HYVA INDIA P. LTD, NAVI MUMBAI V. ACIT 10(3), MUMBAI

ITA 1182/MUM/2012

• Counselvise Citation: 118219914 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 08-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 21-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Proportionate interest; Reasonable cause; Onus to prove; Condonation of delay
• Section: 43B; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND D. KARUNAKARA RAO, (AM) . . , . , I.T.A. NO.1182/MUM/2012 ( / ASSESSMENT YEAR:2007-08) HYVA INDIA PVT.LTD., PLOT NO.EL-215 MIDC, MAHAPE, NAVI MUMBAI-400701 / VS. ASSTT. COMMISSIONER OF INCOME TAX- 10(3), AAYAKAR BHAVAN, M K ROAD, MUBMAI-400020 ( # / APPELLANT) .. ( $# / RESPONDENT) ./ ./PAN/GIR NO. : AAACH2006C # / APPELLANT BY : S /S HRI J.D.MISTRY AND S.K.MUTSADDI $# ( /RESPONDENT : SHRI O.P.SINGH ( + / DATE OF HEARING : 8.10.2013 ( + /DATE OF PRONOUNCEMENT : 18.10.2013 / O R D E R PER B.R.MITTAL, JM: THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT Y EAR 2007-08 AGAINST ORDER OF AOP/DRP PASSED U/S 143(3) (II) R.W.S.144C (13) O F THE INCOME TAX ACT, 1961 (THE ACT) DATED 14.10.2011. 2. APPEAL FILED BY ASSESSEE IS DELAYED BY 90 DAYS. IN RESPECT OF DELAY, THE ASSESSEE HAS FILED AN AFFIDAVIT FROM ITS FINANCE DIRECTOR STATING THAT THERE WAS A GO- LOW AND LABOUR AGITATION IN THE ASSESSEE-COMPANY AND THE EMPLOYEES, WHO ARE MEMBERS OF STAFF UNION WERE NOT CO-OPERATING WITH THE MANAGEMENT. IN VIEW OF ABOVE FACT, THERE IS A DELAY OF 90 DAYS IN FILING THIS APPEAL BEFORE THE TRIBUNAL. THAT THE DELAY HAS OCCURRED DUE TO REASONABLE CAUSE. 3. AT THE TIME OF HEARING, LD. AR REITERATED ABOVE FACTS AND SUBMITTED THAT THE DELAY MAY BE CONDONED. 4. LD. DR HAS NOT DISPUTED THE ABOVE FACTS AND ALSO DID NOT OPPOSE THE PRAYER OF ASSESSEE FOR CONDONATION OF DELAY IN FILING THIS AP PEAL. I.T.A. NO.1182/MUM/2012 2 5. CONSIDERING THE ABOVE FACTS AND SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES, WE ARE SATISFIED THAT THE DELAY WAS DUE TO A REASONABLE CAUSE. HENCE, WE CONDONE THE DELAY AND ENTERTAIN THE APPEAL ON MERIT S. 6. GROUND NO.1 OF THE APPEAL TAKEN BY ASSESSEE IS A S UNDER : 1. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE ASSESSING OFFICER (AO), IN AN ORDER PASSED U/S.143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT (ITA) FOR A. Y. 2007-08 HAS ERRED IN MAKING A D ISALLOWANCE OF RS.84,26,140/-. THIS DISALLOWANCE AS MADE BY THE AO IS ON THE BASIS OF A DIRECTION CONTAINED IN THE ORDER PASSED U/S, 144C ( 5) OF THE ITA FOR A.Y. 2006 - 07 BY THE 'DISPUTE RESOLUTION PANEL' (DRP), WHEREIN THE DRP HAS ERRED IN UPHOLDING THE TRANSFER PRICING ADJUSTMENT MADE OF R S.84,26,140/- BY THE TRANSFER PRICING OFFICER (TPO) IN RESPECT OF MANAGE MENT FEES PAID BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISES (AE) - HYVA GROUP BV HOLLAND. THE FINDINGS OF THE DRP IN UPHOLDING THE TRANSFER PRICI NG ADJUSTMENT MADE BY THE TPO THAT THE MANAGEMENT SERVICE AGREEMENT HAS IN IT S AMBIT ALL THE ITEMS, WHICH APPEAR IN THE COLLABORATION AGREEMENT, THERE BY JUSTIFYING THE ACTION OF THE TPO FOR CARRYING OUT THE TRANSFER PRICING ADJUSTMEN TS OF RS.84,26,140/-IS FACTUALLY INCORRECT AND MISPLACED. 7. AT THE TIME OF HEARING, LD. AR SUBMITTED THAT D RP WHILE CONFIRMING THE ACTION OF AO TO MAKE DISALLOWANCE OF MANAGEMENT FEES PAID ST ATED THAT THE FACTS IN THE ASSESSMENT YEAR UNDER CONSIDERATION ARE IDENTICAL T O THE ASSESSMENT YEAR 2006-07 AND IN THE ASSESSMENT YEAR 2006-07 THE DISALLOWANCE OF PAYMENT OF MANAGEMENT FEES WAS CONFIRMED CONSIDERING IT AT NOT ARMS LENGTH IN TH E ASSESSMENT YEAR 2006-07 AND THEREFORE, IN THE ASSESSMENT YEAR UNDER CONSIDER ATION, THE PAYMENT OF MANAGEMENT FEES OF RS.84,26,140/- IS NOT AT ARMS LENGTH AS N O COMMERCIAL BENEFIT HAS ACCRUED TO THE ASSESSEE. ACCORDINGLY, ENTIRE MANAGEMENT FEES IS MADE AS TRANSFER PRICING ADJUSTMENT/ADDITION. 8. LD. AR SUBMITTED THAT THE TRIBUNAL BY ITS ORDER DATED 26.4.2013 IN ITA NO.8249/MUM/2010 (AY-2006-07) RESTORED THE ISSUE TO THE FILE OF AO/TPO FOR VERIFICATION AND EXAMINATION AS TO WHETHER ANY SER VICE WAS RENDERED BY AE TO THE ASSESSEE AGAINST WHICH THE MANAGEMENT FEE WAS PAID, AFTER CONSIDERING THE EVIDENCE AS MAY BE FILED BY ASSESSEE AS PER LAW. HE REFERRED P ARA 5 OF THE SAID ORDER, COPY OF WHICH IS PLACED AT PAGES 1 TO 8 OF THE PAPER BOOK . HE SUBMITTED THAT IN VIEW OF ABOVE, THE ISSUE BE RESTORED TO AO/TPO FOR HIS FRE SH ADJUDICATION AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE AND CONSIDER ING SUCH EVIDENCE AS MAY BE PLACED BEFORE HIM. LD. DR DID NOT DISPUTE THE ABOVE SUBMI SSIONS OF LD. AR. I.T.A. NO.1182/MUM/2012 3 9. CONSIDERING THE ABOVE SUBMISSIONS OF LD. REPRES ENTATIVE OF THE PARTIES AND THE ORDER OF TRIBUNAL FOR ASSESSMENT YEAR 2006-07 DATE D 26.4.2013, WE RESTORE THIS ISSUE TO THE FILE OF AO/TPO WITH A DIRECTION TO DECIDE T HE SAID ISSUE AFRESH AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE AS TO WHETHE R THE PAYMENT OF MANAGEMENT FEE WAS PAID BY ASSESSEE AGAINST SERVICE RENDERED BY AE IN ACCORDANCE WITH LAW. HENCE GROUND NO.1 OF THE APPEAL TAKEN BY ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. 10. GROUND NO.2 OF THE APPEAL TAKEN BY ASSESSEE IS AS UNDER : 2 ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE ASSESSING OFFICER (AO), IN AN ORDER PASSED U/S.143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT (ITA) FOR A.Y. 2007- 08, HAS ERRED IN MAKING A DISALLOWANCE OF RS.3,71,817/- , OUT OF A TOTAL CLAIM MADE OF RS.6,35,817/-. IN THE RETURN OF INCOME FILED BY THE ASSESSEE, THE ASSESSEE HAD CLAIMED A DEDUCTION OF R S.6,35,817/- ON THE GROUNDS THAT THE SAID WAS DISALLOWED ULS.40 (A) (IA) OF THE ITA FOR A.Y. 2006-07. SINCE OUT OF THE SAME, TDS PERTAINING TO PAYMENTS OF RS.3,71, 8I7/- WERE MADE IN FINANCIAL YEAR ENDING 31.03.2007, THE ASSESSEE HAD CLAIMED A DEDUCTION IN THIS REGARD U/S.40(A)(IA) OF THE ITA. THE AO HAS MADE THE DISA LLOWANCE ON THE GROUND THAT RECONCILIATION ETC. WERE NOT FURNISHED, WHICH IS FACTUALLY INCORRECT. 11. AO PROPOSED DISALLOWANCE OF RS.6,36,337/- U/S 43B OF THE ACT ON THE GROUND THAT ASSESSEE DID NOT FILE RELEVANT DETAILS PERTAI NING TO THE CLAIM MADE. HOWEVER, THE ASSESSEE SUBMITTED BEFORE DRP THAT TDS WAS EFFECTE D IN RESPECT OF PAYMENT AMOUNTING TO RS.3,71,817/- IN ASSESSMENT YEAR 2007 -08 AND THEREFORE ONLY A SUM OF RS.2,64,000/- IS TO BE DISALLOWED AND THE BALANCE A MOUNT OF RS.3,71,817/- IS ALLOWABLE TO THE ASSESSEE. THE DRP AFTER CONSIDERING THE SU BMISSIONS OF ASSESSEE DIRECTED THE AO TO RESTRICT THE DISALLOWANCE TO RS.2,64,000/- AN D ALSO DIRECTED THE ASSESSEE TO FILE COPIES OF DOCUMENTS AND EVIDENCE BEFORE AO IN RESP ECT OF PAYMENT OF TDS OF RS.3,71,817/-. HOWEVER, THE AO HAS STATED THAT NO EVIDENCE OF MAKING SUCH PAYMENT OF TDS IS FURNISHED BY ASSESSEE AND THEREFORE, AO FINALIZED THE ASSESSMENT TO MAKE DISALLOWANCE OF RS.6,36,337/-. HENCE, ASSESSEE IS I N APPEAL BEFORE THE TRIBUNAL. 12. AT THE TIME OF HEARING, THE LD. AR SUBMITTED T HAT ALL THE DETAILS OF PAYMENT OF TDS COULD NOT BE PROPERLY FILED BEFORE AO AS DIREC TED BY DRP AND SUBMITTED THAT THE SAID DETAILS ARE NOW PLACED IN THE PAPER BOOK AT P AGES 31 TO 38 OF THE PAPER BOOK. HE SUBMITTED THAT IF THE MATTER IS RESTORED TO AO, AS SESSEE WILL RECONCILE THE REQUISITE DETAILS. LD. DR DID NOT OBJECT TO THE ABOVE SUBMIS SIONS OF LD. AR. I.T.A. NO.1182/MUM/2012 4 13. CONSIDERING THE FACTS OF THE CASE AND SUBMISSIO NS OF LD. REPRESENTATIVES OF THE PARTIES, WE, IN THE INTEREST OF JUSTICE, RESTORE T HIS ISSUE TO THE AO TO ENABLE THE AO TO DECIDE THE ISSUE AFRESH PROVIDED THE ASSESSEE FURN ISHES REQUISITE DETAILS TO THE SATISFACTION OF AO THAT THE ASSESSEE HAS MADE PAYME NT OF THE SAID SUM OF RS.3,71,817/- TOWARDS TDS IN THE ASSESSMENT YEAR U NDER CONSIDERATION. IF THE AO IS SATISFIED, HE WILL ALLOW THE CLAIM OF ASSESSEE AS PER LAW. WE MAY STATE THAT IF THE ASSESSEE FAILS TO CO-OPERATE AND /OR FAILS TO FURN ISH THE REQUISITE DETAILS TO THE AO, AO WILL BE AT LIBERTY TO DECIDE THE ISSUE ON THE BASI S OF THE FACTS ON RECORDS BEFORE HIM. HENCE, GROUND NO.2 OF THE APPEAL TAKEN BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES BY SETTING ASIDE THE ORDER OF AO/DRP. 14. GROUND NO.3 OF THE APPEAL TAKEN BY ASSESSEE IS AS UNDER : 3 ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE ASSESSING OFFICER (AO), ERRED IN MAKING A DISALLOWANCE OF IN TEREST AMOUNTING TO RS.12,22,493/- ON THE GROUND THAT THE SAID WAS CAPI TAL IN NATURE. 15. AO ASKED THE ASSESSEE TO FURNISH DETAILS AND AL SO TO EXPLAIN AS TO HOW MUCH INTEREST HAD BEEN CAPITALIZED IN RESPECT OF THE INT EREST BEARING FUNDS UTILIZED TOWARDS THE SAID CAPITAL WORK-IN-PROGRESS. AO HAS STATED THA T THE ASSESSEE HAS FURNISHED THE DETAILS OF CAPITAL WORK-IN-PROGRESS, WHICH SHOWS TH AT NO INTEREST HAS BEEN CAPITALIZED BY ASSESSEE. THE ASSESSEE FAILED TO FURNISH ANY PL AUSIBLE EXPLANATION FOR NOT CAPITALIZING INTEREST COST. AO CONSIDERED THE ANNUAL ACCOUNTS OF THE ASSESSEE AND ALSO CONSIDERED THE SUBMISSIONS OF THE ASSESSEE THAT THE FUNDS OF THE BUSINESS ARE MIXED OF OWN FUND AS WELL AS LOAN FUND AND THE ASSESSEE HAS NOT DISCH ARGED THE ONUS TO PROVE THE ACTUAL APPLICATION OF INTEREST BEARING FUNDS FOR THE PURPO SE OF BUSINESS TO BECOME ELIGIBLE FOR DEDUCTION IN RESPECT OF INTEREST COST. HENCE, AO W ORKED OUT PROPORTIONATE INTEREST AT RS.12,22,493/- TOWARDS CAPITALIZING THE SAME WITH C APITAL WORK-IN-PROGRESS AND DISALLOWED AS PER SECTION 36(1)(III) OF THE ACT. IT IS RELEVANT TO STATE THAT THE DRP DIRECTED THE ASSESSEE TO FILE A CASH FLOW STATEMENT AND COMPLETE PARTICULARS OF UTILIZATION OF BORROWED FUNDS BEFORE AO WITHIN A W EEK FROM THE RECEIPT OF DRP DIRECTION SUO MOTO WITHOUT WAITING FOR ANY LETTER FROM THE AO TO ENABLE AO TO VERIFY THE EVIDENCE THAT THERE IS NO NEXUS BETWEEN BORROWE D FUNDS AND CAPITAL WORK-IN- PROGRESS AND NO ADDITION IS TO BE MADE BUT THE ASSE SSEE FAILED TO FILE THE REQUISITE DETAILS TO THE AO. 16. AT THE TIME OF HEARING BEFORE US, LD. AR BESIDE S MAKING SUBMISSIONS AS MADE BEFORE AUTHORITIES BELOW, SUBMITTED THAT IF THE IS SUE IS RESTORED TO THE AO, HE WILL I.T.A. NO.1182/MUM/2012 5 FURNISH COPY OF FUND FLOW STATEMENT AS MAY BE REQU IRED BY AO TO ENABLE HIM TO WORK OUT THAT NO BORROWED FUNDS WERE USED FOR CAPITAL W ORK-IN-PROGRESS. HOWEVER, LD. DR SUBMITTED THAT THE DRP GAVE CLEAR DIRECTION TO TH E ASSESSEE BUT ASSESSEE FAILED TO COMPLY WITH THE SAID DIRECTION. THEREFORE, ORDER OF AO BE CONFIRMED. 17. WE HAVE CONSIDERED THE SUBMISSIONS OF LD. REPRE SENTATIVES OF THE PARTIES AND THE ORDERS OF DRP/AO. IT IS A FACT THAT THE ASSESS EE FAILED TO COMPLY WITH THE DIRECTION TO FURNISH CASH FLOW STATEMENT AS DIRECTED BY DRP TO ENABLE THE AO TO VERIFY THAT NO BORROWED FUNDS WERE USED FOR CAPITAL WORK-IN-PROGR ESS. HOWEVER, IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF AO AND RESTORE T HIS ISSUE TO HIM WITH A DIRECTION TO DECIDE THE SAME AFRESH WITH THE DIRECTION THAT AS SESSEE WILL FURNISH REQUISITE DETAILS OF CASH FLOW IN THE FORM AS MAY BE REQUIRED BY AO AND SUCH OTHER EVIDENCES AS MAY BE CONSIDERED NECESSARY BY HIM AND AO WILL DECIDE TH E SAME AFRESH AS PER LAW. WE MAY STATE THAT IF THE ASSESSEE FAILS TO FURNISH REQUIS ITE DETAILS, THE AO WILL BE AT LIBERTY TO DECIDE THE SAME ON THE BASIS OF EVIDENCE/DOCUMENTS AS MAY BE AVAILABLE BEFORE HIM. HENCE, GROUND NO.3 OF THE APPEAL TAKEN BY ASSESSEE IS ALSO ALLOWED FOR STATISTICAL PURPOSE. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18TH OCTOBER, 2013 ( / 0 18TH OCTOBER, 2013 ( SD SD ( . / D. KARUNAKARA RAO) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: ON THIS 18TH DAY OF OCTOBER, 2013 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $# / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- CONCERNED 4. 4 / CIT CONCERNED 5. 5 $7 , + 7 , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) + 7 , /ITAT, MUMBAI