Rain Industries Limited, Hyderabad, Hyderabad V. DCIT, Circle-3(1), Hyderabad, Hyderabad

ITA 1728/HYD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2561 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 26-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SRINIVAS
• Keywords: Depreciation; Transfer pricing; Earning of tax free income; Unabsorbed depreciation
• Section: 143(3); 92B; 234B; 14A; 133(6)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 1728/HYD/2016 ASSESSMENT YEAR: 2012-13 RAIN INDUSTRIES LTD., HYDERABAD. PAN AABCP 2276K VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 3(1), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 1729/HYD/2016 ASSESSMENT YEAR: 2012-13 RAIN CEMENTS LTD., HYDERABAD. PAN AABCR 8858F VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 3(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SMT. SUVIBHA NOLKHA REVENUE BY : SHRI D. SRINIVAS DATE OF HEARING : 25-01-2018 DATE OF PRONOUNCEMENT : 31-01-2018 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS ARE FILED AGAINST THE ORDERS PA SSED U/S 143(3) R.W.S. 144C(5) OF THE I.T. ACT, FOR THE AY 2 012-13. AS IDENTICAL ISSUES ARE INVOLVED IN BOTH THESE APPEALS, WE FIND IT CONVENIENT TO DISPOSE OF THE SAME BY A CONSOLIDATED ORDER. ITA NO. 1729/HYD/2016 IN CASE OF RAIN CEMENTS LTD. 2. THE ASSESSEE HAS RAISED THE FOLLOWING THE GROUND S OF APPEAL: 2 ITA NOS. 1728 & 1729 /HYD/2016 RAIN CEMENTS LTD AND RAIN INDUSTRIES LTD. GROUND WITH RESPECT TO ADJUSTMENT ON SHAREHOLDER CO RPORATE GUARANTEE 1. REJECTING THE SUBMISSIONS OF THE COMPANY AND MAK ING TP ADJUSTMENT BY IMPUTING NOTIONAL FEE ON SHAREHOLDERS CORPORATE GUARANTEE, BY TREATING IT AS INTERNATIONAL TRANSACT ION MAKING ADJUSTMENT ON THE SHAREHOLDERS CORPORATE GU ARANTEE PROVIDED TO THE BANK OF THE AE, WITHOUT APPRECIATIN G THE FACT THAT GUARANTEE WAS PROVIDED TO THE AE FOR THE PURPO SE OF ITS BUSINESS OPERATIONS NOT APPRECIATING THAT THE SHAREHOLDERS CORPORATE GU ARANTEE IS NOT COVERED UNDER THE DEFINITION OF INTERNATIONAL T RANSACTION U/S 92B OF THE INCOME-TAX ACT, 1961('THE ACT') NOT APPRECIATING THAT THE AMENDMENT TO SECTION 92B OF THE ACT WOULD NOT APPLY TO THE FACTS OF THE CASE CONSIDERING THE COMMISSION FEE CHARGED BY SBI AS CO MPARABLE, WITHOUT APPRECIATING THAT THE GUARANTEE GIVEN IS A SHAREHOLDER CORPORATE GUARANTEE AS OPPOSED TO COMMERCIAL GUARAN TEE CORPORATE TAX MATTERS GROUND WITH DISALLOWANCE U/S 14A OF THE ACT, READ W ITH RULE 8D OF THE INCOME-TAX RULES, 1962 ('THE RULES') 2. REJECTING THE SUBMISSIONS OF THE COMPANY AND INV OKING THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 19 61 READ WITH RULE 80 OF THE INCOME TAX RULES, 1962. NOT APPRECIATING THAT THE INVESTMENTS ARE MADE OUT OF ACCUMULATED PROFITS AND THE COMPANY HAS NOT INCURRE D ANY EXPENDITURE TO EARN EXEMPT INCOME AND THEREFORE, TH E PROVISIONS OF 14A ARE NOT APPLICABLE TO THE CASE 3. NOT ALLOWING THE SET OFF OF PREVIOUS YEARS' LOSS ES AND UNABSORBED DEPRECIATION. 4. IMPOSITION OF INTEREST OF U/S 234B OF THE ACT ON ADJUSTMENTS MADE TO THE INCOME. 5. SHORT CREDIT OF PREPAID TAXES OF RS. 1,43,24,981 /-. 6. ERRONEOUS CALCULATION OF INTEREST U/S 234D OF TH E ACT. 7. PROVIDING PARTIAL CREDIT OF MAT U/S 115JAA OF TH E ACT. THE APPELLANT CRAVES, TO CONSIDER EACH OF THE ABOVE GROUNDS OF APPEAL WITHOUT PREJUDICE TO EACH OTHER AND CRAVES L EAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GRO UNDS OF APPEAL. 3 ITA NOS. 1728 & 1729 /HYD/2016 RAIN CEMENTS LTD AND RAIN INDUSTRIES LTD. 3. AS REGARDS GROUND NO. 1 WITH RESPECT TO ADJUSTME NT ON SHAREHOLDER CORPORATE GUARANTEE, DURING THE AY UNDE R CONSIDERATION, THE ASSESSEE HAD TRANSACTIONS IN THE NATURE OF CORP ORATE GUARANTEE ISSUED TO RAIN CII CARBON LLC, USA INC. WHEREIN THE ASSESSEE HAS GUARANTEED THE LOANS AVAILED BY ITS AES AND TPO NOT ED THAT NO FEES WAS CHARGED FOR SUCH GUARANTEE. THE TPO ANALYSED TH E INTEREST COVERAGE RATIO AND THE DEBT EQUITY RATIO OF THE ASS ESSEE AND ITS AE, OBSERVED THAT THE ASSESSEE WAS SHOWING LOWER DEBT E QUITY RATIO AND HIGHER INTEREST COVERAGE AND HENCE ENJOYS A BETTER CREDIT RATING AS COMPARED TO ITS AE. THUS, HE WAS OF THE OPINION THA T THE GUARANTEE GIVEN BY THE ASSESSEE CONVERTED A RISKY LOAN INTO A RISK FREE LOAN TO THE BANKERS, WHICH PROVIDED LOANS TO THE ASSESSEES AE IN USA AND THEREFORE, ASSESSEE CARRIES HUGE COSTS IN TERMS THE RISKS TAKEN AND THEREFORE IS REQUIRED TO BE COMPENSATED IN THE FORM OF FEE FOR PROVIDING THE BANK GUARANTEE AND THAT THE ASSESSEE OUGHT TO HAVE CHARGED THE GUARANTEE COMMISSION ON THE CORPORATE G UARANTEE GIVEN BY IT. THE TPO, AFTER GATHERING INFORMATION FROM SB I BY ISSUE OF NOTICE U/S 133(6) WHICH CLEARLY STATED THAT THE RATES CHAR GED BY THE BANK ON BANK GUARANTEE ARE IN THE RANGE OF 0.175% PM UPTO 5 CRORES AND 0.15% PM ABOVE 10 CRORES, WORKED OUT THE FEE THAT W OULD BE CHARGEABLE ON THE AMOUNT OF LOAN/CORPORATE GUARANTE E WOULD BE 0.15 X 12 MONTHS = 1.80%. ACCORDINGLY, THE TPO HELD THAT AN AMOUNT OF 2% PER ANNUM ON THE OPENING BALANCE OR THE MAXIMUM DURING THE YEAR AT AN APPROPRIATE CONVERSIONAL RATE WOULD BE T HE ARMS LENGTH PRICE. THUS, HE COMPUTED THE ADJUSTMENT FOR THE PUR POSE OF ARMS LENGTH PRICE OF CORPORATE GUARANTEE AT RS. 3,97,14, 000/- AND SUGGESTED THE ADJUSTMENT U/S 92CA OF THE ACT. 3.1 WHEN THE ASSESSEE OBJECTED BEFORE THE DRP, THE DRP DIRECTED THE AO TO RECOMPUTE THE ALP OF THE GUARANTEE @ 1.80 %. AS PER THE DIRECTIONS, THE AO RECOMPUTED THE GUARANTEE AT RS. 3,57,42,600/-. 4 ITA NOS. 1728 & 1729 /HYD/2016 RAIN CEMENTS LTD AND RAIN INDUSTRIES LTD. 4. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF T HE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2009 -10 & 2010-11 VIDE ORDER DATED 26/04/2017 IN ITA NO. 222/HYD/14 A ND 309/HYD/2015 AND OTHERS AND IN THE GROUP CASES OF THE ASSESSEE. SHE FURTHER SUBMITTED THAT IN M.A. NO. 32 & 33/HYD/2017, THE HO NBLE ITAT HAS ALLOWED THE CONTENTION OF THE ASSESSEE THAT AMENDME NT TO SECTION 92B IS APPLICABLE PROSPECTIVELY AND ACCORDINGLY DEL ETED THE CORPORATE GUARANTEE ADDITION. COPIES OF THE SAID ORDERS ARE ON RECORD. 6. THE. LD. DR ON THE OTHER HAND, NEITHER CONTROVER TED THE SUBMISSION OF THE AR NOR BROUGHT ANY CONTRARY DECIS ION IN THIS REGARD. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE COORDINATE BENCH IN ASSESS EES OWN CASES AND ITS GROUP CASES HELD THAT AMENDMENT TO SECTION 92B ARE APPLICABLE PROSPECTIVELY FROM AY 2013-14. THEREFORE , THE AMENDED PROVISION IS NOT APPLICABLE TO THE PRESENT AY UNDER CONSIDERATION. THEREFORE, THE GROUND RAISED BY THE ASSESSEE IS ALL OWED. 8. AS REGARDS GROUND NO. 2 RELATES TO DISALLOWANCE U/S 14A OF THE ACT, THE AO NOTICED FROM THE NOTE 13 OF THE BALANCE SHEET THAT THE ASSESSEE COMPANY HAS INVESTMENTS TO THE TUNE OF RS. 4,16,47,86,500/- AS ON 31/03/2013. ACCORDING TO THE AO, SINCE THE ASSESSEE HAS INVESTMENTS, INCOME ARISING FROM WHICH IS EXEMPT IN NATURE, DISALLOWANCE U/S 14A IS SQUARELY APPLICABLE TO ASSESSEES CASE. THE AO RELYING ON CBDT CIRCULAR NO. 5/2014, D ATED 11 FEBRUARY, 2014, COMPUTED THE DISALLOWANCE AT RS. 7, 47,500/-. WHEN THE ASSESSEE OBJECTED THE SAME BEFORE THE DRP, THE DRP CONFIRMED THE DISALLOWANCE. 5 ITA NOS. 1728 & 1729 /HYD/2016 RAIN CEMENTS LTD AND RAIN INDUSTRIES LTD. 9. BEFORE US, LD. AR SUBMITTED THAT THE INVESTMENT MADE IN MOONGLOW COMPANY BUSINESS INC. BVI OF RS. 4,01,52,8 6,500/- IS OVERSEAS INVESTMENT AND THE DIVIDEND EARNED THEREFR OM IS TAXABLE IN INDIA. SHE RELIED ON THE DECISION OF THE COORDINATE BENCH OF ITAT, DELHI IN THE CASE OF INTERGLOBE ENTERPRISES LTD. VS . DCIT IN ITA NOS. 1362 & 1032/DEL/2013, ORDER DATED 04/04/2014. FURTH ER, SHE SUBMITTED THAT THE INVESTMENT IN APGPCL DOES NOT GE NERATE ANY EXEMPT INCOME AS IT IS INVESTED TO GET THE POWER SU PPLY AT CONCESSIONAL RATE. THE BENEFIT DERIVED BY THE ASSES SEE BY VIRTUE OF INVESTMENT IS NOT DIVIDEND INCOME BUT GETS POWER AT SUBSIDIZED RATES. THIS BENEFIT IS NOT EXEMPT FROM TAX. THEREFORE, THI S INVESTMENT SHOULD BE EXCLUDED FROM CALCULATION OF RULE 8D(2)(III). 10. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 11. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WITH REGARD TO INVESTMENT IN APGPCL, THE CO ORDINATE BENCH HAS REMITTED THIS ISSUE BACK TO THE FILE OF THE AO TO VERIFY THE CONTENTION OF THE ASSESSEE AND, IF, FOUND CORRECT, THE INVESTMENT SHOULD BE EXCLUDED FROM THE CALCULATION UNDER RULE 8D(2)(III). THEREFORE, WE ARE ALSO INCLINED TO REMIT THIS ISSUE BACK TO THE FILE OF THE AO TO VERIFY THE CONTENTION OF THE ASSESSEE. 11.1 WITH REGARD TO INVESTMENT IN MOONGLOW COMPANY, WHICH IS OVERSEAS INVESTMENT, WE DIRECT THE AO TO INCLUDE TH OSE INVESTMENTS WHICH HAVE GENERATED EXEMPT INCOME AND EXCLUDE THOS E WHICH HAVE GENERATED TAXABLE INCOME OR NOT GENERATED ANY INCOM E AS PER THE PROVISIONS OF SECTION 14A, AS PER WHICH, WE HAVE TO EXCLUDE THOSE EXPENSES WHICH ARE CONNECTED WITH THE GENERATION OF EXEMPT INCOME. THEREFORE, GROUND RAISED BY THE ASSESSEE IN THIS RE GARD IS ALLOWED FOR STATISTICAL PURPOSES. 6 ITA NOS. 1728 & 1729 /HYD/2016 RAIN CEMENTS LTD AND RAIN INDUSTRIES LTD. 12. AS REGARDS GROUND NO. 3 WITH REGARD TO SET OFF OF PREVIOUS YEARS LOSSES AND UNABSORBED DEPRECIATION, THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS. 28,44,89,547/ - TOWARDS SET OFF OF CARRY FORWARD LOSSES. ON VERIFICATION OF EAR LIER YEARS, THE AO NOTICED THAT THE ASSESSEE WAS HAVING TAXABLE INCOME AND THE TOTAL INCOME WAS ASSESSED AT RS. 95,82,89,690/- WHILE PAS SING THE ORDER U/S 143(3) R.W.S. 144C(1) R.W.S. 144C(5) OF THE ACT ON 29/01/2016. HE WAS, THEREFORE, OF THE VIEW THAT THE ASSESSEE IS NO T HAVING ANY SET OFF OF CARRY FORWARD LOSSES. ACCORDINGLY, HE REJECTED T HE ASSESSEES CLAIM. 13. WHEN THE ASSESSEE RAISED OBJECTION BEFORE THE D RP, THE DRP REMITTED THE MATTER TO THE FILE OF THE AO TO VERIFY THE CLAIM OF THE ASSESSEE WITH REFERENCE TO RECORDS AND TAKE APPROPR IATE ACTION AS PER LAW. 14. AS REGARDS GROUND NOS. 4 & 6 REGARDING IMPOSIT ION OF INTEREST U/S 234B AND 234D, GROUND NO. 5 REGARDING SHORT CREDIT OF PREPAID TAXES OF RS. 1,43,24,981/- AND GROUND NO. 7 REGARDING PRO VIDING PARTIAL CREDIT OF MAT U/S 115JAA, THE DRP REMITTED THESE GR OUNDS TO AO FOR VERIFICATION AND DECIDE AS PER LAW. 15. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. THE DRP HAS ALREADY REMITTED THESE ISSUES B ACK TO THE FILE OF THE AO TO VERIFY THE CONTENTION OF THE ASSESSEE AND GAVE DIRECTIONS ACCORDINGLY. WE DO NOT SEE ANY MERIT IN GIVING ANY FRESH DIRECTION IN THIS REGARD. ASSESSEE IS DIRECTED TO FILE RELEVANT INFORMATION BEFORE THE AO AND AVAIL THE BENEFIT AS PER THE DIRECTIONS OF DRP. THEREFORE, GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED. 7 ITA NOS. 1728 & 1729 /HYD/2016 RAIN CEMENTS LTD AND RAIN INDUSTRIES LTD. ITA NO. 1728/HYD/2016 IN CASE OF RAIN INDUSTRIES LT D. 16. GROUND NO. 1 REGARDING CORPORATE GUARANTEE IS SIMILAR TO THE GROUND DECIDED IN THE CASE OF RAIN CEMENTS LTD., (S UPRA). THEREFORE, FOLLOWING THE DECISION THEREIN, WE ALLOW THIS GROUN D. 17. GROUND NO. 2 REGARDING DISALLOWANCE U/S 14A, IS SIMILAR TO THE GROUND DECIDED IN THE CASE OF RAIN CEMENTS LTD., (S UPRA). THEREFORE, FOLLOWING THE DECISION THEREIN, WE REMIT THIS ISSUE ALSO BACK TO THE FILE OF AO. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STAT ISTICAL PURPOSES. 18. GROUND NO. 3 RELATING TO NOT PROVIDING CREDIT O F PREPAID TAXES TO THE TUNE OF RS. 4,15,20,730/-, IS SIMILAR TO THE GR OUND DECIDED IN THE CASE OF RAIN CEMENTS LTD., (SUPRA). THEREFORE, FOLL OWING THE DECISION THEREIN, THIS GROUND IS REJECTED. 19. GROUND NO. 4 REGARDING TAXING INCOME FROM FOREI GN DIVIDEND AT NORMAL RATES OF TAX AT 30%, AS AGAINST THE SPECIFIC RATE OF 15% AS PER SECTION 115BBD OF THE ACT, WAS NOT PRESSED AT THE T IME OF HEARING BEFORE US, THEREFORE, THE SAME IS DISMISSED IS NOT PRESSED. 20. GROUND NO. 5 & 6 REGARDING LEVY OF INTEREST U/S 234B AND 234C IS CONSEQUENTIAL IN NATURE. 21. IN THE RESULT, BOTH THE APPEALS UNDER CONSIDER ATION ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2018. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHMAN) VICE PRESIDENT A CCOUNTANT MEMBER HYDERABAD, DATED: 31 ST JANUARY, 2018. 8 ITA NOS. 1728 & 1729 /HYD/2016 RAIN CEMENTS LTD AND RAIN INDUSTRIES LTD. KV COPY TO:- 1)RAIN CEMENTS LTD. 2) RAIN INDUSTRIES LTD., R AIN CENTRE 34, SRINAGAR COLONY, HYDERABAD 500 073. 3)DCIT, CIRCLE 3(1), 7 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD 4) DRP, BENGALURE, 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6) GUARD FILE S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER