KSS LTD (FORMERLY KNOWN AS K SERA SERA PRODUCTIONS LTD), MUMBAI V. DCIT CC 6(3), MUMBAI

ITA 1061/MUM/2015

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2199 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2015
• Appeal Filed By: Assessee
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 19-02-2015
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Transfer pricing; Business expenditure; International transaction; Earning of tax free income; Proportionate interest; Notional interest; Commercial expediency
• Section: 92B; 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI , , , BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1061/MUM/2015 ASSESSMENT YEAR: 2010-11 KSS LTD. (FORMERLY KNOWN AS K SERA SERA PRODUCTIONS LTD.) UNIT NO.101/102, IST FLOOR, PLOT NO.B17 MORYA LANDMARK II, ANDHERI (W), MUMBAI-400053 / VS. D CIT RG 2(3)(1) R. NO.556 AAYAKAR BHAVAN, MUMBAI-400020 (ASSESSEE ) (REVENUE) P.A. NO. AAA CG5103D APPELLANT BY SHRI RAJIV KHANDELWAL & SHRI NEELKANTH KHANDELWAL (AR) RESPONDENT BY SHRI N.K. CHAND ( CIT - DR) / DATE OF HEARING: 07/10/2015 / DATE OF ORDER: 09/12/2015 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): KSS. 2 THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DERS OF DISPUTES RESOLUTION PANEL -I, MUMBAI {IN SHORT, DR P}, FOR THE ASSESSMENT YEAR 2010-11. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI RAJIV KHANDELWAL & SHRI NEELKANTH KHANDELWAL AUTHORISED REPRESENTATIVE (LD. COUNSEL) ON BEHALF O F THE ASSESSEE AND BY SHRI N.K. CHAND, DEPARTMENTAL REPRESENTATIVE (LD CIT-DR) ON BEHALF OF THE REVENUE . 3 . GROUND NO.1: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LOWER AUTHORITIES IN MAKIN G DISALLOWANCE OF SUM OF RS.19,189/- ON ACCOUNT OF FI LM PREVIEW EXPENSES OF RS.19,189/-. DURING THE COURSE OF HEARI NG IT HAS BEEN SUBMITTED BY THE LD. COUNSEL OF THE ASSESSEE T HAT SIMILAR ISSUE AROSE IN A.Y. 2009-10 WHICH HAD REACHED UP TO TRIBUNAL, AND TRIBUNAL DECIDED THE SAME IN FAVOUR OF THE ASSE SSEE BY ALLOWING THESE EXPENSES. THE REASONS AND THE FACTS FOR THE DISALLOWANCE IN A.Y.2010-11 ARE SAME IN A.Y. 2010-1 1, AND THEREFORE, TRIBUNALS ORDER SHOULD BE FOLLOWED AND THESE EXPENSES SHOULD BE ALLOWED. 3.1. ON THE OTHER HAND, LD. CIT-DR HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE GONE THROUGH THE FACTS OF THIS CASE AS WELL AS ORDER OF THE EARLIER YEAR AND ALSO CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES. KSS. 3 3.2 . THE BRIEF FACTS AS BROUGHT BEFORE ARE THAT KSS LT D. (FORMERLY K. SERA SERA LTD. AND EVEN BEFORE THAT IT WAS KNOWN AS K. SERA SERA PRODUCTION LTD) IS ENGAGED IN PRODUCTION AND DISTRIBUTION OF FILMS. IT HAS 100% S UBSIDIARY CALLED K. SERA SERA PRODUCTIONS FZ-LLC WHICH IS INC ORPORATED IN DUBAI AND ENGAGED IN PREPRODUCTION, FILM/TV DIST RIBUTION, FILM/TV RIGHTS MANAGEMENT AND FILM/TV POST-PRODUCTI ON IN THE SECTOR OF FILM ENTERTAINMENT/PRODUCTION AND POS T- PRODUCTION. IN THE ASSESSMENT ORDER, THE AO HAS DISALLOWED THE FILM PREVIEW EXPENSES AMOUNTING TO RS.19,189/- ON THE GR OUND THAT THESE ARE NOT SUPPORTED BY ANY BILLS OR THIRD- PARTY VOUCHERS. THE ASSESSEE HAS STATED THAT IT HAD SUBMI TTED REQUISITE DETAILS AND LEDGER OF FILM PREVIEW EXPENS ES. THE EXPENSES WERE INCURRED FOR PURCHASING MOVIE TICKETS FOR PREVIEW SHOW OF THE MOVIES AND OTHER EXPENSES INCUR RED FOR PREVIEW SHOW. THE DRP ENDORSED THE OBSERVATIONS OF THE AO. IT IS NOTED BY US THAT IN A.Y. 2009-10, THI S ISSUE HAD REACHED UP TO TRIBUNAL, WHEREIN, VIDE ORDER DAT ED 10.06.2015 IN ITA NO.321/M/2014, THESE EXPENSES HAV E BEEN ALLOWED, THE RELEVANT PARA OF THE TRIBUNALS O RDER IS REPRODUCED HEREUNDER: WE HAVE CONSIDERED THE RIVAL CONTENTIONS AS WELL AS THE MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE HAS RELEASED THREE NEW FILMS DURING THE YEAR AND PRIOR TO THE RELEASE, IT WERE EXHIBITE D FOR PREVIEW. ONCE THE PREVIEW OF THE FILM IS NOT DOUBTE D, KSS. 4 THEN THE NORMAL EXPENDITURE ON EACH PREVIEW IS ROUTINE BUSINESS EXPENSES OF THE ASSESSEE. THE ASSESSING OFFICER HAS NOT POINTED OUT THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS EXCESSIVE OR ABNORMAL IN COMPARISON TO THE NORMAL EXPENDITURE BEING INCURRED ON SUCH EXHIBITION OF MOVIE IN THE PRE-RELEASE PREVIEW. THE ASSESSEE PRODUCED COMPLETE DETAILS OF THE EXPENSES THOUGH MOST OR THE EXPENSES ARE INCURRED IN CASH, WE FIND THAT KEEPING IN VIEW THE NATURE OF THE EXPENSES THE PAYMENT IN CASH IS INEVITABLE FOR CERTAIN EXPENSES WHICH ARE ON SPOT AND FOR THE PURPOSE OF SNAKES, REFRESHMENT, ETC. THE ASSESSEE HAS PRODUCED THE VOUCHERS WHICH INCLUDES SELL-MADE VOUCHERS AS WELL AS THE THIRD PARTY VOUCHERS WHEREIN THE NAME OF THE MOVIE IS GIVEN. WHEN THE NAME OF THE MOVIE AND NAME OF THE THEATER IS GIVEN, THEN THE VOUCHERS ISSUED BY THE THIRD PARTY CANNOT BE DOUBTED. IT IS WORTH TO BE NOTED THAT THE DISALLOWANCE IS RESTRICTED BY THE DRP IS NOT BASED ON THE GROUND THAT IT IS EXCESSIVE BUT FOR WANT OF PROPER VOUCHERS THEREFORE, WE FIND THAT THE AD-HOC DISALLOWANCE IS NOT JUSTIFIED WHEN THE EXPENDITURE IS NOT FOUND TO BE EXCESSIVE AND THE PURPOSE AND THE OCCASION ON WHICH THE EXPENDITURE WAS INCURRED IS NOT DISPUTED. ACCORDINGLY, WE DELETE THE DISALLOWANCE CONFIRMED BY THE DRP. GROUND NO.1, IS ALLOWED. KSS. 5 3.3. WE FIND THAT THE FACTS ARE SIMILAR IN THIS YEAR, A ND THEREFORE RESPECTFULLY FOLLOWING THE ORDERS OF THE EARLIER YEARS, WE ALLOW THE FILM PREVIEW EXPENSES OF RS.19, 189/-. THUS, GROUND NO.1 IS ALLOWED. 4. GROUND NO.2: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LOWER AUTHORITIES IN DISAL LOWING LEGAL EXPENSES OF RS.2,62,457/- OUT OF TOTAL EXPENS ES OF RS.5,24,915/- CLAIMED BY THE ASSESSEE. 4.1. DURING THE COURSE OF HEARING, IT HAS BEEN BROUGHT TO OUR NOTICE BY LD. COUNSEL OF THE ASSESSEE THAT IN A .Y. 2009-10, THE TRIBUNAL HAS SENT BACK THIS ISSUE TO T HE FILE OF THE AO AND REQUESTED THAT THE FACTS AND CIRCUMST ANCES BEING THE SAME, IN THIS YEAR ALSO THE ISSUE CAN BE SENT BACK TO THE FILE OF AO. ON THE OTHER HAND, LD. CIT- DR HAS GIVEN OBJECTION IF THIS ISSUE IS SENT BACK TO THE F ILE OF THE AO. 4.2 . WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES AND SUBMISSIONS OF BOTH THE SIDES. THE DISALLOWANCE WAS MADE ON THE GROUND THAT THE ASSESS EE WAS NOT ABLE TO SUBSTANTIATE THESE EXPENSES WITH TH E HELP OF COMPLETE EVIDENCES. IT IS NOTED THAT THIS ISSUE HAS BEEN SENT BACK BY THE TRIBUNAL IN A.Y. 2009-10 TO THE FI LE OF THE AO WITH SOME DIRECTIONS. WE FIND IT APPROPRIATE TO SEND THIS ISSUE BACK TO THE FILE OF THE AO IN PURSUANCE TO THE KSS. 6 ORDER. WE ALSO DIRECT THE AO TO FOLLOW THE DIRECTIO NS AS GIVEN BY THE TRIBUNAL IN A.Y. 2009-10 AS FAR AS MAY BE APPLICABLE ON THE FACTS OF THE CASE OF THIS YEAR. W ITH THESE DIRECTIONS THIS ISSUE IS SENT BACK TO THE FILE OF T HE AO. THUS, GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOS ES. 5. GROUND NO.3: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF AO IN MAKING DISALLOWANCE OF EXPENSES OF RS.23,100/- INCURRED BY THE ASSESSEE ON FOREIGN TRAVELLING. 5.1. DURING THE COURSE OF HEARING IT WAS FAIRLY STATED BY THE LD. COUNSEL OF THE ASSESSEE THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN A.Y . 2009- 10, AND IN THIS YEAR ALSO THERE IS NO CHANGE IN FAC TS. 5.2. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. IT IS NOTED BY US THAT THESE EXPENSES PERTAINED TO THE FOREIGN VISIT OF MR. SANJAY GUPTA, DIRECTOR, OF THE COMPANY, ON THE GROUND THAT NO EVIDENCE WAS SUBMITT ED TO ESTABLISH BUSINESS PURPOSE FOR INCURRING THESE EXPENSES. BEFORE US ALSO NO SUCH EVIDENCE HAS BEEN PRODUCED AND THEREFORE, WE HAVE NO OPTION BUT TO CO NFIRM THE DISALLOWANCE. ACCORDINGLY, DISALLOWANCE IS CONF IRMED AND GROUND NO.3 IS DISMISSED. 6. GROUND NO.4: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LOWER AUTHORITIES IN DISAL LOWING A KSS. 7 SUM OF RS.38,56,553/- INCURRED ON TRAVELLING, ADVER TISING AND PRINTING & STATIONERY EXPENSES @ 5% ON AD HOC BASIS BY TREATING THE SAME AS PERSONAL EXPENDITURE. 6.1. DURING THE COURSE OF HEARING IT HAS BEEN ARGUED BY THE LD. COUNSEL THAT NO AD-HOC DISALLOWANCE ON THE GROUND OF PERSONAL NATURE IS PERMITTED UNDER THE LAW IN TH E HANDS OF THE ASSESSEE WHO IS A COMPANY. IN SUPPORT OF HIS ARGUMENTS HE RELIED UPON THE JUDGMENTS OF HONBLE GUJARAT HIGH COURT IN THE CASE OF M/S. SAYAJI IRON AND ENGG. CO. 256 ITR 749. 6.2. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES. IT IS NOTED FROM THE ORDERS OF THE LOWER AUTHORITIE S THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO REQUIR ED THE ASSESSEE TO SUBSTANTIATE THESE EXPENSES WITH EVIDEN CES. IN RESPONSE, THE ASSESSEE FILED SAMPLE, VOUCHERS AND B ILLS, FROM WHICH THE AO NOTED THAT THE ASSESSEE HAS NOT MAINTA INED THE VOUCHERS AND BILLS PROPERLY AND THEREFORE MADE DISA LLOWANCE OF 5% OF THE EXPENDITURE, WHICH WORKED OUT AT AN AG GREGATE AMOUNT OF RS.38,56,553/- THE DISALLOWANCE WAS CONFI RMED BY THE DRP. WE FIND THAT THE ASSESSEE HAS SUBMITTED BILLS/VOUCHERS AS WERE MAINTAINED BY IT IN REGULAR COURSE OF BUSINESS. IF THE AO WAS NOT SATISFIED WITH ANY PART ICULAR ITEMS OF EXPENSES, HE COULD HAVE POINTED IT OUT TO THE AS SESSEE FOR INVITING ITS RESPONSE. IN CASE AO WAS NOT SATISFIED WITH RESPONSE OF THE ASSESSEE, THEN THE SAME COULD HAVE BEEN CONSIDERED FOR THE DISALLOWANCE. THERE SHOULD NOT B E A KSS. 8 PRACTICE OF MAKING AN AD-HOC DISALLOWANCE ON THE GR OUND OF PERSONAL EXPENDITURE, BECAUSE THERE IS NO CONCEPT O F PERSONAL EXPENDITURE IN THE CASE OF A COMPANY. THE COMPANY I S A SEPARATE LEGAL JURISTIC PERSON. IN CASE ANY EXPENSE S ARE INCURRED ON BEHALF OF DIRECTOR OR ANY OTHER SENIOR EMPLOYEES, THEN THE SAME IS LIABLE TO BE TAXED IN THE HANDS OF THE SAID PERSON AS PART OF PERQUISITE/REMUNERATION, AS PER L AW. IN OUR CONSIDERED VIEW, DISALLOWANCE HAD BEEN MADE BEYOND THE PROVISION OF LAW AND THEREFORE SAME IS DIRECTED TO BE DELETED. WE FIND OUR SUPPORT FROM THE JUDGMENT OF HONBLE GU JARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGG. CO. (SUPRA). THUS GROUND NO.4 IS ALLOWED. 7. GROUND NO.5: THIS GROUND DEALS WITH THE ACTION OF THE LOWER AUTHORITIES IN DISALLOWING U/S 36(1)(III), PROPORTIONATE INTEREST EXPENDITURE OF RS.9,62,071/- INCURRED BY THE ASSESSEE. 7.1. DURING THE COURSE OF HEARING, IT HAS BEEN SUBMITTE D BY THE LD. COUNSEL OF THE ASSESSEE THAT ASSESSEE HA D IN ITS POSSESSION AMPLE FUNDS AS COMPARED TO THE INTEREST FREE LOAN GIVEN BY THE ASSESSEE, AND THEREFORE, THE DISA LLOWANCE HAS BEEN WRONGLY MADE BY THE LOWER AUTHORITIES. IT HAS BEEN FURTHER SUBMITTED BY HIM THAT ASSESSEE HAS DEE P INTEREST IN THE SUBSIDIARY COMPANY TO WHICH LOAN WA S GIVEN. RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS VS CIT, 288 ITR 1 (SC). KSS. 9 7.2. ON THE OTHER HAND, LD. CIT, CIT-DR HAS RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT PROPORTIONATE DISALLOWANCES SHOULD BE MADE IN THE HANDS OF THE AS SESSEE ON ACCOUNT OF INTEREST EXPENSES. 7.3. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AND CONSIDERED SUBMISSIONS MADE BY BOTH THE SIDES. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAD GIVEN I NTEREST-FREE ADVANCES TO ITS THREE SUBSIDIARY COMPANIES IN INDIA , FOR AGGREGATE AMOUNT OF RS.4,71,07,939/-. THE AO OBSERV ED THAT THE ASSESSEE WAS HAVING INTEREST-BEARING BORROWED F UNDS WHICH WERE DIVERTED TO ITS SUBSIDIARIES. THE ASSESS EE HAD CLAIMED INTEREST EXPENDITURE ON BORROWED FUNDS AT RS.3,83,45,500/- . THEREFORE, THE INTEREST EXPENDITURE INCURRED TO THE EXTENT OF FUNDS DIVERTED TO SUBSIDI ARIES WAS HELD BE NOT AN ALLOWABLE EXPENDITURE. THE AO CO MPUTED AND DISALLOWED SUCH INTEREST EXPENDITURE AT RS.9,62 ,071/-. 7.4 . THE ASSESSEE TRIED TO MAKE OUT A CASE BEFORE THE DRP THAT FUNDS WERE ADVANCED TO ITS SUBSIDIARIES FOR MEETING ITS BUSINESS EXPEDIENCY BUT DRP WAS NOT SATISFIED WITH THE SUBMISSIONS TO THE ASSESSEE, ON THE GROUND THAT THE ASSESSEE COULD NOT SUBSTANTIATE THAT ADVANCE/LOANS GIVEN TO ITS SUBSIDIARIES FOR ANY COMMERCIAL EXPEDIENCY OR ADVAN CEMENT OF ITS BUSINESS INTEREST. THE DRP REFUSED TO FOLLOW TH E CASE OF S.A. BUILDERS (SUPRA), INTER ALIA , ON THE GROUND THAT THIS DECISION HAS BEEN REFERRED BY THE HONBLE SUPREME C OURT TO ITS KSS. 10 LARGER BENCH FOR REVIEW. ACCORDING TO THE DRP, IF T HE ASSESSEE HAS DIVERTED ITS BORROWED CAPITAL TO GRANT INTEREST FREE ADVANCES TO ITS SUBSIDIARIES, THEN NO BUSINESS PURP OSE CAN BE SAID TO HAVE BEEN SERVED. ACCORDINGLY, DISALLOWANCE MADE BY THE AO WAS CONFIRMED. BEING AGGRIEVED, THE ASSESSEE CONTESTED THE ISSUE BEFORE US. WE HAVE EXAMINED THE FIRST ARG UMENT OF THE LD. COUNSEL THAT THE ASSESSEE HAD SUFFICIENT FU NDS SO AS TO ENABLE IT TO ADVANCE THE AMOUNT TO ITS SUBSIDIARIES . IT IS NOTED FROM THE BALANCE SHEET THAT ASSESSEE HAS PAID UP SH ARE CAPITAL OF MORE THAN RS. 205 CRORES AND RESERVES OF MORE TH AN RS. 2 CRORES, AND AGGREGATE OF AMOUNT OF LOAN GIVEN TO TH E SUBSIDIARY COMPANIES AMOUNTED TO RS.4.71 CRORES ONLY. THUS, TH ERE IS A FORCE IN THE ARGUMENTS OF THE LD. COUNSEL THAT THE OWN FUNDS FAR EXCEEDED THE AMOUNT OF INTEREST FREE LOAN GIVEN TO ITS SUBSIDIARY. THUS, WE FIND THAT THERE BEING SUFFICIE NT INTEREST FREE OWN FUNDS IN POSSESSION OF THE ASSESSEE, NO PR ESUMPTION SHOULD BE DRAWN THAT THE ASSESSEE HAS GIVEN THE DIS ALLOWANCE OUT OF INTEREST BEARING FUNDS ONLY. FURTHER, THE AM OUNT HAS BEEN INVESTED WITH SUBSIDIARY OF THE ASSESSEE COMPA NY AND THUS TAKING SUPPORT FROM THE JUDGMENT OF HONBLE SU PREME COURT IN THE CASE OF S.A. BUILDERS LTD. (SUPRA), IT CAN BE SAID THAT NO DISALLOWANCE WOULD BE MADE IF THE AMOUNT HA S BEEN ADVANCED FOR THE STRATEGIC BUSINESS NEEDS. THE ASSE SSEE HAS SUBMITTED COPY OF RESOLUTION SIGNIFYING ITS BUSINES S NECESSITY. TAKING IN TO ACCOUNT ALL THE AFORESAID FACTS AND CI RCUMSTANCES OF THE CASE, WE FIND THAT THE SAID DISALLOWANCE IS NOT SUSTAINABLE AS PER LAW AND FACTS OF THE CASE AND TH EREFORE, THE SAME IS DIRECTED TO BE DELETED. THUS, GROUND NO.5 I S ALLOWED. KSS. 11 8. GROUND NO.6: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS.1,02,71,832/- MADE U/S 14A, READ WITH RULE 8D. IT HAS BEEN SUBMITTED BY THE LD. COUNSEL T HAT NO DISALLOWANCE WAS MADE BY THE AO IN DRAFT ASSESSMENT ORDER. DISALLOWANCE HAS BEEN MADE U/S 14A BY THE DRP BY MA KING ENHANCEMENT OF INCOME. IT HAS BEEN FURTHER ARGUED B Y THE LD. COUNSEL THAT SINCE NO DISALLOWANCE WAS MADE BY THE LD. AO, THE DRP HAS NO POWERS UNDER THE LAW TO MAKE ANY FRE SH DISALLOWANCE. THIS DISALLOWANCE IS BEYOND THE SCOPE OF LAW. IT HAS BEEN FURTHER SUBMITTED BY HIM THAT EVEN ON MERI TS, THE DISALLOWANCE WAS NOT SUSTAINABLE. IT IS SUBMITTED T HAT NO EXEMPT INCOME HAS BEEN RECEIVED DURING THE YEAR, TH E ASSESSEE HAS AMPLE SURPLUS FUNDS AND INVESTMENT HAS BEEN MADE FOR STRATEGIC REASONS IN THE SUBSIDIARY COMPAN Y. THUS, THERE WAS NO CASE FOR ANY DISALLOWANCE AND THE SAME HAS BEEN WRONGLY MADE BY THE DRP AND DESERVES TO BE DELETED. 8.1. ON THE OTHER HAND, LD. CIT-DR HAS SUBMITTED THAT T HE DRP HAS ALL THE POWERS INCLUDING THE POWER OF MAKIN G ENHANCEMENT OF INCOME. HE PLACED RELIANCE UPON THE EXPLANATION ADDED TO SECTION 144C(8) FOR THIS PURPO SE. ON MERITS, HE SUPPORTED THE DISALLOWANCE MADE BY THE D RP. HE PLACED RELIANCE ON THE JUDGMENT OF MAXOPP INVESTMEN T LTD. V. CIT [2012] 347 ITR 272 (DEL), AND SUBMITTED THAT THE DISALLOWANCE CAN BE MADE EVEN IF INVESTMENT IS MADE FOR STRATEGIC PURPOSES. IT WAS FURTHER SUBMITTED BY HIM THAT CONCEPT OF INCOME HAS ALWAYS INCLUDED LOSS. THE RE CAN BE KSS. 12 LOSS, NIL AND POSITIVE INCOME AND THEREFORE, IF NO INCOME HAS BEEN EARNED, EVEN THEN PROVISIONS OF SECTION 14A AR E ATTRACTED. 8.2. WE HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITI ES AND SUBMISSIONS MADE BY BOTH THE SIDES. IT IS NOTED BY US THAT IN RESPONSE TO QUERY RAISED BY THE DRP, THE ASSESSEE S UBMITTED ITS DETAILED REPLY DATED 15 TH OCTOBER, 2014, AND RELEVANT PORTION OF THIS REPLY IS REPRODUCED HEREIN: IT MAY BE SEEN THAT IN THE CURRENT YEAR, THE TPO H AS APPLIED THE SAME METHODOLOGY AS WAS DIRECTED BY THE DRP IN THE PRECEDING YEAR TO COME TO THE ARM'S- LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. SINC E THE FACTS IN THE CURRENT YEAR ARE IDENTICAL TO THOSE IN THE PRECEDING YEAR, WE DO NOT FIND ANY REASON TO DI FFER FROM THE DRP IN THE PRECEDING YEAR. HENCE NO INTERFERENCE IS CALLED FOR SO FA R AS THE DECISION OF THE AO/TPO IN THIS REGARD IS CONCERNED. THIS OBJECTION IS REJECTED. 8.3. IT IS NOTED BY US THAT THIS ISSUE WAS RAISED BY TH E DRP FOR THE FIRST TIME, SINCE NO DISALLOWANCE WAS MADE BY THE AO IN THE DRAFT ASSESSMENT ORDER. IT IS FURTHER NOT ED THAT VARIOUS FACTUAL ISSUES HAVE BEEN RAISED BY THE ASSE SSEE IN ITS REPLY E.G. AVAILABILITY OF INTEREST FREE OWN FU NDS IN POSSESSION OF THE ASSESSEE FOR MORE THAN THE AMOUNT OF INVESTMENT MADE IN THE SUBSIDIARIES, THESE INVESTME NTS HAVE BEEN MADE FOR STRATEGIC REASONS AND THESE WERE STRATEGIC INVESTMENTS AND THAT NO EXEMPT INCOME HAS BEEN KSS. 13 EARNED BY THE ASSESSEE DURING THE YEAR. WE FIND THA T ALL THESE ISSUES GO TO THE ROOT OF THE MATTER. THESE HA VE NOT BEEN PROPERLY DEALT WITH BY THE DRP. THE MIND OF TH E AO COULD ALSO NOT BE APPLIED ON ALL THESE ISSUES AT AL L. THE ASSESSEE ALSO COULD NOT GET PROPER OPPORTUNITY TO E XPLAIN THIS ISSUE WITH PROPER EVIDENCES. THERE HAS BEEN LO T OF DEVELOPMENT IN THE LEGAL POSITION WITH RESPECT TO A LL THE CONTENTIONS RAISED BY THE LD. COUNSEL. THESE JUDGME NTS WHICH HAVE BEEN RELIED UPON BY THE LD. COUNSEL WERE NOT AVAILABLE BEFORE THE AO/DRP. THEREFORE, FOR THRASHI NG OUT THE FACTS PROPERLY, AND TO MEET ENDS OF JUSTICE AND IN ALL FAIRNESS, WE DEEM IT APPROPRIATE TO SEND THIS ISSUE BACK TO THE FILE OF THE AO WHO SHALL DECIDE THIS ISSUE AFRE SH. NEEDLESS TO ADD, THE AO SHALL OFFER PROPER OPPORTUN ITY TO THE ASSESSEE TO FILE REQUISITE DETAILS AND DOCUMENT S, AS PER LAW. THE AO SHALL TAKE INTO ACCOUNT COMPLETE FACTUA L MATERIAL AND SHALL ALSO CONSIDER THE JUDGMENTS AS M AY BE AVAILABLE AT THE TIME OF DECIDING THIS ISSUE AFRESH . WITH THESE DIRECTIONS, THIS ISSUE IS SENT BACK TO THE FI LE OF THE AO. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES . 9. GROUND NO.7: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LOWER AUTHORITIES IN ADDIN G A SUM OF RS. 4,22,12,216/- AS NOTIONAL INTEREST ON THE AM OUNT ROUTED BY THE ASSESSEE COMPANY THROUGH ITS DUBAI SUBSIDIARY FOR THE PURPOSE OF ITS BUSINESS. KSS. 14 9.1. DURING THE COURSE OF HEARING, IT HAS BEEN SUBMITTE D BY THE LD. COUNSEL OF THE ASSESSEE THAT SIMILAR ISS UE WAS INVOLVED IN ASSESSMENT YEAR 2009-10 WHICH HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE A ND FACTS REMAINING THE SAME, THE SAID ORDER MAY BE FOLLOWED. ON THE OTHER HAND, LD. CIT-DR HAS RELIED UPON THE ORDE RS OF THE LOWER AUTHORITIES. 9.2. WE HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITI ES AS WELL AS THE ORDER OF THE TRIBUNAL FOR A.Y. 2009- 10. THE BRIEF FACTS ARE THAT THE AO MADE TRANSFER PRICING ADJUSTMENT OF RS.4,22,12,216/- ON ACCOUNT OF ARMS LENGTH INTEREST, COMPUTED ON NOTIONAL BASIS, IN RES PECT OF INTERNATIONAL TRANSACTIONS OF ADVANCE GIVEN TO THE AE OF THE ASSESSEE I.E. K SERA PRODUCT FZ- LLC, DUBAI. IT IS NOTED THAT ADDITION WAS MADE BY THE TPO AND CONFIRM ED BY THE DRP ON THE GROUND THAT SIMILAR ADDITION WAS MADE IN A.Y. 2009-10. 9.3. FURTHER FACTS EMERGING FROM THE ORDERS OF THIS YEA R ARE THAT THE ASSESSEE CONTENDED BEFORE THE TPO THAT IMPUGNED ADVANCES WERE GIVEN MAINLY FOR ACQUIRING F ILM RIGHTS FOR ITS OWN USE AND HENCE THE QUESTION OF RE COVERING ANY INTEREST ON THE SAID ADVANCES DID NOT ARISE. FU RTHER, THE ADVANCE PAID AGAINST SHARE CAPITAL WAS ULTIMATE LY TOWARDS THE CAPITAL AND SHARES WERE ALLOTTED ON 03.10.2011. ACCORDINGLY NO INTEREST CAN BE CHARGED EITHER ON THE ADVANCES AGAINST SHARE CAPITAL OR BUSINESS A DVANCES. KSS. 15 9.4. THE TPO HOWEVER HELD THAT THE ABOVE TRANSACTION IS AN INTERNATIONAL TRANSACTION, WHICH IS COVERED UNDER C HAPTER X OF THE ACT AND HENCE THE SAME SHOULD BE AT ARMS LE NGTH PRICE, AS PER THESE PROVISIONS. ACCORDINGLY, HE APP LIED COST PLUS METHOD TO BENCHMARK THE TRANSACTION. SINCE TH E COST OF BORROWING OF THE ASSESSEE WAS 10.19% AND THE AVE RAGE NET MARGIN RATE OF VARIOUS BANKS WAS 2.3%, THE TPO APPLIED THE MARK-UP RATE OF 12.49% AND HENCE DETERM INED THE ARMS LENGTH INTEREST AT RS.4,22,12,216/- IN RESPECT OF THE LOANS GIVEN BY THE ASSESSEE TO ITS AE, WHICH TH E AO ADDED IN THE DRAFT ASSESSMENT ORDER. 9.5. THE ASSESSEE CONTESTED THE MATTER BEFORE DRP. BUT THE TPOS ORDER WAS CONFIRMED BY THE DRP WITH THE FOLLO WING OBSERVATIONS: IT MAY BE SEEN THAT IN THE CURRENT YEAR, THE TPO H AS APPLIED THE SAME METHODOLOGY AS WAS DIRECTED BY THE DRP IN THE PRECEDING YEAR TO COME TO THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. SINC E THE FACTS IN THE CURRENT YEAR ARE IDENTICAL TO THOS E IN THE PRECEDING YEAR, WE DO NOT FIND ANY REASON TO DI FFER FROM THE DRP IN THE PRECEDING YEAR HENCE NO INTERFERENCE IS CALLED FOR SO FAR AS THE DECISION O F THE AO/TPO IN THIS REGARD IS CONCERNED. THIS OBJECTION IS REJECTED. 9.6. IT MAY THUS BE NOTED FROM THE ORDERS OF THE LOWER AUTHORITIES THAT ORDER OF A.Y.2009-10 HAS BEEN SIMP LY FOLLOWED KSS. 16 IN THIS YEAR WHILE MAKING THIS ADDITION. THUS, THIS ISSUE IS ENTIRELY DEPENDENT UPON THE A.Y.2009-10 WHICH HAS B EEN DISPOSED BY THE TRIBUNAL. WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL AND FIND THAT THE DISALLOWANCE WAS MAD E IN THE ASSESSMENT YEAR2009-10 ON LOAN GIVEN TO THE SAME PA RTY. IN THIS YEAR, NO FRESH LOAN HAS BEEN GIVEN RATHER AMOU NT OF LOAN HAS BEEN REDUCED ON ACCOUNT OF PART PAYMENTS RECEIV ED BACK FROM THE SAID PARTY. IT IS NOTED FROM THE ORDER OF THE DRP THAT OPENING BALANCE DUE FROM THE SAID PARTY AT THE BEGI NNING OF THE YEAR WAS RS.106.52 CRORES WHICH WAS REDUCED TO RS.73.96 CRORES AT THE END OF THE YEAR. IT IS FURTHER NOTED THAT HONBLE TRIBUNAL IN A.Y. 2009-10, AFTER MAKING DETAILED DIS CUSSION HELD THAT THE ADDITION WAS ILLEGAL AND THEREFORE TH E SAME WAS DELETED. THE RELEVANT PART OF THE ORDER OF THE TRIB UNAL IS REPRODUCED BELOW: THUS, TO ATTRACT THE PROVISIONS OF CHAPTER-X OF THE ACT, THERE MUST BE A TRANSACTION OR ANY ARRANGEMENT BETWEEN THE TWO OR MORE A.E. WHICH GIVES RISE TO THE INCOME OR BENEFIT IN THE HANDS OF AT LEAST ONE OF THE A.ES. IN THE PRESENT CASE, THE ADVANCE WAS NOT GIVEN TO THE A.E. BUT TO THE THIRD PARTY AND THAT TOO IS FOR ACQUISITION OF RIGHTS AND NOT AS LOAN OR FINANCE. THEREFORE, WHEN THE AMOUNT IS ONLY ROUTED THROUGH THE A.E. AND FINALLY PAID TO THE THIRD PARTY AS AN ADVANCE FOR PURCHASE OF FILMS RIGHTS WOULD NOT GIVE RISE TO ANY BENEFIT OR INCOME EITHER TO THE ASSESSEE OR TO THE A.E. OF THE KSS. 17 ASSESSEE. WE FIND THAT THE ASSESSEE PRODUCED THE BANK STATEMENT OF THE A.E. WHEREIN ALL THE TRANSACTION OF THE ADVANCE GIVEN BY THE ASSESSEE ARE RECORDED. FROM THE PERUSAL OF THE BANK STATEMENT, IT IS CLEAR THAT THE AMOUNT IN QUESTION WAS NOT RETAINED BY THE A.E. BUT WAS IMMEDIATELY TRANSFERRED TO THE CITI. THE RECEIPT OF THE AMOUNT BY THE CITI FROM THE A.E. OF THE ASSESSEE IS ALSO CONFIRMED BY THE CITI GATE TRADE FZE. THE STATEMENT OF ACCOUNT IN THE BOOKS OF CITI HAS BEEN PRODUCED BY THE ASSESSEE ALONG WITH THE CERTIFICATE TO EVIDENCE THAT THE SAID AMOUNT WAS RECEIVED AND REFUNDED AS SHOWN IN THE STATEMENT. ACCORDINGLY, WE ARE OF THE VIEW THAT THE TRANSACTION OF ADVANCING THE MONEY FOR ACQUISITION OF SATELLITE RIGHTS OF THE HOLLYWOOD MOVIES UNDER THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS A.E. AS WELL AS THE AGREEMENT BETWEEN THE AE AND THE CITI DOES NOT FALL WITHIN THE PURVIEW OF EXPRESSION 'INTERNATIONAL TRANSACTION' IN TERMS OF SECTION 92B OF THE ACT. EVEN OTHERWISE, THE TRANSACTION IN QUESTION DOES NOT FULFILL THE MANDATORY OF GIVING RISE TO ANY INCOME OF BENEFIT EITHER TO THE ASSESSEE OR A.E. OF THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW QUA THIS ISSUE AND DELETE THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF THE NOTIONAL INTEREST KSS. 18 IMPUTED ON THIS TRANSACTION. THIS GROUND OF THE ASSESSEE IS ALLOWED. 9.7. THUS, RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE, WE DIRECT THE AO TO FOLLOW THE ORDER OF THE TRIBUNAL FOR A.Y.2009-10 AND DELETE THE ADDITION OF RS.4,22,12,216/-. THUS, GROU ND NO.7 IS ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH DECEMBER, 2015. SD/- (AMIT SHUKLA ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; # DATED :09 /12/2015 CTX? P.S/. .. #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. % &' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. * * ( % ) / THE CIT, MUMBAI. 4. * * / CIT(A)- , MUMBAI 5. -./ (01 , * % 012 , / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. / BY ORDER, )-% ( //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI