. Veer Gems, PCIT v. M/s. Page Industries Ltd., Star India Pvt. Ltd. v. ACIT, Godrej & Boyce vs. CIT, Era Infrastructure (India) Ltd. v. PCIT, Maxivision Eye Hospital Pvt. Ltd. v. DCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A. SASIKUMAR
• Assessee Lawyers: T. BANUSEKAR; SURAJ NAHAR; C.A
• Keywords: Transfer pricing; International transaction; Retrospective amendment; Principle of natural justice; Earning of tax free income; Rule 8D
• Section: 143(3); 92CA; 14A; 92A

Judgement Text

"आयकर अपीलीय अिधकरण, ‘डी’ \u0011ा यपीठ, चे\u0016ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI \u0019ी यस यस िव\u001cने\u001e रिव, \u0011ा ियक सद एवं \u0019ी जगदीश, लेखा सद क े सम( BEFORE SHRI SS VISWANETHRA RAVI, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER आयकर अपील सं./IT(TP)A No.01/Chny/2019 िनधा ;रण वष; /Assessment Year: 2014-15 ASK Resources India Pvt. Ltd., No.7, Palat Madhavan Road, Mahalingapuram, Chennai – 600 034 Vs. The Dy. Commissioner of Income Tax, Corporate Circle-1(1), Chennai. [PAN: AAHCA 4827H] (अपीलाथ\u0007/Appellant) (\b\tयथ\u0007/Respondent) अपीला थI की ओर से/ Appellant by : Shri T. Banusekar, Advocate & Shri Suraj Nahar, C.A KLथI की ओर से /Respondent by : Shri A. Sasikumar, CIT सुनवा ई की ता रीख/Date of Hearing : 25.09.2024 घोषणा की ता रीख /Date of Pronouncement : 18.12.2024 आदेश / O R D E R PER JAGADISH, A.M : Aforesaid appeal by assessee for Assessment Year (AY) 2014- 15 arises out of assessment order dated 26.11.2018 passed by Ld. Assessing Officer (AO) u/s 143(3) r.w.s.144C(5) r.w.s 92CA of the Income-tax Act, 1961 (hereinafter “the Act”) pursuant to the directions dated 24.09.2018 of Ld. Dispute Resolution Panel-2, Bangaluru (hereinafter “DRP”) u/s. 143(3) r.w.s 92CA r.w.s 144C(1) of the Act. IT(TP)A No.01/Chny/2019 :- 2 -: 2. The grounds of appeal raised by the assessee are as under: “1. For that the order of the Assessing Officer is contrary to law, facts and circumstances of the case to the extent prejudicial to the interest of the appellant and at any rate is opposed to the principles of equity, natural justice and fair play. 2. For that the order of the Assessing Officer is without jurisdiction. L 3. For that the assessment is barred by limitation. 4. For that the reference made to the Transfer Pricing Officer is not accordance with law and consequently the entire proceedings are void ab initio. 5. For that the Assessing Officer erred in concluding that the appellant company and M/s. Ask Re Ltd., Hong Kong are Associated Enterprises as per the provisions of the section 92A. 6. For that without prejudice, the Assessing Officer ought to have adopted \"Comparable Uncontrolled Price Method\" as the Most Appropriate Method for benchmarking the international transactions especially when direct internal comparable data was provided by the appellant. 7. For that the Assessing Officer erred in adopting \"Transaction Net Margin Method for benchmarking the international transactions. 8. For that the Assessing Officer consequently erred in making a downward adjustment of Rs.5,42,65,839/- to the international transactions. 9. For that without prejudice to the above, the Assessing Officer erred in the computation of the Arm's Length Price and consequently making entity level downward adjustment instead of restricting the same to the international transactions. 10. For that the Assessing Officer erred in disallowing a sum of Rs.7,85,500/- u/s.14A read with rule 8D. 11. For that the provisions of section 14A r.w.Rule 8D are not invocable in the facts and circumstances of the case. 12. For that there is no satisfaction of the Assessing Officer that any expenditure was in fact incurred so as to attract the provisions of section 14A read with Rule 8D. 13. For that the Assessing Officer erred in applying the third limb of Rule 8D in working out the disallowance u/s. 14A. IT(TP)A No.01/Chny/2019 :- 3 -: 14. For that the Assessing Officer failed to appreciate that no exempt income was earned by the appellant in the impugned assessment year. 15. For that without prejudice to the above, the Assessing Officer failed to appreciate that disallowance u/s.14A read with rule 8D was not warranted as no expenditure was incurred by the appellant for earning exempt income. 16. For that without prejudice to the above, the Assessing Officer erred in applying Rule 8D on entire investments without considering the fact that all the investments did not yield any return in the form of dividend during the impugned assessment year. 17. For that without prejudice to the above, the Assessing Officer failed to appreciate that the disallowance cannot exceed the exempt income. 18. For that the appellant objects to the levy of interest u/s.234A and 234B. PRAYER For these grounds and such other grounds that may be urged before or during the hearing of the appeal it is most humbly prayed that the Hon'ble Tribunal may be pleased to: (a) Delete the downward adjustment of Rs.5,42,65,839/- made by the Assessing Officer and / or (b) Delete the disallowance of Rs.7,85,500/- made u/s. 14A and/or (c) Pass such other orders as the Hon'ble Tribunal may deem fit.” 3. The brief facts of the case are that the assessee-company is engaged the business of trading in commodities like coal and coke, agricultural produce, metals, alloys etc. During the year, the assessee has purchased goods from related concern M/s. ASK Re Ltd., Hong Kong and reported in Form-3CEB as Associated Enterprises (AEs) of Rs.43,11,06,020/-. The A.O made reference to the Transfer Pricing IT(TP)A No.01/Chny/2019 :- 4 -: Officer (TPO) for determination of Arm’s Length Price with reference to the transactions reported in Form-3CEB. The TPO vide order u/s 92CA(2) dated 31.10.2017 after considering submissions of the assessee made adjustment in respect of purchase of goods of Rs.43,11,06,020/- from M/s. ASK Re Ltd., Hong Kong by downward adjustment of Rs. 5,42,65,839/-. The TPO has rejected the assessee’s claim that M/s. ASK Re Ltd., Hong Kong is not AE and CUP as most appropriate method (MAM) and applied TNMM as MAM to make the adjustment in respect of purchases from the AE. The A.O forwarded a draft of the proposed order of assessment proposing TP adjustment of Rs.5,42,65,839/- on the international transactions and disallowances of Rs.7,87,500/- u/s. 14A of the Act r.w Rule 8D of the Income Tax Rules, 1962. The assessee objected the proposed addition before Ld. DRP. The Ld. DRP in the direction issued dated 24.09.2018 has confirmed draft assessment order rejecting assessee’s objections and holding M/s. ASK Re Ltd., Hong Kong as AE and TNMM as Most Appropriate Method. The A.O has passed the final assessment order in conformity to the directions of Ld. DRP. 4. Ground Nos.1 to 4 are not pressed by the assessee therefore, no adjudication is required. IT(TP)A No.01/Chny/2019 :- 5 -: 5. Ground No.5 is against upholding M/s. ASK Re Ltd., Hong Kong as Associated Enterprises as per Section 92A of the Act. 6. The Ld. Authorized Representative of the assessee (AR) has argued that M/s. ASK Re Ltd., Hong Kong is not an AE and merely because assessee in Form-3CEB filed has shown M/s. ASK Re Ltd., Hong Kong as AE, it does not become an AE as per section 92A. The Ld. AR relied on the order of ITAT, Delhi in the case of DLF Holding Ltd. v. DCIT [2016] 51 ITR (T) 499 (Delhi-Trib.) in support of his contention. The Ld. AR further submitted that the provisions of Section 92A of the Act are not applicable since, neither of the enterprises i.e., assessee and M/s. ASK Re Ltd., Hong Kong participate in the manner of control or capital of the other enterprises either directly or indirectly or through intermediary. Further, the provisions of Section 92A(2)(j) of the Act are not applicable to the instant case as, neither the assessee- company nor M/s. ASK Re Ltd., Hong Kong are controlled by any individual. The Ld. AR submitted that even if it is held that the provisions of Section 92A(2)(j) of the Act are applicable, the same does not operate unless the basic rule in section 92A(1) of the Act are fulfilled which has not been fulfilled in assessee’s case. The Ld. AR has relied on the order of ACIT v. Veer Gems [2017] 49 CCH 0010 (Ahd-Trib.), which is subsequently confirmed by the Hon’ble Supreme IT(TP)A No.01/Chny/2019 :- 6 -: Court. The Ld. AR further relied on the decision of Hon’ble Karnataka High Court in the case of PCIT v. M/s. Page Industries Ltd. [2021] 431 ITR 0409 (Kar.) and other case laws. 7. The Ld. Departmental Representative (DR), Mr. A. Sasikumar, CIT, on other hand, has supported the order of TPO and Ld. DRP and argued that the assessee itself in filled Form-3CEB has declared M/s. M/s. ASK Re Ltd., Hong Kong as AE and reported the transactions with AEs. The Ld. DR has submitted that Section 92A of the Act is clearly applicable as held by TPO/Ld. DRP. 8. We have heard the rival submissions, and perused the materials available on record. The assessee has filed Form-3CEB on 29.11.2014, where in coloumn No.10 has mentioned M/s. ASK Re Ltd., Hong Kong as AE and in coloumn No.11B has shown purchase from the AE of Rs. 43,11,06,020/-. The assessee has also mentioned that for benchmarking comparable uncontrolled method has been used. The assessee-company is controlled by Shri A.S. Rama Rao and Smt. A. Samanthakamani, who are 50% shareholder each and Directors of the company. Further, their son Shri Attaluri Venkateswara Prasad and daughter-in-law Smt. Attaluri Surekha holds 50% share each and are Directors in XLAT Ltd. which is 100% holding company IT(TP)A No.01/Chny/2019 :- 7 -: of M/s. ASK Re Ltd., Hong Kong. Therefore, M/s. ASK Re Ltd., Hong Kong is controlled jointly by relatives of controlling shareholder of the assessee-company and falls u/s. 92A(2)(j) of the Act. The case law relied on by Ld. AR are distinguishable of facts as in the case of ACIT vs. Veer Gems, supra, the Tribunal has held that it was partnership firm and it was not proved that common Director or these relatives were controlling both the companies. We therefore, are of the opinion that M/s. ASK Re Ltd., Hong Kong is associate enterprises of the assessee-company. Thus, this ground of appeal of the assessee is dismissed accordingly. 9. Grounds Nos.6, 7 & 8 are relating to rejecting the CUP as MAM and applying TNMM as MAM and making adjustment of Rs. 5,42,65,839/- in respect of purchases from the AE. 10. The Ld. AR has argued that the assessee-company has purchased goods from M/s. ASK Re Ltd., Hong Kong of Rs.43,11,06,020/- and has adopted CUP method as MAM. The Ld. AR has submitted that M/s. ASK Re Ltd., Hong Kong has purchased goods from third parties and sold to the assessee-company at margin of 1.09%, which is mark up for handling and advance payment made IT(TP)A No.01/Chny/2019 :- 8 -: by them. The Ld. AR has argued that price charged by the AE is comparable to the price charged by the third party, had the assessee company directly purchased from third party and therefore, comparable price is readily available. The Ld. AR has further submitted that when CUP method is readily available, there is no occasion to reject the CUP as MAM and adopt TNMM methods. The Ld. AR has relied on the order of ITAT, Mumbai in the case of Star India Pvt. Ltd. v. ACIT [2023] (6) TMI 348 (Mumbai-Trib.). 11. The Ld. DR, on the other hand, has relied on the orders of lower authorities. 12. We have heard the rival submissions, and perused the materials available on record. The assessee-company has adopted CUP method as MAM and taken M/s. ASK Re Ltd., Hong Kong as the tested party. The purchase price for M/s. ASK Re Ltd., Hong Kong from the third party and the corresponding sale price to assessee company are comparable as there is only transaction difference 1.09%, which is a mark up to AE for handling and advance payment. The TPO has rejected the CUP methods giving the reason that the assessee has neither used internal CUP nor external CUP and questioned the markup of 1.09%. We are not in agreement to TPO and IT(TP)A No.01/Chny/2019 :- 9 -: Ld. DRP as the price at which assessee has purchased the goods from AE is comparable to price at which third party have sold goods and if price from independent party is available, CUP is the most appropriate method to bench mark the transaction. In view of the above, we hold that CUP method is the MAM and the adjustment made by the TPO/Ld. DRP is uncalled for. Thus, these grounds of appeal of the assessee are allowed 13. Grounds No.10 to 17 are relating against the disallowance of Rs. 7,85,500/- u/s. 14A of the Act r/w Rule 8D of the Rules. 14. The A.O has made disallowance u/s. 14A of the Act as per Rule 8D of the Rules of Rs. 7,87,500/- on the ground that the assessee has made investment to the extent of 15,75,00,000/-, which is capable of earning income exempt from tax. Therefore, relying on the decision of Hon’ble Bombay High Court in the case of Godrej & Boyce vs. CIT has made the disallowance as per Rule 8D of the Rules. 15. The Ld. AR has argued that the assessee does not have any exempt income and the A.O has made the disallowance without recording any reason and therefore, disallowance u/s. 14A of the Act is uncalled for. The Ld. AR in this respect relied on the decision of IT(TP)A No.01/Chny/2019 :- 10 -: Hon’ble Delhi High Court in the case of PCIT v. Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289 (Del) and the order of ITAT, Chennai in the case of M/s. Maxivision Eye Hospital Pvt. Ltd. v. DCIT in ITA No.139/Chny/2020 (Chennai-Trib.). 16. The Ld. Departmental Representative (DR), on the other hand, has relied on the orders of lower authorities. 17. We have heard the rival submissions, and perused the materials available on record. The A.O has made disallowance u/s. 14A of the Act for the reason that the assessee has made investment which is capable of earning exempt income. The Ld. AR has submitted that there is no exempt income during the year. It has been consistently held by the court disallowances under section 14A cannot exceed the exempt income. The Honorable Delhi High Court in the case of Ear Infrastructure (India) Ltd. Has held that subsequent amendment made by Finance Act, 2022 for Section 14A of the Act by inserting non- obstante clause and explanation cannot be presumed to have a retrospective effects. The ITAT, Chennai Bench in the case of M/s Maxivision Eye Hospital Pvt. Ltd., supra, where there is no exempt IT(TP)A No.01/Chny/2019 :- 11 -: income and disallowances under section 14A as Rule 8D has been made , has held as under: “7. After hearing rival contentions and going through the decision of Hon’ble Delhi High Court in the case of Era Infrastructure (India) Ltd., supra, we are of the view that the explanation inserted in the provisions of section 14A of the Act by the Finance Act, 2022 is prospective and not retrospective. Accordingly, since the assessee has not earned any exempt income, no disallowance can be resorted by invoking the provisions of section 14A of the Act read with Rule 8D(2) of the Rules. The appeal of the assessee is allowed.” 18. In view of the above, the disallowance made by A.O u/s. 14A of the Act as per Rule 8D of the Rules is deleted. Thus, these grounds of appeal of assessee are dismissed. 19. In the result, the appeal filed by the assessee is partly allowed. Order pronounced on 18th December, 2024. Sd/- Sd/- (यस यस िव\u001cने\u001e रिव) (SS Viswanethra Ravi) \u0001याियक \u0001याियक \u0001याियक \u0001याियक सद\bय सद\bय सद\bय सद\bय / Judicial Member (जगदीश) (Jagadish) लेखा लेखा लेखा लेखा सद\u0011य सद\u0011य सद\u0011य सद\u0011य /Accountant Member चे\u0013नई/Chennai, \u0016दनांक/Dated: 18th December, 2024. EDN/- IT(TP)A No.01/Chny/2019 :- 12 -: आदेश क\u0019 \bितिल\u001cप अ\u001dे\u001cषत/Copy to: 1. अपीलाथ\u0007/Appellant 2. \b\tथ\u0007/Respondent 3. आयकर आयु\u000f/CIT, Chennai 4. िवभागीय \bितिनिध/DR 5. गाड\u0018 फाईल/GF "