Aithent Technologies Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1564/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6910 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2002-2003
• Appeal Filed On: 18-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Business income; Transfer pricing; International transaction; Revised return
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.1564/DEL/2015 ASSESSMENT YEAR : 2002-03 AITHENT TECHNOLOGIES PVT. LTD., A-16/9, VASANT VIHAR, NEW DELHI. PAN: AAACS2319H VS. DCIT, CIRCLE-2(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ATUL NINAWAT, CA DEPARTMENT BY : SHRI SANJAY I BARA, CIT, DR DATE OF HEARING : 19.07.2018 DATE OF PRONOUNCEMENT : 23.07.2018 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE FINAL ASSESSMENT ORDER DATED 20.02.2015 PASSED BY THE ASS ESSING OFFICER (A.O.) U/S 254/143(3) READ WITH SECTION 144C OF THE INCOME -TAX ACT, 1961 ITA NO.1564/DEL/2015 2 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2002- 03. 2. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST THE TRANSFER PRICING ADDITION ON ACCOUNT OF INTEREST FREE LOAN GIVEN BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY. BRIEFLY STATED, THE FACTS OF T HE CASE ARE THAT THE ASSESSEE ADVANCED US$ 15,15,000 (CORRESPONDING TO I NDIAN RS.7,39,16,850/-) AS INTEREST FREE LOAN TO ITS ASS OCIATED ENTERPRISE (AE). THE TRANSFER PRICING OFFICER (TPO) TREATED THIS TRANSAC TION OF ADVANCING INTEREST FREE LOAN TO ITS AE AS AN INTERNATIONAL TRANSACTION . HE ADOPTED 10% AS BENCHMARK RATE OF INTEREST WHICH THE ASSESSEE OUGHT TO HAVE CHARGED. THIS RESULTED INTO A TRANSFER PRICING ADDITION OF RS.31, 51,259/-. THE MATTER FINALLY CAME UP FOR CONSIDERATION BEFORE THE TRIBUN AL. VIDE ORDER DATED 09.12.2011 IN ITA NO.3647/DEL/2007, THE TRIBUNAL RE STORED THE MATTER TO THE AUTHORITIES BELOW BY HOLDING THAT THE COMPARAB LE UNCONTROLLED PRICE METHOD (CUP METHOD) SHOULD BE APPLIED AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSA CTION OF INTEREST FREE FOREIGN CURRENCY LOAN GIVEN BY THE ASSESSEE TO ITS SUBSIDIARY. IT FURTHER HELD THAT: THE COMPARABLE TRANSACTION, THEREFORE, SHOUL D BE OF FOREIGN CURRENCY ITA NO.1564/DEL/2015 3 LENDING BY UNRELATED PARTIES. THE ASSESSEE WAS DIR ECTED TO: PROVIDE ALL NECESSARY RELEVANT INPUTS FOR ESTABLISHING THE ALP OF THE TRANSACTION IN ACCORDANCE WITH THE CUP METHOD. PURSUANT TO THE OR DER PASSED BY THE TRIBUNAL, THE TPO TOOK UP THE PROCEEDINGS AFRESH. H E NOTICED THAT CRISIL IS A LEADING CREDIT RATING AGENCY IN INDIA AND THE INSTRUMENTS ISSUED ARE CATEGORIZED IN DIFFERENT RATINGS STARTING FROM AAA TO D. IN THE ABSENCE OF THE ASSESSEE SUPPLYING ANY MATERIAL TO DETERMINE TH E CREDIT RATING OF THE AE, THE TPO HELD THAT CREDIT RATING OF THE AE WOULD FALL SOMEWHERE BETWEEN BB AND D. HE CONSIDERED BB RATING AS A STA RTING POINT FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO N. IN THIS MANNER, HE HELD THAT AS PER THE INFORMATION SUPPLIED BY CRISIL , THE ANNUAL AVERAGE YIELD FOR BB RATED BONDS FOR FIVE YEARS OR MORE TE RM WILL BE AT LEAST LIBOR + 5%. THIS IS HOW, HE COMPUTED THE AMOUNT OF TRANSFER PRICING ADJUSTMENT AT RS.24,60,774/-, WHICH GOT ADDED TO TH E TOTAL INCOME IN THE IMPUGNED ORDER. THE ASSESSEE IS AGGRIEVED AGAINST SUCH ADDITION. 3. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RE LEVANT MATERIAL ON RECORD. THE TRIBUNAL IN ITS ORDER IN THE FIRST ROU ND REMITTED THE MATTER TO THE ASSESSING OFFICER/TPO FOR A FRESH DETERMINATION OF ALP OF THE ITA NO.1564/DEL/2015 4 INTERNATIONAL TRANSACTION OF ADVANCING INTEREST FRE E LOANS TO AE BY DIRECTING TO APPLY THE CUP AS THE MOST APPROPRIATE METHOD AND : BY TAKING INTO ACCOUNT PRICES AT WHICH SIMILAR TRANSACTION WITH UN RELATED PARTIES. IT IS AN UNDISPUTED FACT THAT SUCH ORDER PASSED BY THE TRIBU NAL HAS ATTAINED FINALITY. THUS, THE PRESCRIPTION OF THE TRIBUNAL ORDER IN THE FIRST ROUND, WHICH BECAME CONCLUSIVE AND SET OUT A ROAD MAP FOR THE IN STANT PROCEEDINGS, IS GRAPHICALLY CLEAR, AS PER WHICH THE TPO WAS TO FIND OUT AN UNCONTROLLED COMPARABLE TRANSACTION UNDER THE CUP METHOD FOR BEN CHMARKING THE ASSESSEES INTERNATIONAL TRANSACTION OF INTEREST ON THE INTEREST FREE LOANS GIVEN TO ITS AE. HERE, IT IS IMPORTANT TO MENTION THAT THE LOAN WAS ADVANCED BY THE ASSESSEE IN US DOLLARS AND THE LD. AR ADMITT ED THAT IT WAS ALSO TO BE REPAID IN US DOLLARS. THE HON'BLE JURISDICTIONAL H IGH COURT IN CIT VS. COTTON NATURALS (I) PVT. LTD (2015) 276 CTR 0445 (D EL) HAS HELD THAT THE CURRENCY IN WHICH THE LOAN IS TO BE RE-PAID NORMALL Y DETERMINES THE RATE OF RETURN ON THE MONEY LENT, I.E. THE RATE OF INTEREST . THE VERDICT GIVEN BY THE TRIBUNAL ON THIS COUNT, THUS, ACCORDS WITH THE VIEW EXPRESSED BY THE HONBLE JURISDICTIONAL HIGH COURT. ITA NO.1564/DEL/2015 5 4. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE TPO ADOPTED BONDS HAVING BB RATED RISK ASSIGNED BY CRISIL AND, THEREAFTER, ADDED 500 BASIS POINTS TO LIBOR. IT HAS BEEN MENTIONED IN TH E ORDER THAT THE MARK UP OF 5% WAS ADDED TO LIBOR IN RESPECT OF BB RATED BON DS: ON THE BASIS OF INFORMATION SUPPLIED BY CRISIL. THE LD. AR SUBMITT ED THAT NO SUCH DATA WAS CONFRONTED TO THE ASSESSEE. BE THAT AS IT MAY, IT IS APPARENT THAT THE TPO TRANSGRESSED THE BOUNDARIES SET UP BY THE TRIBU NAL IN ITS ORDER IN THE FIRST ROUND. SINCE THE SAID ORDER HAS ATTAINED FIN ALITY, IT WAS INCUMBENT UPON THE AUTHORITIES TO ABIDE BY THE DIRECTION GIVE N IN THE ORDER, WHICH WAS LIMITED TO APPLYING THE CUP AS THE MOST APPROPRIATE METHOD AND FINDING OUT SOME COMPARABLE UNCONTROLLED TRANSACTION. AS THE A CTION OF THE TPO IN DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO N OF INTEREST ON LOAN GIVEN TO AE IS IN CONTRAVENTION OF THE MANDATE GIVE N BY THE TRIBUNAL IN ITS ORDER, WE CANNOT COUNTENANCE THE SAME. IN SUCH CIR CUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO TH E FILE OF A.O./TPO FOR DECIDING THIS ISSUE AFRESH STRICTLY IN ACCORDANCE W ITH THE DIRECTIONS GIVEN BY THE TRIBUNAL IN THE FIRST ROUND. ITA NO.1564/DEL/2015 6 5. THE ONLY OTHER ISSUE RAISED IN THIS APPEAL IS AG AINST THE REDUCTION IN THE AMOUNT OF DEDUCTION U/S 10B OF THE ACT. THE FA CTUAL MATRIX OF THIS GROUND IS THAT THE ASSESSEE CLAIMED DEDUCTION U/S 1 0B OF THE ACT ON ITS ENTIRE BUSINESS INCOME IN THE ORIGINAL RETURN. HOW EVER, IN THE REVISED RETURN, SUCH CLAIM WAS ENHANCED BY CONSIDERING THE PROFITS EARNED BY ELIGIBLE UNITS ON STANDALONE BASIS AND IGNORING THE LOSSES SUFFERED IN THE OTHER ELIGIBLE UNITS. THE A.O. DID NOT ACCEPT THE ASSESSEES CLAIM. 6. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH TH E RELEVANT MATERIAL ON RECORD. IT IS FOUND THAT THE ISSUE RAISED HEREI N IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPREME COURT I N THE CASE OF CIT & ANR VS. YOKOGAWA INDIA LTD (2017) 391 ITR 274 (SC ) , IN WHICH IT HAS BEEN HELD THAT THE DEDUCTION CONTEMPLATED IS QUA THE ELIGIBLE UNDERTAKING STANDING ON ITS OWN AND WITHOUT REFERENCE TO THE OT HER ELIGIBLE OR NON- ELIGIBLE UNITS OR UNDERTAKINGS OF THE ASSESSEE. IT HAS FURTHER BEEN HELD THAT THE STAGE OF DEDUCTION WOULD BE WHILE COMPUTING THE GROSS TOTAL INCOME OF THE ELIGIBLE UNDERTAKING UNDER CHAPTER IV OF THE AC T AND NOT AT THE STAGE OF COMPUTATION OF THE TOTAL INCOME UNDER CHAPTER VI. THUS, IT IS EXPLICIT THAT FOR THE PURPOSES OF CLAIMING DEDUCTION U/S 10A/10B ETC., THERE IS NO ITA NO.1564/DEL/2015 7 REQUIREMENT TO SET OFF BUSINESS LOSS FROM THE ELIGI BLE UNITS AGAINST THE BUSINESS INCOME FROM THE ELIGIBLE UNITS AND THEN CL AIM DEDUCTION ON NET INCOME. SUCH DEDUCTION HAS TO BE ALLOWED ON STANDA LONE BASIS IN RESPECT OF INCOME EARNED BY THE ELIGIBLE UNITS ALONE. WE, THE REFORE, OVERTURN THE IMPUGNED ORDER ON THIS SCORE AND ORDER TO GRANT THE DEDUCTION U/S 10B ON THE BASIS CLAIMED BY THE ASSESSEE IN THE REVISED RE TURN ON STANDALONE BASIS. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 23.07.201 8. SD/- SD/- [BEENA A. PILLAI] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 23 RD JULY, 2018. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.