M/S GLAMOUR ENTERPRISES PVT. LTD., Jaipur V. DCIT, Jaipur

ITA 1114/JPR/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6504 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 20-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Assessment record; Unabsorbed depreciation
• Section: 43B; 92E

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. ME ENA) ITA NO. 1114/JP/2011 ASSESSMENT YEAR : 2007-08 PAN : AAACG 5149 B M/S. GLAMOUR ENTERPRISES (P) LTD. VS. THE DCIT F-46, MALVIYA INDUSTRIAL AREA CIRCLE- 6 JAIPUR JAIPUR (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANIL SHARMA DEPARTMENT BY: SHRI D.C. SHARMA DATE OF HEARING: 08-07-2014 DATE OF PRONOUNCEMENT: 11 -07-2014 ORDER PER T.R. MEENA, AM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST OR DER OF THE AO (DCIT, CIRCLE-6), JAIPUR DATED 21-10-2011 FOR THE ASSESSME NT YEAR 2007-08. 2.1 THE GROUND NO. 1 OF THE ASSESSEE IS THAT THE AO IS NOT JUSTIFIED IN DETERMINING THE ARMS LENGTH PRICE OF RS. 35,88,640/ - UNDER CUP METHOD I.E. 11.40% IN RESPECT OF INTEREST FREE ADVANCE GI VEN TO THE ASSOCIATED ENTERPRISES OF THE ASSESSEE AND IN MAKING ADDITION OF THE SAME TO RETURNED INCOME. 2 2.2 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAD ADVANCED INTEREST FREE LOANS TO ITS ASSOCIATE ENTERPRISE. THE OPENING BALANCE WAS USD 675000. DURING THE YEAR, FURTHER ADVANCE OF USD 300 000 AND USD 800000 HAD BEEN RECEIVED LEAVING THE CASH BALANCE OF USD 1 75000 AT THE END OF THE YEAR. THE AUDITORS REPORT IN FORM NO. 3CEB AS REQUI RED U/S 92E OF THE I.T. ACT WAS ENCLOSED ALONGWITH RETURN OF INCOME. THESE INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATE ENTERPRISE WERE REF ERRED TO TRANSFER PRICING OFFICER U/S 92CA OF THE ACT. THE TPOS ORDER WAS AL SO CONFRONTED WITH THE ASSESSEE WHICH HAS BEEN ENCLOSED AS PER ANNEXURE A OF THE ORDER OF AO. THE AO HAS REPRODUCED THE FINDING GIVEN BY THE TPO IN HIS ASSESSMENT ORDER. THE ASSESSEE HAD NOT CHARGED ANY INTEREST FR OM ITS AE. IN INDEPENDENT UNRELATED TRANSACTION, THE ASSESSEE HAD TO CHARGE I NTEREST FROM THE PARTY. THE AO GAVE REASONABLE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. IT WAS SUBMITTED BEFORE HIM THAT THERE WAS NO RISK INVOLVE D IN SUCH LOANS. THE ADVANCE HAD BEEN REPAID BY THE ASSESSEE DURING THE YEAR AND IT WAS CLAIMED THAT 8.9% INTEREST APPLICABLE TO 5 YEAR AAA RAT ED CORPORATE BONDS SHOULD BE CONSIDERED REASONABLE TO DETERMINE THE ALP OF TH E INTERNATIONAL TRANSACTIONS. THE AO WAS NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE AND HE HELD THAT YIELD ON BBB BOND IS 11.40% FOR F.Y. 2006-07, CONSIDERING THE HIGHER RISK IN THE CASE OF THE LOAN GIVEN BY THE 3 ASSESSEE TO ITS AE, THE INTEREST RATE WAS EXPECTED TO BE HIGHER BY AT LEAST 20% THAN BBB BOND INTEREST. ACCORDINGLY, KEEPING IN VIEW THAT NO SECURITY WAS OFFERED BY THE SUBSIDIARY AND THAT THE TAXPAY ER WAS NOT INTO LENDING AND BORROWING MONEY, THE ALP OF THE RATE OF INTERES T WAS DETERMINED AT 14% PER ANNUM. ACCORDINGLY, THE AO CALCULATED THE I NTEREST ON TAX FREE LOANS GIVEN TO THE SUBSIDIARY COMPANY AT RS. 44,07, 095/- UNDER CUP METHOD. IT IS FURTHER OBSERVED THAT ALP HAS BEEN DE TERMINED BY USING CUP METHOD I.E. COMPARED AGAINST A SINGLE PRICE AND NOT AGAINST MULTIPLE PRICES, THE BENEFIT OF 5% BOND WAS NOT AVAILABLE TO THE ASS ESSEE AS HAS BEEN HELD IN THE CASE OF M/S. PEROT SYSTEMS TSI (INDIA) LTD. VS. DCIT (2010) 37 SOT 358 (DELHI). THE AO HAD CALLED FOR OBJECTIONS AGAIN ST THE DRAFT ORDER PASSED ON 29-12-2010 FROM THE ASSESSEE. THE ASSESSEE FILED THE OBJECTION BEFORE THE DRAFT RESOLUTION PANEL-1 (FOR SHORT DRP), NEW DELH I ON 27-01-2011. THE DRP PASSED THE ORDER ON 12-09-2011 AND DIRECTED THE TPO TO WORK OUT THE INTEREST @ 11.40% AS AGAINST 14% CHARGED BY HER ON THE BBB BONDS. IN PURSUANCE TO THE SAID DIRECTIONS OF THE DRP, THE TP O VIDE ORDER U/S 144C(5) DATED 13-10-2011 WORKED OUT THE INTEREST WHICH AMOU NTED TO RS. 35,88,640/- AS AGAINST RS. 44,07,095/- WORKED OUT BY HER VIDE O RDER U/S 92CA(3) DATED 29-10-2010. ACCORDINGLY, THE ADDITION OF RS. 35,88, 640/- WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE. 4 2.3 BEING AGGRIEVED BY THE ORDER OF THE AO, THE ASS ESSEE IS IN APPEAL BEFORE US. 2.4 DURING THE COURSE OF HEARING, THE LD. AR ARGUED THAT THE ASSESSEE HAD ADVANCED INTEREST FREE LOAN TO ITS SUBSIDIARY COMPA NY. IT WAS A RUNNING ACCOUNT AND THERE WAS A BALANCE AS ON CLOSING DATE OF THE FINANCIAL YEAR. THE ASSESSEE HAS NOT PROPOSED ANY INTEREST IN ITS 3CEB AUDITORS REPORT BEING AN INTERNATIONAL TRANSACTION BUT DURING THE COURSE OF SUBMISSION BEFORE TPO AS WELL AS DRP IT WAS ARGUED THAT PROPOSED RATE OF INT EREST @ 14% IS NOT REASONABLE. HOWEVER, THE LD. AR OF THE ASSESSEE WAS AGREED TO APPLY 8.9% INTEREST RATE ON THE BASIS OF 5 YEAR AAA RATED CORP ORATE BONDS AS REASONABLE TO DETERMINE THE ALLEGED INTERNATIONAL TRANSACTIONS . BEFORE US ALSO, THE LD. AR OF THE ASSESSEE FAIRLY ACCEPTED THE FACT BEFORE US AND REQUESTED TO APPLY INTEREST RATE ON INTERNATIONAL TRANSACTION @ 8.9%. 2.5 AT THE OUTSET, THE LD. DR HEAVILY RELIED ON THE ORDER OF THE DRP AND REQUESTED TO CONFIRM THE ORDER OF THE AO. 2.6 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS A FACT THAT THERE WAS IN TERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ASSOCIATE ENTERPRISE DURIN G THE YEAR UNDER CONSIDERATION ON WHICH NO INTEREST HAS BEEN CHARGED ON THE LOAN GIVEN TO THE SUBSIDIARY COMPANY. THE DRP APPLIED 11.40% INTEREST RATE ON INTERNATIONAL 5 TRANSACTION ON THE BASIS OF BBB BOND AND CONSIDERIN G THE RISK IN CASE OF LOAN GIVEN TO THE ASSOCIATE ENTERPRISE. THE LOAN GI VEN TO SUBSIDIARY COMPANY HAS A LOWER RISK AS THE ASSESSEE HAS INDIRE CT CONTROL ON IT. FURTHER LIBOR + NOMINAL ADJUSTMENT HAS BEEN UPHELD BY VARIO US ITAT BENCHES AS REASONABLE. THEREFORE, WE FIND THAT INTEREST RATE P ROPOSED BY THE ASSESSEE @ 8.90% IS REASONABLE AS AGAINST 11.40% DECIDED BY DR P. ACCORDINGLY, THE ASSESSEE GETS THE PARTIAL RELIEF. 3.1 THE GROUND NO. 2 OF THE ASSESSEE IS THAT THE AO IS NOT JUSTIFIED IN DISALLOWING THE BELATED PAYMENT OF PF AND ESI OF RS . 5,00,941/- AND IN MAKING ADDITION OF THE SAME TO RETURNED INCOME. 3.2 THE FACTS OF THE CASE IN BRIEF ARE THAT THE AO HAS MADE AN ADDITION OF RS. 5,00,941/- BY DISALLOWING THE EMPLOYEES CONTRIB UTION TOWARDS PF OF RS. 4,17,348/- AND ESI CONTRIBUTION OF RS. 83,593/- WHI CH HAD BEEN DEPOSITED IN GOVT. ACCOUNT AFTER EXPIRY OF THE DUE DATES AS PRES CRIBED UNDER THE RELEVANT STATUTES WHICH HAS BEEN UPHELD BY THE DRP. HOWEVER, THE ASSESSEE SUBMITTED THAT IT HAS DEPOSITED BOTH THE CONTRIBUTI ONS BEFORE DUE DATE OF FILING OF RETURN U/S 139(1) OF THE ACT I.E. 30-09-2 007 3.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THIS ISSUE HAS BEEN DECIDED AGAINST THE REV ENUE BY THE TRIBUNAL IN THE CASE OF M/S. SWASTIK METAL CASTING VS. ACIT VID E ORDER DATED 20-04- 6 2011. IT WILL BE USEFUL TO REPRODUCE PARA 3.2 AND 3 .3 OF THE ABOVE REFERRED ORDER 3.2 THE LD. CIT(A) HELD THAT THE EMPLOYEES CONTRI BUTION TO PF AND ESI IS NOT TO BE ALLOWED AS THE SAME HAS NOT BE EN PAID WITHIN THE STIPULATED TIME AS PROVIDED IN RESPECTIVE ACT OF PF AND ESI. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO. 3.3 WE HAVE HEARD BOTH THE PARTIES. HON'BLE APEX CO URT IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD., 319 ITR 306 HA S HELD THAT THE PROVISO INTRODUCED BY THE FINANCE ACT, 2003 IS CURATIVE IN NATURE AND IS RETROSPECTIVE. HOWEVER, WE ARE CONCERNED WITH THE A SSESSMENT YEAR 2007- 08. THE HON'BLE APEX COURT HAS REFERRED TO THE EXPL ANATION GIVEN IN SECTION 36(1)(V)(A) OF THE ACT. THE ISSUE OF EMPLOY EES CONTRIBUTION COVERED U/S 43B HAS BEEN CONSIDERED BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS SABRI ENTERPRISES, 298 ITR 141. THE HON'BLE APEX COURT HAS UPHELD THE DECISION OF HON'BLE KARNA TAKA HIGH COURT IN THE CASE OF CIT VS SABRI ENTERPRISES (SUPRA) WHILE DECIDING THE APPEAL IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD. (SUPRA). TH E HON'BLE APEX COURT HAS DISMISSED THE SLP IN THE CASE OF CIT VS VINAY C EMENT 313 ITR 1 (ST.). WHILE DISMISSING THE SLP, THE HON'BLE APEX C OURT HAS REFERRED TO DECISION OF HON'BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS GEORGE WILLIAMSON (ASSAM) LTD., 284 ITR 619. IN THE CASE B EFORE HON'BLE GAUHATI HIGH COURT, THE ISSUE WAS IN RESPECT OF CON TRIBUTION OF PF AND ESI RELATING TO EMPLOYEES SHARES. IT IS NOTICED FROM TH E AUDIT REPORT THAT ALL THE PAYMENTS HAVE BEEN PAID BEFORE THE DUE DATE OF FILI NG OF RETURN AND THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN NOT DELETING THE SUM OF RS. 150,294/-. THE SAME IS DELETED. HENCE, IN VIEW OF THE FACTS AND CIRCUMSTANCES OF T HE CASE AND CONSIDERING THE RECENT JUDGEMENT DATED 13 TH MAY,2013 OF HON'BLE JURISDICTIONAL HIGH 7 COURT IN THE CASE OF CIT VS. UDAIPUR DUGDH UTPADAK SAHAKARI SANGH LTD. (2013) 35 TAXMANN.COM 616, WE ALLOW GROUND NO. 2 O F THE ASSESSEE. 4.1 THE GROUND NO. 3 OF THE ASSESSEE IS THAT THE AO IS NOT JUSTIFIED IN DISALLOWING THE PRIOR PERIOD EXPENSES OF RS. 9,84,8 62/- CRYSTALLIZED DURING THE RELEVANT PREVIOUS YEAR. 4.2 DURING THE COURSE OF HEARING BEFORE US, THE LD. AR OF THE ASSESSEE HAS NOT PRESSED THIS GROUND. HENCE, THE GROUND NO. 3 OF THE ASSESSEE IS DISMISSED BEING NOT PRESSED. 5.1 THE GROUND NO. 4 OF THE ASSESSEE THAT THE AO IS NOT JUSTIFIED IN RESTRICTING THE BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION TO RS. 1,62,77,888/- AGAINST THAT OF RS. 1,92,95,97 2/- CLAIMED BY THE ASSESSEE. 5.2 THE FACTS OF THE CASE IN BRIEF ARE THAT THE DRP HAS DIRECTED THE AO TO VERIFY THE RECORDS AND ALLOW UNABSORBED DEPRECIATIO N EITHER WITH THE RECORDS AVAILABLE WITH THE DEPARTMENT OR WITH THE ASSESSEE. ACCORDINGLY, THE AO MADE EXERCISE AND FOUND THAT ASSESSMENT RECORDS OF BCEP FOR ASSESSMENT YEARS 1993-94 TO 1997-98 WERE NOT VERIFIABLE. THE ASSESSEE WAS NOT ABLE TO PROVE THE UNABSORBED DEPRECIATION ON THE BASIS OF T HE EVIDENCE BEFORE THE AO. THUS THE AO DISALLOWED THE BUSINESS LOSSES AND UNABSORBED DEPRECIATION AT RS. 1,62,77,888/-. 8 5.3 BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFO RE US. 5.4 THE LD. AR OF THE ASSESSEE SUBMITTED THAT AS PE R PAGE NOS. 42 TO 45 OF THE PAPER BOOK, THE ASSESSEE HAD FILED THE COPY OF RETURN FOR ASSESSMENT YEAR 1999-2000 BEFORE THE AO WHEREIN THE ASSESSEE HAS CL AIMED BUSINESS LOSS OF RS. 3,41,750/- AND UNABSORBED DEPRECIATION OF RS. 1 9,15,906/-. HE ARGUED THAT ALL THE DETAILS WERE AVAILABLE WITH THE AO BUT HE HAS NOT ALLOWED UNABSORBED DEPRECIATION OF RS. 1,92,95,972/- AS CLA IMED BY THE ASSESSEE. HE FURTHER ARGUED THAT THE MATTER MAY BE SENT BACK TO THE AO FOR RE- EXAMINATION. 5.5 AT THE OUTSET, THE LD. DR FAIRLY ACCEPTED THE A SSESSEE'S PROPOSAL. 5.6 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE DRP ALREADY DIRECTED THE A O TO VERIFY THE ASSESSEE'S CLAIM FOR BROUGHT FORWARD UNABSORBED DEP RECIATION ON THE BASIS OF I.T. RECORDS OR ASSESSEE'S RECORDS AND ALLOW THE SA ME AS PER LAW. WE ARE ALSO OF THE CONSIDERED VIEW THAT THIS ISSUE REQUIRES REC ONSIDERATION BY THE AO AND THE AO IS DIRECTED TO VERY THE ASSESSMENT RECORDS O F THE ASSESSEE AND ALLOW UNABSORBED DEPRECIATION AS PER LAW. THE ASSESSEE IS ALSO DIRECTED TO COOPERATE AND PRODUCE THE EVIDENCE BEFORE THE AO TO DECIDE THE ISSUE AFRESH. THUS GROUND NO.4 OF THE ASSESSEE IS SET ASIDE. 9 6.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED, . THE ORDER PRONOUNCED IN OPEN COURT ON 11-07-201 4 SD/- SD/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED: 11 TH JUL, 2014 *MISHRA COPY FORWARDED TO:- 1. M/S. GLAMOUR ENTERPRISES (P) LTD., JAIPUR 2. THE DCIT, CIRCLE- 6, JAIPUR 3. THE LD. CIT 4. THE LD. CIT(A), JAIPUR 5..THE LD. DR 6.THE GUARD FILE (IT NO. 1114/JP/2011) BY ORDER AR ITAT, JAIPUR 10