M/s. Logix Microsystems Limited, Bangalore V. Deputy Commissioner of Income-Tax, Bangalore

CO 50/BANG/2016

• Counselvise Citation: [2017] 112 COUNSELVISE.COM (IT) 4508 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-09-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-06-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 05-10-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VISHNU BAGRI
• Keywords: Depreciation; Unabsorbed depreciation; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER IT(TP)A NO.345/BANG/2014 ASSESSMENT YEAR : 2005-06 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. VS. M/S. IZMO LIMITED, (FORMERLY KNOWN AS M/S. LOGIX MICROSYSTEMS LTD.), NO.117/2C, BILEKAHALLI INDUSTRIAL AREA, BANNERGHATTA ROAD, BANGALORE 560 076. PAN: AAACL 3000E APPELLANT RESPONDENT CO NO.50/BANG/2016 IT(TP)A NO.345/BANG/2014 ASSESSMENT YEAR : 2005-06 M/S. IZMO LIMITED, (FORMERLY KNOWN AS M/S. LOGIX MICROSYSTEMS LTD.), PAN: AAACL 3000E VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. CROSS OBJECTOR RESPONDENT REVENUE BY : MS. NEERA MALHOTRA, CIT(DR)-II, ITAT, BENGALURU ASSESSEE BY : SHRI VISHNU BAGRI, CA DATE OF HEARING : 27.09.2017 DATE OF PRONOUNCEMENT : 28.09.2017 IT(TP)A NO.345/BANG/2014 & CO NO.50/BANG/2016 PAGE 2 OF 7 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE CIT (A) IS OPPOSED TO LAW AND FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) ERRED IN DIRECTING THE AO TO FOLLOW THE RATIO LAID DOWN BY THE HON'BLE COURT IN THE CASE OF YOKOGAWA INDIA LTD. 341 ITR 385(KAR) AND ALLOW THE CLAIM OF THE ASSESSEE OF THE DEDUCTION U/S 10A WITHOUT SETTING O FF THE BROUGHT FORWARD UNABSORBED DEPRECIATION AND UNABSOR BED LOSSES WITHOUT APPRECIATING THE FACT THAT THE DECIS ION OF THE KARNATAKA HIGH COURT HAS NOT REACHED FINALITY AS A SLP HAS BEEN PREFERRED AGAINST THE SAID DECISION. 3. THE CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE C LAIM OF THE ASSESSEE OF THE DEDUCTION U/S SECTION 10A WITHO UT SETTING OFF THE BROUGHT FORWARD UNABSORBED DEPRECIATION AND UNABSORBED LOSSESS BY RELYING ON THE DECISION OF TH E JURISDICTIONAL HIGH COURT IN THE CASE OF YOKOGAWA I NDIA LIMITED WITHOUT APPRECIATING THE FACT THAT THE RELI EF ALLOWED IS A DEDUCTION AND NOT AN EXCLUSION FROM THE TOTAL INC OME WHICH IS ALSO CLARIFIED BY THE BOARD'S CIRCULAR NO. 7/DV/ 2013? 4. THE CIT(A) ERRED IN FOLLOWING THE MAJORITY VIEW THA T IS THE DECISION OF THE CHENNAI & HYDERABAD BENCH OF ITAT W ITHOUT APPRECIATING THE DECISIONS OF THE BANGALORE BENCH W HERE IN THE BANGALORE BENCH OF THE ITAT HELD THAT THE INTER EST SHOULD BE DETERMINED AS PER SHORT TERM DEPOSIT IN THE HOME COUNTRY. 5. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT HIS DECISION IS CONTRADICTORY TO THE REASONING GIVEN BY THE JURI SDICTIONAL ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y.2004-05 VIDE ITS ORDER DTD.7-10-2007 IN ITA NO.423 OF 2009 WHEREIN I T CLEARLY GAVE A FINDING AS TO WHY LIBOR CANNOT BE APPLIED, J USTIFYING THE TPO'S ACTION IN ADOPTING THE INDIAN RATE. IT(TP)A NO.345/BANG/2014 & CO NO.50/BANG/2016 PAGE 3 OF 7 6. THE CIT(A) ERRED IN DIRECTING THE LIBOR SHOULD BE A DOPTED FOR INTEREST CHARGED ON UNSECRED DEBTORS WITHOUT AP PRECIATING THAT WHEN CUP METHOD IS USED FOR DETERMINING THE AL P THE PRODUCT COMPARISON AND GEOGRAPHICAL PARAMETERS ARE EXPECTED TO BE PERFECTLY COMPARABLE OR IN OTHER WORDS PERFEC TLY IDENTICAL. 7. THE CIT(A) ERRED IN NOT APPRECIATING THE ECONOMIC CIRCUMSTANCES EXISTING IN THE CASE OF AN INDIAN COM PANY GIVING EXTENDED CREDIT FACILITY TO ITS ASSOCIATED E NTERPRISES SITUATED IN ANOTHER TAX JURISDICTION CANNOT BE COMP ARED WITH THE ECONOMIC CIRCUMSTANCES EXISTING IN A SITUATION IN WHICH THE FOREIGN ENTERPRISE EXTENDS SUCH FACILITY TO AN INDIAN ENTERPRISE AS THE TWO SITUATIONS ARE INCOMPARABLE H AVING ENTIRELY DIFFERENT FUNCTIONAL, COST AND RISK PROFIL ES WHICH ARE FUNDAMENTAL FOR COMPARABILITY ANALYSIS. 8. THE CIT(A) ERRED IN DIRECTING THAT LIBOR RATE SHOUL D BE ADOPTED FOR THE INTEREST CHARGEABLE ON THE EXTENDED CREDIT FACILITY GIVEN TO THE AE FOR ITS WORKING CAPITAL FA CILITIES WITHOUT APPRECIATING THE SCIENTIFIC AND APPROPRIATE METHOD OF BENCH MARKING OF THE INTEREST RATE WITH THE CORPORA TE BOUND RATE AS IT IS THE ASSESSEE WHO SUFFERED POTENTIAL L OSS BY NOT BRINGING THE RECEIVABLES INTO INDIA WITHIN THE NORM AL PERIOD. 9. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) BE REVERSED AND THAT OF THE ASSESSING OFFICE R BE RESTORED. 10. THE APPELLATE CRAVES LEAVE TO ADD, TO ALTER, TO AME ND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 2. GROUND NOS.1 TO 4 RELATE TO THE COMPUTATION OF DEDUCTION U/S. 10A OF THE ACT AND IN THIS REGARD THE LD. DR CANDIDLY A DMITTED THAT THIS GROUND IS COVERED AGAINST THE REVENUE BY THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. YOKOGAWA INDIA LTD., 341 ITR 385 , WHICH IT(TP)A NO.345/BANG/2014 & CO NO.50/BANG/2016 PAGE 4 OF 7 IS LATER ON APPROVED BY THE HONBLE APEX COURT. SI NCE THE CIT(APPEALS) HAS DECIDED THE ISSUE FOLLOWING THE JUDGMENT OF HON 'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. YOKOGAWA INDIA LTD. (SUPRA) WHICH HAS NOW BEEN APPROVED BY THE HONBLE APEX COURT, WE FIND NO INFIRMITY IN THE ORDER OF CIT(APPEALS) AND WE CONFIRM THE SAME. 3. WITH REGARD TO GROUND NOS. 5 TO 8, THE LD. DR HA S CONTENDED THAT THE TPO IN MAKING THE ADJUSTMENT TO THE ALP U/S. 92CA O F THE ACT WITH RESPECT INTEREST CHARGEABLE ON DEBTS HAS FELT THAT THE TAX PAYERS RESOURCES ARE BEING PARKED WITH ITS AE FOR UNREASONABLE PERIOD OF TIME. IN AN UNCONTROLLED SITUATION NO PERSON OF EVEN ORDINARY P RUDENCE WOULD LEAVE SUCH A HUGE AMOUNT WITHOUT RECOVERING IT QUICKLY AN D REINVESTING IT INTO BUSINESS FOR EARNING REVENUE OR INVESTING IT ELSEWH ERE TO EARN INTEREST. THE TPO HAS NOTED FROM THE BALANCE SHEET AS ON 31.3.200 5 THAT OUTSTANDING DEBTS FOR MORE THAN SIX MONTHS IS AT RS.7,73,81,259 . THE AMOUNT OUTSTANDING FROM THE RELATED PARTY AT THE YEAR END STANDS AT RS.9,76,13,253. WHILE CALCULATING THE ALP, THE TPO HAS APPLIED CUP METHOD WHEREIN INTEREST RATE WAS DETERMINED UNDER T HE CIRCUMSTANCES IN WHICH THE ASSESSEE AND ITS SUBSIDIARIES WERE OPERAT ING I.E., WHAT IS THE INTEREST THAT WOULD HAVE BEEN EARNED IF SUCH LOAN W AS GIVEN TO UNRELATED PARTIES IN A SIMILAR SITUATION AS THAT OF SUBSIDIAR IES. HE ACCORDINGLY WORKED OUT INTEREST @ 12% AS MOST REASONABLE AND APPROPRIA TE AND COMPUTED THE ALP. IT(TP)A NO.345/BANG/2014 & CO NO.50/BANG/2016 PAGE 5 OF 7 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(APPEALS) AND THE CIT(APPEALS) RE-EXAMINED THE I SSUE IN THE LIGHT OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR TH E AY 2004-05 AND THE ORDER OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF FOUR SOFT LTD. V. DCIT, 16 ITR (TRIB) 73 AND CAME TO THE CONCLUSION THAT AVERAGE LIBOR RATES ARE IDEAL COMPARISON RATES UNDER CUP METHOD O F DETERMINING THE ARMS LENGTH INTEREST RATE. HE ACCORDINGLY DIRECT ED THE TPO TO APPLY AVERAGE LIBOR RATES FOR DETERMINING THE ARMS LENGT H INTEREST RATE. 5. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL B EFORE THE TRIBUNAL WITH THE SUBMISSION THAT IN THE IMMEDIATELY PRECEDI NG YEAR I.E. AY 2004-05, THE TRIBUNAL HAS EXAMINED THE ISSUE AND HAS CONCLUD ED THAT INSTEAD OF US RATE, THE TPO WAS JUSTIFIED IN ADOPTING THE INDIAN RATE. THE TRIBUNAL HOWEVER FIXED THE ARMS LENGTH INTEREST RATE AT 5% AND DIRECTED THE AO TO COMPUTE THE ADDITIONAL INCOME @ 5% AS AGAINST 10.25 % ADOPTED BY THE AO. THE LD. DR FURTHER CONTENDED THAT CHARGEABILIT Y OF INTEREST ON OUTSTANDING DUES WAS NOT DISPUTED. THE DISPUTE IS ONLY WITH REGARD TO THE RATES OF INTEREST AS TO WHETHER IT IS INDIAN RATE O R LIBOR RATE. THE LD. DR HOWEVER, CONTENDED THAT SINCE THE TRIBUNAL HAS TAKE N A VIEW THAT INDIAN RATES ARE TO BE APPLIED, THE CIT(APPEALS) HAS IGNOR ED THE TRIBUNALS FINDING AND HAS FOLLOWED THE ORDER OF HYDERABAD BENCH OF TR IBUNAL AND APPLIED THE LIBOR RATE. THE ORDER OF THE TRIBUNAL FOR THE AY 2 004-05 PASSED IN THIS REGARD WAS NOT OVER-RULED BY THE HIGH COURT, THEREF ORE, IT HOLDS THE FIELD. SINCE THE TRIBUNAL HAS TAKEN A VIEW IN THE IMMEDIAT ELY PRECEDING YEAR THAT IT(TP)A NO.345/BANG/2014 & CO NO.50/BANG/2016 PAGE 6 OF 7 INTEREST RATE IS TO BE APPLIED AT THE INDIAN RATE, THERE IS NO JUSTIFICATION FOR THE CIT(APPEALS) TO DIGRESS THEREFROM AND APPLY THE LIBOR RATE FOLLOWING THE ORDER OF HYDERABAD BENCH OF THE TRIBUNAL. 6. THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE ORDER OF THE CIT(APPEALS), BESIDES CONTENDING THAT THE CIT( APPEALS) HAS RIGHTLY FOLLOWED THE ORDER OF THE HYDERABAD BENCH OF THE TR IBUNAL IN THE CASE OF FOUR SOFT LTD. (SUPRA) . 7. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT IN THE ASSESSEE S OWN CASE, THE TRIBUNAL HAS EXAMINED ALL THE ASPECTS AND HAS TAKEN A CONSCI OUS VIEW THAT INSTEAD OF US RATE, INDIAN RATES ARE TO BE APPLIED AND WHIL E APPLYING INDIAN RATE THE TRIBUNAL HAS DIRECTED THE AO TO COMPUTE THE ARMS L ENGTH INTEREST RATE @ 5% AS AGAINST 10.25% ADOPTED BY THE AO. UNDISPUTED LY, THE ORDER OF TRIBUNAL HAS NOT BEEN REVERSED SO FAR. THEREFORE, ONCE IT IS HELD THAT INTEREST HAS TO BE COMPUTED AS PER THE INDIAN RATES , HOW IT CAN BE HELD THAT IN THE SUBSEQUENT YEAR, THE INTEREST RATE SHOULD BE COMPUTED AS PER LIBOR RATES. THEREFORE, FOLLOWING THE RULE OF CONSISTENC Y, WE ARE OF THE VIEW THAT IN THIS YEAR, THE FACTS OF THE CASE ARE SIMILAR. T HEREFORE, THE INTEREST RATE IS TO BE APPLIED AS PER INDIAN RATE INSTEAD OF LIBOR R ATE AND THE ARMS LENGTH INTEREST SHALL BE AT 5%. WE ACCORDINGLY SET ASIDE THE ORDER OF CIT(APPEALS) AND DIRECT THE AO TO APPLY THE ARMS L ENGTH INTEREST RATE @ 5% AND RECOMPUTE THE ARMS LENGTH INTEREST. IT(TP)A NO.345/BANG/2014 & CO NO.50/BANG/2016 PAGE 7 OF 7 8. THROUGH ITS CO, THE ASSESSEE SUPPORTED THE ORDER OF CIT(APPEALS) FOR COMPUTING THE ARMS LENGTH INTEREST, FOLLOWING THE LIBOR RATE. SINCE THE ISSUE HAS BEEN ADJUDICATED IN THE FOREGOING PARA IN THE REVENUES APPEAL AND REVERSED THE ORDER OF CIT(APPEALS) DIRECTED THE AO TO APPLY THE INDIAN RATE AT 5%, THE CO OF THE ASSESSEE HAS BECOME INFRU CTUOUS. WE ACCORDINGLY DISMISS THE SAME. 9. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES AND THE CO OF THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF SEPTEMBER, 2017. SD/- SD/- ( JASON P. BOAZ ) ( SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 28 TH SEPTEMBER, 2017. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.