COX & KINGS LTD, MUMBAI V. ADDL CIT RG 1(1), MUMBAI

ITA 1354/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2690 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 08-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 27-02-2014
• Court: TRIBUNAL
• Department Lawyers: MAHESH SHAH
• Assessee Lawyers: R R VORA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Earning of tax free income; Wholly owned subsidiary; Fair market value; Notional interest; Capital receipt
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER I.T.A. NO. 1354/M/2014 (AY: 2009 - 2010 ) I.T.A. NO. 7770/M/2014 (AY: 2010 - 2011 ) COX & KINGS LIMITED, TURNER MORRISON BUILDING, 16 BANK STREET, FORT, MUMBAI 400 001. / VS. DCIT - 1(1), MUMBAI. ./ PAN : AAACC1921B ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI R.R. VORA / RESPONDENT BY : SHRI G.M. DOSS, DR AND SHRI MAHESH SHAH / DATE OF HEARING : 13.10.2015 / DATE OF PRONOUNCEMENT : 4 .11.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION RELATING TO AYS 2009 - 2010 AND 2010 - 2011. SINCE, THE ISSUES RAISED IN BOTH THE APPEALS ARE IDENTICAL, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE A DJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS OF THIS ORDER. 2. GROUNDS RAISED IN BOTH THE APPEALS ARE ARGUMENTATIVE IN NATURE AND THEREFORE, THE ISSUES CULLED OUT OF THOSE GROUNDS RELEVANT FOR THE AY 2009 - 2010 ARE (I) TP ADJUSTMENTS TO THE INTERNATIONA L TRANSACTION OF GIVING THE INTEREST FREE LOANS TO THE AE; (II) THE CORPORATE GUARANTEE TP ADJUSTMENT FOR ISSUING THE GUARANTEE TO THIRD PARTY BANK IN FAVOUR OF THE AE; (III) TP ADJUSTMENT ON ACCOUNT OF SHARE PREMIUM ; (IV) DISALLOWANCE U/S 14A READ WITH R ULE 8D AND (V) ADDITIONS QUA THE AIR RECONCILIATION. 2 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE , RELEVANT TO THE AY 2009 - 10, ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TOURS AND TRAVELS AND HAD INTERNATIONAL TRANSACTIONS WITH AES IE CNK (COX AND KINGS) SINGAPORE, CNK AUSTRALIA, CNK UK ETC. ASSESSING OFFICER PASSED ASSESSMENT ORDER U/S 143(3) R.W.S 144C(13) OF THE ACT DATED 31.12.2013 AFTER CONSIDERING THE TPOS ORDER DATED 21.11.2012 MADE U/S 92A(3) OF THE ACT. TPO SUGGESTED ADJUSTMENTS TO THE TUNE OF RS. 2,80,20,501/ - ON ACCOUNTS OF INTEREST ADJUSTMENTS, CORPORATE GUARANTEE ADJUSTMENTS AND SHARE PREMIUM ADJUSTMENTS. AFTER MAKING CORPORATE DISALLOWANCE / ADDITIONS, THE ASSESSING OFFICER DETERMINED THE ASSESSED INCOME AT RS. 72,84,03,200/ - AGAI NST THE RETURN OF INCOME OF RS. 69.43 CRS (ROUNDED OF). AO CONSIDERED THE RELIEF GRANTED BY THE DR IN RESPECT OF THE ADJUSTMENTS MADE TO THE SHARE PREMIUM TRANSACTION. THEREFORE, NET ADDITION MADE BY THE AO IN THE ASSESSMENT IS ONLY RS. 59,06,445/ - AGAIN ST THE TPOS SUGGESTED ADJUSTMENT OF RS. 1,13,10,586/ - . ISSUE WISE ADJUDICATION IS TAKEN IN THE FOLLOWING PARAGRAPHS. 4. THE FIRST ISSUE RELATES TO THE ADJUSTMENT ON ACCOUNT OF INTEREST FREE LO ANS GIVE N TO THE AES. BRIEFLY STATED RELEVANT FACTS IN THIS REGARD ARE THAT THE ASSESSEE GRANTED LOANS IN FOREIGN CURRENCY TO AES. ASSESSEE CHARGED 15% RATE OF INTEREST IN RESPECT OF THE LOANS GIVEN TO CNK AUSTRALIA AND CNK DUBAI. IN RESPECT OF THE LOAN COX AND K INGS, SINGAPORE P LTD (CNK SINGAPORE) , THE ASSESSEE HAS NOT CHARGED ANY INTEREST. THEREFORE, THE TPO SUGGESTED THE ADJUSTMENTS IN THIS REGARD AND CONSIDERED INTERNAL COMPARABLES IE CNK AUSTRALIA AND CNK DUBAI AND APPLIED 15% RATE OF INTEREST ON THE LOAN G IVEN TO THE CNK SINGAPORE. DURING THE TP PROCEEDINGS, ASSESSEE GAVE CONCESSION ON THIS ISSUE AND SUBMITTED THAT THE PLR OF SINGAPORE @ 0.91% + 200 POINTS M AY BE CONSIDERED FOR ADJUSTMENT, AND THIS CONCESSION WORKS OUT TO RS. 2,49,260/ - . IT IS THE CONTENT ION OF THE ASSESSEE THAT THE PLR OF SINGAPORE, WHERE AE IS SITUATED, IS APPROPRIATE AND NOT THE PLR OF INDIA. TPO REJECTED THE CONTENTION OF THE ASSESSEE AND ALSO CONCESSIONS TO THE EXTENT OF 2,49,268/ - AND PROCEEDED TO MAKE ADJUSTMENT IN THIS REGARD APPL YING THE INTEREST RATE OF 15% RELYING ON THE INTERNAL COMPARABLES. THE ADJUSTMENT SUGGESTED BY THE TPO IN THIS REGARD WORKS OUT TO RS. 12,84,845/ - . DURING THE PROCEEDINGS BEFORE THE DRP, ASSESSEE REITERATED THE SAID SUBMISSIONS. DRP CONSIDERED THE SAME AND AGREED WITH THE CONTENTION OF THE ASSESSEE TO SOME EXTENT AND REJECTED THE INTERNAL 3 COMPARABLES AND 15% OF RATE OF INTEREST ADOPTED BY THE TPO IN BENCHMARKING THE TRANSACTIONS. HOWEVER, DRP DIRECTED THE AO / TPO TO CONSIDER ONLY THE SBI PLR + 200 BASI C POINTS WHICH WORKS OUT TO 14.25%. THUS, DRP GRANTED PART RELIEF AND QUANTIFIED THE ADDITION ON THIS ACCOUNT AT RS. 12,20,603/ - . AGGRIEVED WITH THE SAME, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE AS SESSEE CRITICIZED THE DRPS DECISION IN ADOPTING THE SBI PLR RATES INSTEAD OF OPTING FOR THE PLR OF SINGAPORE, THE COUNTRY WHERE AE RECEIVED THE LOAN IN FOREIGN CURRENCY. FURTHER, HE SUBMITTED THAT THE CNK SINGAPORE IS NEWLY SET UP AND THE ASSESSEE HAS CO MPUTED THE SAID LOAN AND DECIDED TO NOT TO CHARGE INTEREST ON THE SAID LOAN GIVEN TO CNS SINGAPORE (FOR COMMERCIAL PRODUCE). FURTHER, HE ALSO SUBMITTED THAT THE SAID LOAN GIVEN IS IN THE NATURE OF QUASI EQUITY AS THE SAID COMPANY (AE) IS WHOLLY OWNED SUB SIDIARY. HE ALSO SUBMITTED THAT THE LOAN GIVEN TO THE SAID AE IS NOT OUT OF ANY BORROWED FUNDS. HE RELIED ON THE HONBLE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF RELIANCE UTILITIES AND POWER LIMITED 313 ITR 340 FOR THE PRESUMPTION THAT THE LOANS ARE GIV EN OUT OF ASSESSEES OWN FUNDS AND NOT OUT OF THE BORROWED FUNDS. HE ALSO OBJECTED TO THE DECISION OF THE REVENUE AUTHORITIES IN RESORTING TO LEVY OF NOTIONAL INTEREST AND RELIED ON VARIOUS BINDING JUDGMENTS IN FAVOUR OF THE ASSESSEE. HE WAS ALSO CRITIC AL ABOUT THE REJECTION OF ASSESSEES OFFER OF SINGAPORE PLR + 200 BASIS POINTS IE 2.91% WITHOUT GIVING ANY REASON. HE ALSO SUBMITTED THAT THE LOAN PAYMENT AMOUNTING TO SINGAPORE DOLLARS 4.3 LAKHS, WHICH WAS GIVEN TO AE AT SINGAPORE, IS THE LOCAL CURRENCY OF THE COUNTRY AND THE REPAYMENT OF THE SAME WOULD ALSO BE DONE BY THE AE TO THE ASSESSEE IN FOREIGN CURRENCY. IN SUCH AGREED C IRCUMSTANCES, THRUST ING OF SBI - PLR IS NOT APPROPRIATE IN BENCHMARKING THE EXERCISE. FURTHER, HE ALSO RELIED ON VARIOUS JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF TATA AUTOCOMP SYSTEMS LIMITED (ITA NO.1320 OF 2012) AND JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF COTTON NATURAL (INDIA) PVT LTD (ITA NO.233 OF 2014) (DEL. HC) FOR THE PROPOSITION THAT IN ALP MATTERS W HILE BENCHMARKING THE INTEREST ISSUES, THE LIBOR OF THE COUNTRY SHOULD BE CONSIDERED FOR ALP INTEREST IN CASE OF FOREIGN CURRENCY LOANS. FURTHER, HE ALSO CITED VARIOUS COORDINATE BENCH DECISIONS IN SUPPORT OF THEIR ARGUMENT AND TO DEMONSTRATE THAT THE BEN CHMARKING CANNOT BE DONE BASED ON THE LIBOR. IN SUCH CASE, THE SUO MOTO ADJUSTMENTS PROPOSED DURING 4 THE TP PROCEEDINGS BY THE ASSESSEE, WHICH WORKS OUT TO 2,24,260/ - SHOULD BE CONSIDERED. 6. ON THE OTHER HAND, LD DR FOR THE REVENUE DUTIFULLY RELIED ON THE ORDER OF THE AO AND THE DIRECTIONS OF THE DRP. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS / DIRECTIONS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED PRECEDENTS AND THE ALSO THE RELEVANT MATERIAL PLACED BEFORE US. ON PERUSAL OF THE SAID ORDERS / DIRECTIONS OF THE REVENUE AUTHORITIES, WE FIND, IN PRINCIPLE DRP DID NOT AGREE WITH THE TPOS PROPOSAL OF RELYING ON THE I NTERNAL COMPARABLES AND ADOPTING 15% AS APPLICABLE RATE OF INTEREST IN BENCHMARKING THE TRANSACTIONS WITH CNK SINGAPORE. HOW EVER, HAVING HELD SO, DRP ALSO RELIED ON SBI - PLR, WHICH IS NOT THE APPLICABLE INTEREST RATE IN THE COUNTRY OF SINGAPORE. IT IS THE SETTLED PROPOSITION IN LAW BY VARIOUS DECISIONS NARRATED BY THE LD COUNSEL FOR THE ASSESSEE AS SEEN IN PARA 3.21 AT PAGE 522 OF THE PAPER BOOK PLACED BEFORE US. THE SAID SETTLED PROPOSITION IS THAT THE INTEREST IN RESPECT OF THE CURRENT YEAR IN WHICH THE TRANSACTION HAS TAKEN PLACED SHOULD BE CONSIDERED WHILE CALCULATING THE INTEREST ON LOAN GRANTED IN FOREIGN CURRENCY (PARA 3 .19 ON PAGE 522 OF THE PAPER BOOK). THEREFORE, IN PRINCIPLE, WE REJECT THE DIRECTION OF THE DRP IN THRUSTING ON ASSESSEE THE SBI - PLR AND DIRECT THE LOWER AUTHORITIES TO CONSIDER THE LIBOR OF SINGAPORE. CONSIDERING THE SUO MOTO ADJUSTMENTS OF THE ASSESSEE , WHICH AMOUNTS TO ADDITION OF RS. 2,49,260/ - , WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE ADDITION OF ADJUSTMENT TO THE SAID AMOUNT AND DELETE THE BALANCE OF ADDITION. ACCORDINGLY, RELEVANT GROUNDS RAISED ON THIS ISSUE ARE PARTLY ALLOWED. 8. THE SECO ND ISSUE RELATES TO BENCHMARKING OF CORPORATE GUARANTEE RELATED TAXES. BRIEF FACTS IN THIS REGARD ARE THAT THE ASSESSEE HAS AE (CNK AUSTRALIA) AN SPV INCORPORATED FOR ACQUIRING THE SHARES IN TEMPO HOLIDAYS AUSTRALIA PVT LTD. CNK AUSTRALIA WAS TO RAISE FU NDS FOR INVESTING THE TEMPO FROM THE AXIS BANK, HONG KONG FOR WHICH THE ASSESSEE STOOD AS GUARANTOR. ASSESSEE DID NOT CHARGE ANY COMMISSION FROM CNK AUSTRALIA. ASSESSEE JUSTIFIED ITS DECISION ON VARIOUS GROUNDS IE SUBSIDIARY COMPANY, COMMERCIAL EXPEDIENC Y, NON - INTERNATIONAL TRANSACTION CUM QUASI - EQUITY ETC. ASSESSEE RELIED ON VARIOUS DECISIONS IN THIS REGARD. 5 9. TPO / DRP REJECTED THE ABOVE ARGUMENTS AND PROCEEDED TO BENCHMARK THE SAID TRANSACTION RELYING ON THE CRISIL DATA AND WORKED OUT THE ADJUSTMENTS ADOPTING THE DIFFERENTIAL RATING OF 4.12%. DISCUSSION GIVEN IN PAGE 524 OF THE ASSESSEES PAPER BOOK - III IS RELEVANT IN THIS REGARD. 10. BEFORE US, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE CONTENTS OF PARAS 4.35 TO 4.37 ON PAPER BOOK - II I, PAGES 527 / 528 AND SUBMITTED, WITHOUT PREJUDICE, THAT GUARANTEE COMMISSION @ 0.5% IS NOW APPROVED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF EVEREST KANTO CYLINDERS LTD (ITA NO.1165 OF 2013) (BOM. HC) . LD AR ALSO SUBMITTED THAT ASSESSEE SHALL NOT PRE SS ON THE OTHER ARGUMENTS, IF THE TRANSACTIONS OF GUARANTEE COMMISSION IS BENCHMARKED @ 0.5% CONSIDERING THE DISCUSSION IN THE CASE OF EVEREST KANTO CYLINDERS LTD (SUPRA). 11. ON THE OTHER HAND, LD DR RELIED HEAVILY ON THE ORDERS OF THE AO / TPO / DRP. 12 . ON HEARING THE ARGUMENTS OF THE LD AR WITHOUT PREJUDICE TO THE OTHER, WE FIND THAT GUARANTEE COMMISSION TRANSACTIONS ARE BEING BENCHMARKED @ 0.5%. FOR THE SALE COMPLETENESS OF THIS ORDER, WE PROCEED TO EXTRACT PARA 4.35, 4.36 AND 4.37 OF THE PAPER BOOK - III AT PAGES 527 / 528, WHICH IS AS UNDER: - 4.35. IT IS SUBMITTED THAT THE INTEREST RATES PROVIDED BY THE CRISIL ARE BASED ON THE ANALYSIS OF INDIAN MARKET AND CANNOT BE APPLIED TO TRANSACTIONS EFFECTED IN OTHER GEOGRAPHICAL TERRITORIES. THE LD TPO / DRP HAVE NOT APPRECIATED THE FACT THAT IN CASE GUARANTEE COMMISSION IS TO BE IMPUTED BASED ON THE INTEREST RATES, THEN THE SAME SHOULD BE INTEREST RATES CHARGED BY THIRD PARTY BANKS TO CNK AUSTRALIA AND NOT THE RATES PROVIDED BY THE CRISIL. 4.36. WITHOUT PREJUDICE TO ALL THE ABOVE, GUARANTEE COMMISSION RATES APPLIED / CONFIRMED BY THE HONBLE BOMBAY HIGH COURT AND THE HONBLE MUMBAI TRIBUNAL ARE AS FOLLOWS: NAME OF THE CASE GUARANTEE COMMISSION RATE EVEREST KANTO CYLINDERS LTD (ITA NO.1165 OF 2013) 0.5% MANUGRAPH INDIA LTD (ITA NO.4761/M/2013 0.5% ASIAN PAINTS LTD (149 ITD 511) (MUM TRIB) 0.2% ADITYA BIRLA MINACS WORLDWIDE LTD (7033/M/2012) (MUM. TRIB) 0.5% 4.37. WITHOUT PREJUDICE TO THE APPELLANTS SUBMISSIONS THAT NO ADJUSTMENT SHOULD BE MADE ON A CCOUNT OF GUARANTEE COMMISSION, THE APPELLANT ALSO SUBMITS THAT, IF AT ALL YOUR HONOURS UPHOLDS THE ADJUSTMENT ON ACCOUNT OF GUARANTEE THE SAME SHOULD BE RESTRICTED IN RANGE OF 0.2% TO 0.5%, BASED ON RECENT TRIBUNAL JUDGMENTS. 13. CONSIDERING THE ABOVE STATED FACTS, WE DIRECT THE AO TO RESTRICT THE ADJUSTMENTS TO 0.5% AS UPHELD BY THE HONBLE HIGH COURT IN THE CASE OF EVEREST 6 KANTO CYLINDERS LTD (SUPRA). ACCORDINGLY, THE RELEVANT GROUND NOS.6 TO 9 ARE PARTLY ALLOWED. 14. THIRD ISSUE RELATES TO THE ADJUSTMENT ON ACCOUNT OF SHARE PREMIUM. IN THIS REGARD, AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. ANGLO - EASTERN SHIP MANAGEMENT (INDIA) PVT LTD VS. DCIT IN I TA NO.1824/M/2014 (AY 2009 - 2010), DATED 25.2.2015 WHEREIN, ONE OF US (AM) IS A PARTY TO THE SAID ORDER, THE TRIBUNAL DEALT WITH THE IDENTICAL ISSUE AND ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. IN THIS REGARD, LD COUNSEL READ OUT RELEVANT PARAS 5 AND 6 OF THE SAID TRIBUNALS ORDER AND FOR THE SAKE COMPLETENESS OF THIS ORDER, THE SAME ARE EXTRACTED AS UNDER: - 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED DECISION OF THE TRIBUNAL IN THE CASE OF M SC CREWING SERVICES P LTD (SUPRA) AND ALSO THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES (P) LTD (SUPRA). AFTER HEARING LD REPRESENTATIVES OF BOTH THE PARTIES AND ON PERUSAL OF THE SAID DECISION OF THE TRIBUNAL IN TH E CASE OF MSC CREWING SERVICES P LTD (SUPRA), WE FIND PARAS 2 AND 3 OF THE TRIBUNALS ARE RELEVANT IN THIS REGARD. CONSIDERING THE SIGNIFICANCE OF THE SAID PARAS 2 AND 3 OF THE TRIBUNALS ORDER (SUPRA) AND FOR THE SAKE OF COMPLETENESS OF THIS ORDER, THE S AID PARAS ARE EXTRACTED AS UNDER: 2.EFFECTIVE GROUND OF APPEAL IS ABOUT TRANSFER PRICING ADJUSTMENT OF RS 122.62 CRORES.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT 1,00,000 SHARES OF THE FACE VALUE OF RS. 10 EACH WERE ISSUED BY THE ASSESSEE TO MSC SHIP MANAGEMENT (HONG KONG) LTD. OF WHICH THE ASSESSEE WAS A WHOLLY OWNED SUBSIDIARY, THAT THE ASSESSEE HAD ISSUED IN THREE TRANCHES TOTALLING TO 13,37, 553 SHARES AND REALISED RS.3,67,59,192/ - (RS.1,33,75,530/ - AS SHARE CAPITAL AND RS.2,33,83,662/ - AS PR EMIUM).THE AO MADE A REFERENCE TO THE TRANSFER PRICING OFFICER(TPO) WHO HELD THAT A 3 ITA NOS.1666&1739/M/2014 MSC CREWING SERVICES P. LTD. PREMIUM OF RS.1187.0005 PER SHARE(AGGREGATING RS.1,58,76,76,118)OUGHT TO HAVE BEEN CHARGED AND PROPOSED AN ADDITION OF RS.1,56,42,92,456/ - BEING THE DIFFERENCE BETWEEN WHAT SHOULD HAVE BEEN CHARGED ACCORDING TO HIM AS A PREMIUM. PREMIUM ACTUALLY CHARGED BY THE ASSESSEE, AMOUNTING TO RS.2.33 CRORES WAS TREATED AS A RECEIPT ON CAPITAL ACCOUNT. THE TPO ALSO TOOK THE VIEW T HAT THE PREMIUM ALLEGEDLY UNDER CHARGED WAS A RECEIVABLE ARISING OUT OF THE INTERNATIONAL TRANSACTION OF ISSUE OF SHARES BY THE ASSSSEE TO ITS AE AND PROPOSED A FURTHER ADDITION OF RS.17, 52,89,368/ - BEING INTEREST @ 15.55%.AGAINST THE PROPOSED ADDITION M ATTER WAS REFERRED TO DRP BY THE ASSESSEE.IT WAS HELD BY THE DRP THAT THE CORRECT AMOUNT WHICH OUGHT TO HAVE BEEN CHARGED AS PREMIUM WAS RS.876.75 PER SHARE.THE DRP ALSO HELD THAT THE RATE OF INTEREST SHOULD BE ARRIVED AT BY ADDING 3% TO THE RETURN OBTAINE D BY THE ASSESSEE FROM A FIXED DEPOSIT PLACED WITH THE BANK AGAINST BAN K GUARANTEE OBTAINED BY IT. AS RESULT, AS AGAINST THE TOT AL ADJUSTMENT OF RS.1,73,95,81,824(1,56,42,92,456+17,52,89,368)IN ITIALLY PROPOSED BY THE TPO, THE AO FINALLY SUSTAINED ADDITIO N OF RS.1,22,62,39,100/ - (RS.114,93,15,931+7,69, 23,169/ - ),AS PER THE DIRECTIONS OF THE DRP. 7 3.AT THE TIME OF HEARING BEFORE US, THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE STATED THAT THE ISSUE OF SHARE PREMIUM HAS BEEN DECIDED BY THE HONBLE BOMBAY COU RT IN THE CASE OF VODAFONE INDIA SERVICES PRIVATE LIMITED(VISPL)IN WP.871OF 2014 ON 23.07.2014.DEPARTMENT - AL REPRESENTATIVE (DR)FAIRLY CONCEDED THAT THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE SAID JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH CO URT. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT IDENTICAL ISSUE HAD ARISEN IN THE CASE OF VISPL(SUPRA).BRIEFLY STATED IN THE CASE OF VISPLIT WAS FOUND THAT IT WAS A WHOLLY OWNED SUBSIDIARY OF A NON - RESIDENT COMPA NY, VODAFONE TELESERVICES(INDIA)HOLDINGS LIMITED(VTIHL). IT REQUIRED FUNDS FOR ITS TELECOMMUNICATION SERVICES PROJECT IN INDIA FROM IT HOLDING COMPANY I.E. FROM VTIHL DURING THE AY.2009 - 10.ON 21.08. 2008,THE ASSESSEE ISSUED 2,89,224 EQUITY SHARES OF THE FA CE VALUE OF RS.10/ - EACH ON A PREMIUM OF RS.8,509/ - PER SHARE TO VTIHL.THIS RESULTED IN THE ASSESSEE RECEIVING A TOTAL CONSIDERATION OF RS.246.38 CRORES FROM THE HOLDING COMPANY ON ISSUE OF SHARES BETWEEN AUGUST AND NOVEMBER 2008.THE FAIR MARKET VALUE OF T HE ISSUE OF EQUITY SHARES AT RS.8,519/ - PER SHARE WAS DETERMINED BY IT IN ACCORDANCE WITH THE METHODOLOGY PRESCRIBED BY THE GOVERNMENT OF INDIA. ACCORDING TO THE AO AND TRANSFER PRICING OFFICER (TPO), THE ASSESSEE OUGHT TO HAVE VALUED EACH EQUITY SHARE AT R S.53,775/ - AS AGAINST THE AFORESAID VALUATION DONE UNDER THE CAPITAL ISSUES (CONTROL) ACT, 1947 AT RS. 8,519/ - AND ON THAT BASIS SHORTFALL IN PREMIUM TO THE EXTENT OF RS.45,256/ - PER SHARE RESULTED INTO TOTAL SHORTFALL OF RS. 1308.91 CRORES. BOTH THE AO A ND THE TPO ON APPLICATION OF THE TRANSFER PRICING PROVISIONS OF THE ACT HELD THAT THIS AMOUNT OF RS.1308.91 CRORES WAS INCOME. AS A CONSEQUENCE OF THE ABOVE, SAID AMOUNT OF RS.1308.91 CRORES WAS REQUIRED TO BE TREATED AS DEEMED LOAN GIVEN BY THE ASSESSEE T O VTIHL AND PERIODICAL INTEREST THEREON WAS TO BE CHARGED TO TAX AS INTEREST INCOME OF RS.88.35 CRORES IN THE AY.2009 - 10.ACCORDING TO THE ASSESSEE, THE ACT DID NOT TAX INFLOW OF CAPITAL INTO THE COUNTRY NOR DID IT CREATE ANY LEGAL FICTION TO TREAT SUCH ALL EGED SHORTFALL IN CAPITAL RECEIPT ON ISSUE OF EQUITY SHARES BY AN INDIAN COMPANY TO ITS NON - RESIDENT HOLDING COMPANY, AS INCOME. IT WAS ALSO ARGUED THAT THERE COULD BE NO QUESTION OF TREATING THE ALLEGED SHORTFALL AS A DEEMED LOAN OR TAXING THE ALLEGED DEEMED INTEREST ON A DEEMED LOAN. IT WAS CONTENDED THAT THAT PROVISIONS OF CHAPTER X HAD NO APPLICATION IN CASES WHERE NO INCOME WAS ARISING FROM AN INTERNATIONAL TRANSACTION, THAT THE ISSUE OF EQUITY SHARES BY THE ASSESSEE TO VTIHL DID NOT GIVE RISE TO AN Y INCOME FROM INTERNATIONAL TRANSACTION, THAT ARISING OF INCOME ON ACCOUNT OF INTERNATIONAL TRANSACTION WAS A CONDITION PRECEDENT FOR APPLICATION OF CHAPTER X OF THE ACT. DECIDING THE WRIT PETITION, THE HONBLE COURT HELD AS FOLLOW: 24.A PLAIN READING OF SECTION 92(1) OF THE ACT VERY CLEARLY BRINGS OUT THAT INCOME ARISING FROM A INTERNATIONAL TRANSACTION IS A CONDITION PRECEDENT FOR APPLICATION OF CHAPTER X OF THE ACT. THIS HAS ALREADY BEEN SO HELD BY THE ORDER DATED 29 NOVEMBER 2013 OF THIS COURT IN VODA FONE - III. WE 4 ITA NOS.1666&1739/M/2014 MSC CREWING SERVICES P. LTD. COULD HAVE STRAIGHT WAY HELD THAT THE ISSUE OF EXAMINING THE JURISDICTION TO APPLY CHAPTER X OF THE ACT STANDS CONCLUDED BY THE ORDER IN VODAFONE - III. 25.BUT WE HAVE EXAMINED THE ISSUE AFRESH.THE WORD INCOME FOR THE PURPOSE OF THE ACT HAS A WELL UNDERSTOOD MEANING AS DEFINED IN SECTION 2(24) OF THE ACT. THIS EVEN WHEN THE DEFINITION IN SECTION 2(24) OF THE ACT IS AN INCLUSIVE DEFINITION. IT CANNOT BE DISPUTED THAT INCOME WILL NOT IN ITS NORMAL MEANING INCLUDE CAPITAL RECEIPTS UNLESS IT IS SO SPECIFIED, AS IN SECTION 2(24) (VI) OF THE ACT. IN SUCH A CASE, CAPITAL GAINS CHARGEABLE TO TAX UNDER SECTION 45 OF THE ACT ARE, DEFINED TO BE INCOME. THE AMOUNTS RECEIVED ON ISSUE OF SHARE CAPITAL IN CLUDING THE PREMIUM IS UNDOUBTEDLY ON CAPITAL 8 ACCOUNT. SHARE PREMIUM HAVE BEEN MADE TAXABLE BY A LEGAL FICTION UNDER SECTION 56(2)(VIIB) OF THE ACT AND THE SAME IS ENUMERATED AS INCOME IN SECTION 2(24)(XVI) OF THE ACT. HOWEVER, WHAT IS BOUGHT INTO THE AMBI T OF INCOME IS THE PREMIUM RECEIVED FROM A RESIDENT IN EXCESS OF THE FAIR MARKET VALUE OF THE SHARES. IN THIS CASE WHAT IS BEING SOUGHT TO BE TAXED IS CAPITAL NOT RECEIVED FROM A NON - RESIDENT I.E. PREMIUM ALLEGEDLY NOT RECEIVED ON APPLICATION OF ALP. THERE FORE, ABSENT EXPRESS LEGISLATION, NO AMOUNT RECEIVED, ACCRUED OR ARISING ON CAPITAL ACCOUNT TRANSACTION CAN BE SUBJECTED TO TAX AS INCOME. THIS IS SETTLED BY THE DECISION OF THIS COURT IN CADELL WEAVING MILL CO. VS. CIT 249 ITR 265 WAS UPHELD BY THE APEX C OURT IN CIT VS. D.P. SANDU BROS. CHEMBER (P) LTD. 273 ITR 1. THIS COURT HAS IN CADELL WEAVING MILLS CO. (SUPRA) INTER ALIA, OBSERVED AS UNDER: - ' IT IS WELL SETTLED THAT ALL RECEIPTS ARE NOT TAXABLE UNDER THE INCOME TAX ACT. SECTION 2(24) DEFINES 'INCOME'. IT IS NO DOUBT AN INCLUSIVE DEFINITION. HOWEVER, A CAPITAL RECEIPT IS NOT INCOME UNDER SECTION 2(24) UNLESS IT IS CHARGABLE TO TAX AS CAPITAL GAINS UNDER SECTION 45. IT IS FOR THIS REASON THAT UNDER SECTION 2(24)(VI) THAT THE LEGISLATURE HAS EXPRESSLY STA TED, INTER ALIA, THAT INCOME SHALL INCLUDE ANY CAPITAL GAINS CHARGEABLE UNDER SECTION 45. UNDER SECTION 2(24)(VI), THE LEGISLATURE HAS NOT INCLUDED ALL CAPITAL GAINS AS INCOME. IT IS ONLY CAPITAL GAINS CHARGEABLE UNDER SECTION 45 WHICH HAS BEEN TREATED AS INCOME UNDER SECTION 2(24). IF THE ARGUMENT OF THE DEPARTMENT IS ACCEPTED THEN ALL CAPITAL GAINS WHETHER CHARGEABLE UNDER SECTION 45 OF NOT, WOULD COME WITHIN THE DEFINITION OF THE WORD 'INCOME' UNDER SECTION 2(24). FURTHER, UNDER SECTION 2(24)(VI) THE LEG ISLATURE HAS NOT STATED THAT 'ANY CAPITAL GAINS' WILL BE COVERED UNDER THE WORD INCOME. ON THE CONTRARY, THE LEGISLATURE HAS ADVISEDLY STATED THAT ONLY CAPITAL GAINS WHICH ARE CHARGEABLE UNDER SECTION 45 OF THE ACT COULD BE TREATED AS INCOME. IN OTHER WORD S, CAPITAL GAINS NOT CHARGEABLE TO TAX UNDER SECTION 45 FALL OUTSIDE THE DEFINITION OF THE WORD 'INCOME' IN SECTION 2(24) OF THE ACT. IT IS TRUE THAT SECTION 2(24) OF THE ACT IS AN INCLUSIVE DEFINITION HOWEVER, IN THIS CASE, WE ARE REQUIRED TO ASCERTAIN TH E SCOPE OF SECTION 2(24)(VI) AND FOR THAT PURPOSE WE HAVE TO READ THE SUB SECTION STRICTLY. WE CANNOT WIDEN THE SCOPE OF SUB SECTION BY SAYING THAT THE DEFINITION AS A WHOLE IS INCLUSIVE AND NOT EXHAUSTIVE. IN THE PRESENT CASE, THE WORDS 'CHARGEABLE UNDER SECTION 45' ARE VERY IMPORTANT. THEY ARE NOT BEING READ BY THE DEPARTMENT. THESE WORDS CANNOT BE OMITTED. IN FACT, THE PRIOR HISTORY SHOWS THAT CAPITAL GAINS WERE NOT CHARGEABLE BEFORE 1946. THEY WERE NOT CHARGEABLE BETWEEN 1948 AND 1956. THEREFORE, WHENEV ER AN AMOUNT WHICH IS OTHERWISE A CAPITAL RECEIPT IS TO BE CHARGED TO TAX, SECTION 2(24) SPECIFICALLY SO PROVIDES.' IN VIEW OF THE ABOVE, WE FIND CONSIDERABLE SUBSTANCE IN THE ASSESSEE'S CASE THAT NEITHER THE CAPITAL RECEIPTS RECEIVED BY THE ASSESSEE ON I SSUE OF EQUITY SHARES TO ITS HOLDING COMPANY, A NON - RESIDENT ENTITY, NOR THE ALLEGED SHORT - FALL BETWEEN THE SO CALLED FAIR MARKET PRICE OF ITS EQUITY SHARES AND THE ISSUE PRICE OF THE EQUITY SHARES CAN BE CONSIDERED AS INCOME WITHIN THE MEANING OF THE EXPR ESSION AS DEFINED UNDER THE ACT.(EMPHASIS BY US.) WE FIND THAT THE FACTS OF THE CASE UNDER CONSIDERATION ARE SIMILAR TO THE FACT OF VIHPL. HONBLE BOMBAY HIGH COURT HAS HELD THAT THE CAPITAL RECEIPTS RECEIVED BY THE ASSESSEE ON ISSUE OF EQUITY SHARES TO I TS HOLDING COMPANY CANNOT BE CONSIDERED INCOME. RESPECTFULLY, FOLLOWING THE ABOVE JUDGMENT, WE HOLD THAT ADJUSTMENT MADE BY THE AO ON ACCOUNT OF SHARE PREMIUM AND INTEREST CHARGED ON ACCOUNT OF UNDER CHARGED PREMIUM AMOUNT CANNOT BE ENDORSED. WE ALSO HO LD THAT TP PROVISIONS ARE NOT APPLICABLE TO SUCH TRANSACTION. EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 5 ITA NOS.1666&1739/M/2014 MSC CREWING SERVICES P. LTD. AS THE GROUND OF APPEAL TAKEN BY THE AO IS CONSEQUENTIAL TO THE GROUND RAISED BY THE ASSESSEE AND WE HAVE ALREADY DECIDED THE APPEAL OF THE ASSESSEE IN ITS FAVOUR, SO, THE GROUND OF APPEAL FILED BY THE AO IS DECIDED AGAINST HIM. 6. CONSIDERING THE ABOVE AS WELL AS THE UNDISPUTED ISSUE OF THE CAPITAL NATURE OF THE TRANSACTION IN QUESTION, WE ARE OF THE OPINION THAT THE ADJUSTMENTS MADE BY THE TPO ARE OUTSIDE THE SCOPE OF THE TP PROVISIONS . WE ACCORDINGLY ALLOW 9 THE ISSUE RAISED BY THE ASSESSEE IN ITS FAVOUR. THUS, THE GROUNDS RAISED BY THE ASSESSE E ARE ALLOWED. 15. FROM THE ABOVE IT IS VERY CLEAR THAT ADJUSTMENT MADE ON ACCOUNT OF SHARE PREMIUM AND INTEREST CHARGED ON ACCOUNT OF UNDER CHARGED PREMIUM AMOUNT DOES NOT ATTRACT THE TP PROVISIONS. CONSIDERING THE SAME AS WELL AS RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, WE ALLOW THIS ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, RELEVANT GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD ARE ALLOWED. 16. FOURTH ISSUE RELATES TO DISALLOWANCE OF RS. 65,64,655/ - MADE U/S 14A READ WITH RULE 8D OF THE IT RULES, 1962. IN THIS REGARD, IT IS THE CASE OF THE ASSESSEE THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME OR EXEMPT INCOME DURING THE YEAR AND THEREFORE, THE SAID P ROVISIONS OF SECTION 14A OF THE ACT DO NOT ATTRACT. IF FACT, THE SAME WAS SUBMITTED BEFORE THE AO BUT RELYING ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE CO PVT LTD (328 ITR 81) (BOM), AO APPLIED THE PROVISIONS OF RULE 8D OF THE IT RULES, 1962 AND MADE DISALLOWANCE. ON APPEAL, DRP CONFIRMED THE AOS DECISION. AGGRIEVED, ASSESSEE RAISED THE ISSUE BEFORE THE TRIBUNAL. BEFORE US, LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND RELIED ON VARIOUS PRECEDENTS VIZ., JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. LAKHANI MARKETING (P&H) (272 CTR 265); DECISION OF THE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED (ITA NO.749/2014); DECISION OF THE TRIBUNAL IN TH E CASE OF ACIT VS. M. BHASKARAN (152 ITD 844) (MDS. TRIBUNAL) AND OTHERS, COPIES OF WHICH ARE PLACED IN PAPER BOOK PLACED BEFORE US, WHICH ARE RELEVANT FOR THE PROPOSITION THAT SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURIN G THE RELEVANT PREVIOUS YEAR. AFTER HEARING THE LD REPRESENTATIVES OF BOTH THE PARTIES AND ON PERUSAL OF THE DECISIONS CITED BY THE LD COUNSEL FOR THE ASSESSEE, WE AGREE WITH THE RATIO LAID DOWN BY THE SAID PRECEDENTS. WE, RESPECTFULLY FOLLOWING THE ABO VE CITED DECISIONS AND THE RATIO LAID DOWN THEREIN, DIRECT THE AO TO EXAMINE AND APPLY THE SAME TO THE FACTS OF THE PRESENT AND ADJUDICATE THE ISSUE AFRESH AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, THE RELEVANT GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 17. THE LAST ISSUE RELATES TO THE DISALLOWANCE IN RESPECT OF THE ANNUAL INFORMATION REPORT (AIR) QUA RECONCILIATION. RELEVANT FAC TS IN THIS REGARD ARE THAT 10 DURING THE ASSESSMENT PROCEEDINGS, AO ASKED THE ASSESSEE TO RECONCILE THE AMOUNT OF TOUR SALES AS PER THE BOOKS OF ACCOUNT AND AIR STATEMENT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD, AO REJECTED THE SAME AND MADE AN ADDITION OF RS. 1,73,44,191/ - ON ACCOUNT OF TOUR SALES BEING UN - RECONCILED WITH THE AIR STATEMENT IN THE DRAFT ASSESSMENT ORDER. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE DRP, WHEREIN THE DRP GRANTED PART RELIEF TO THE EXTENT OF RS. 1,23,59,044/ - AND CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS. 49,85,147/ - . ACCORDINGLY, AO PASSED THE FINAL ASSESSMENT ORDER CONFIRMING THE DISALLOWANCE OF RS. 49,85,147/ - . AGGRIEVED, WITH THE SAID DECISION OF THE AO, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BEFORE US, LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND SUBMITTED THAT THOUGH THE ASSESSEE OFFERED TO TAX MORE TOUR SALES THAN WHAT THEY APPEAL IN THE AIR STATEMENT AO WANTED RECONCILIATION OF THE TOUR SALES VIS - A - VIS REFLECTED IN THE BOOKS OF ACCOUNT. CONSIDERING THE NATU RE AND SIZE OF THE ASSESSEES BUSINESS, IT IS VERY DIFFICULT FOR THE ASSESSEE TO RECONCILE THE TOUR SALES MERELY ON THE BASIS OF THE EXTRACTS OF THE AIR STATEMENT. FURTHER, HE RELIED ON THE DECISIONS OF THE TRIBUNAL IN THE CASE OF M/S. ANS LAW ASSOCIATES VS. ACIT (ITA NO.5181/M/2012 AND ANOTHER DECISION IN THE CASE OF AEGIS LIMITED IN ITA NO.1213/M/2014, WHICH ARE RELEVANT FOR THE PROPOSITION THAT THE ADDITIONS MADE ONLY ON THE BASIS OF AIR INFORMATION ARE NOT SUSTAINABLE. IN ANY CASE, THE ONUS IS ON THE AO TO PROVE THAT THE ASSESSEE HA D NOT REPORTED ANY TRANSACTION AND IS IN RECEIPT OF INCOME FROM A PARTICULAR SOURCE. 18. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE FACTUAL MATRIX OF THE CASE AS WELL AS ON PERUSAL OF THE DECISIONS CITED BY THE LD AR, WE ARE OF THE OPINION THAT THE ONUS IS ON THE ASSESSING OFFICER TO INFORM THE ASSESSEE GIVING ALL THE DETAILS AS TO ON , ON WHAT ISSUE , THE RECONCILIATION IS REQUIRED, HOW THAT ENTRY RELATES TO THE ASSESSEE ETC . HOW ANY ASSESSEE CAN RECONCILE AN ENTR Y OR TRANSACTION WHICH DOES OT PERTAINS TO HIM. THEREFORE, THE ONUS IS ON THE AO TO INFORM THE SAME. CONSIDERING THE SAME AND THE FINDING OF THE AS SESSING OFFICER THAT NO EXHAUSTIVE EXERCISE OF RECONCILIATION IS UNDERTAKEN BY HIM DURING THE ASSESSMENT, W E FIND NEED FOR REMANDING. ACCORDINGLY, WE REMAND THIS GROUND TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION OF THE ISSUE AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING 11 HEARD TO THE ASSESSEE. ACCORDINGLY, RELEVANT GROUNDS RAISED BY THE ASSE SSEE IN THIS REGARD ARE ALLOWED FOR STATISTICAL PURPOSES. 19. SINCE, THE ISSUES RAISED IN APPEAL ITA NO.7770/M/2014 (AY 2010 - 2011) ARE IDENTICAL TO THAT OF THE ONES ADJUDICATED BY US IN THE ABOVE PARAGRAPHS OF THIS ORDER WHILE DEALING WITH THE ASSESSEES APPEAL FOR THE AY 2009 - 2010, THEREFORE, OUR DECISION GIVEN THEREIN SQUARELY APPLIES TO THE INSTANT APPEAL TOO. CONSIDERING THE SAM E, THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL FOR THE AY 2010 - 2011 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 20. IN THE RESULT, BOTH THE APPEAL S OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCE D IN THE OPEN COURT ON 4 T H NOVEMBER, 2015. SD/ - SD/ - (PAWAN SINGH) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 4 .1 1 .2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI