Astral Poly Technik Pvt. Ltd., Ahmedabad V. The Jt.CIT(OSD)., Circle-1(1)(1), Ahmedabad

ITA 1775/AHD/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0187 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-09-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 09-08-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Notional interest; Commercial expediency; Set aside
• Section: 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD [CONDUCTED THROUGH VIRTU AL COURT] BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER& MS. MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NO. 1775/AHD/2018 ( / ASSESSMENT YEAR : 2014-15) ASTRAL POLY TECHNIK PVT. LTD. 207, ASTRAL HOUSE, B/H. RAJPATH CLUB, S. G. HIGHWAY, AHMEDABAD 380054 / VS. DCIT CIRCLE 1(1)(1), A-WING, 309, 3 RD FLOOR, PRATYAKSHKARBHAVAN, NR. PANJRAPOLE, AMBAWADI, AHMEDABAD 380015 ./ ./ PAN/GIR NO. : AABCA2951N ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI VARTIK CHOKSHI, A.R. / RESPONDENTBY: SHRI DILIP KUMAR, SR. D.R. / DATE OF HEARING 04/06/2020 !'# / DATE OF PRONOUNCEMENT 25/06/2020 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER DATED 28.06.2018 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) 1, AHMEDABADARISING OUT OF THE ORDER DATED 25.01.2018 PASSED BY THE JCIT (OSD), CIRCLE- 1(1)(1), AHMEDABAD UNDER SECTION 143(3)R.W.S. 144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS TO THE ACT) FOR ASSESSME NT YEAR 2014-15. ITA NO.1775/AHD/2018 ASTRAL POLY TECHNIK PVT. LTD.VS.DCIT ASST.YEAR 2014-15 - 2 - 2. FIRST GROUND RELATES TO CONFIRMATION OF DISALLOW ANCE OF EMPLOYEES CONTRIBUTION TO PF AND ESI FOR RS.19,05,301/- MADE BY THE AO. 3. HEARD THE PARTIES AND PERUSED THE RECORDS. THE LEARNED AO MADE THE ADDITION ON ACCOUNT OF DISALLOWANCE OF EMPLOYEES CONTRIBUTI ON TO PF AND ESIC FOR VIOLATION OF THE PROVISIONS OF SECTION 36(1)(VA) R.W.S. 2(24)(X) OF THE ACT. IT IS THE CASE OF THE ASSESSEE THAT SUCH DISALLOWANCES ARE NOT CORRECT. OUT OF ALL PAYMENTS OF EMPLOYEES CONTRIBUTION TO PF AND ESIC, THERE ARE ONLY FOUR IN STANCES WHERE THERE WAS ACTUAL DELAY FROM THE DUE DATE PRESCRIBED BY THE ACT. A CHART C ONTAINING SUCH DETAILS OF PAYMENTS HAS ALSO BEEN FILED BY THE ASSESSEE BEFORE US FROM WHICH IT APPEARS THAT AN AMOUNT OF RS.31,018/- HAS BEEN PAID LATE I.E. ON 14.08.2013 W HEN THE DUE DATE WAS 20.07.2013. THE PROOFS OF PAYMENTS MADE TOWARDS EMPLOYEES CONT RIBUTION OF PF WHICH HAS CLAIMED TO HAVE BEEN MADE WITHIN DUE DATE PRESCRIBE D BY PF ACT I.E. 20 TH OF THE NEXT MONTH ARE ALSO APPEARING FROM PAGE NOS. 1 TO 12 OF THE PAPER BOOK FILED BEFORE US. IN THAT VIEW OF THE MATTER, WE FIND FORCE IN THE SUBMI SSIONS MADE BY THE LEARNED COUNSEL AND THEREFORE, WE SET ASIDE THE ISSUE TO THE LEARNE D AO TO TAKE INTO CONSIDERATION THE ENTIRE DETAILS FILED BY THE ASSESSEE REGARDING PAYM ENT MADE TOWARDS EMPLOYEES CONTRIBUTION TO PF AND ESIC AND TO GIVE RELIEF TO T HAT PARTICULAR AMOUNT WHICH HAS BEEN PAID IN TIME AS PRESCRIBED IN THE CONCERNED ACTS TA KING INTO CONSIDERATION THE JUDGMENT PASSED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GSRTC [2014] 366 ITR 170 (GUJ.). HENCE, FIRST GROUND OF ASSESSEES APPEAL IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. 4. THE NEXT GROUND RELATES TO CONFIRMATION OF THE U PWARD TRANSFER PRICING ADJUSTMENT OF RS.17,21,746/- IN RESPECT OF THE APPE LLANTS INTERNATIONAL TRANSACTIONAL OF SHARE CAPITAL SUBSCRIPTION INTO ITS ASSOCIATED ENTE RPRISE (AE) ASTRAL PIPES LTD. BY RE- CHARACTERIZING A SHARE SUBSCRIPTION TRANSACTION AS A TRANSACTION OF ADVANCING OF LOAN AND HOLDING THE APPELLANTS INTERNATIONAL TRANSACTION I S NOT AT ARMS LENGTH BY THE REVENUE. THE ALTERNATIVE CLAIM OF THE ASSESSEE TO RESTRICT T HE TRANSFER PRICING ADJUSTMENT TO ITA NO.1775/AHD/2018 ASTRAL POLY TECHNIK PVT. LTD.VS.DCIT ASST.YEAR 2014-15 - 3 - RS.3,53,108/- HAS ALSO NOT BEEN TAKEN INTO CONSIDER ATION BY THE LEARNED CIT(A) BY NOT ADHERING TO THE RBI MASTER CIRCULAR NO. 15/2014-15 DATED 01.07.2014PERMITTING 180 DAYS TO ALLOT EQUITY SHARES/PREFERENCE SHARES FROM THE DATE OF RECEIPT HAS ALSO BEEN CHALLENGED BEFORE US. 5. THE CASE OF THE APPELLANT IS THIS THAT THE COMPA NY HAS INFUSED SHARE APPLICATION MONEY IN ITS AE, ASTRAL PIPES LTD. BEING A JOINT VE NTURE ENTITY WHERE THE APPELLANT COMPANY OWNS ONLY 37.5% EQUITY STAKE. IT IS THE CA SE OF THE ASSESSEE THAT THE JOINT VENTURE PARTNERS ARE REQUIRED TO CONTRIBUTE THEIR R ESPECTIVE SHARE OF APPLICATION MONEY AND UNLESS THE SAID PARTNERS MAKE CONTRIBUTION EQUI VALENTS TO THEIR RESPECTIVE STAKES,THE JOINT VENTURE COMPANY CANNOT PROCEED TO ALLOT ITS S HARES. CONSIDERING THIS PARTICULAR ASPECT, THERE HAS BEEN DELAY IN ALLOTMENT OF SHARES BY THE AE AGAINST THE APPLICATION MONEY ADVANCED BY THE ASSESSEE COMPANY. IT IS FURT HER THE CASE OF THE APPELLANT THAT IT HAS SELECTED EQUITY AS A METHOD OF FUNDING REQUIREM ENT OF THE AE. ONCEFORM OF TRANSACTION SELECTED IN A PARTICULAR MANNER, IT CAN NOT BE RE-CHARACTERIZED FOR BENCHMARKING PURPOSES. SUCH AMOUNTS WERE GIVEN AS SHARE APPLICATION AND ULTIMATELY CONVERTED INTO SHARE CAPITAL WHICH HAS NOT BEEN DIS PUTED BY THE REVENUE AND IN THE ABSENCE OF ANY EVIDENCE CONTRARY TO THAT SUCH TRANS ACTION CANNOT BE DISREGARDED AND BE TREATED THE SAME AS LOANS AND ADVANCES FOR IMPUTATI ON OF INTEREST THEREON. BUT, IT APPEARS THAT THE TPO HAS ASSUMED THE TRANSACTION TO BE IN THE NATURE OF LOAN AND APPLIED INTEREST RATE OF 3.006%FOR 260 DAYS I.E. PERIOD FRO M ADVANCING SHARE APPLICATION MONEY TILL THE SHARES WERE ALLOTTED; AN ADDITION OF RS.17 ,21,746/- WAS MADE. HOWEVER, THE SAID RATE OF 3.0006% WAS RESTRICTED TO 2% BY MAKING AN A DDITION OF RS.11,47,601/-. IT IS FURTHER THE CASE OF THE ASSESSEE THAT SUCH RE-CHARA CTERIZATION CAN BE DONE BY THE REVENUE AUTHORITIES WHEN THE TRANSACTIONS ARE FOUND TO BE SUBSTANTIALLY AT VARIANCE WITH THE STATED FORM. IN THE PRESENT CASE, THERE CANNOT EVEN ASUGGESTION TO HOLD THAT THIS IS A BOGUS TRANSACTION SINCE THE SUBSCRIBED SHARE CAPITA L HAS INDEED BEEN ALLOTTED TO THE APPELLANT. IN THE IDENTICAL SET OF FACTS, THE APPEL LANT URGED UPON THE JUDGMENT PASSED BY ITA NO.1775/AHD/2018 ASTRAL POLY TECHNIK PVT. LTD.VS.DCIT ASST.YEAR 2014-15 - 4 - THE HONBLE BOMBAY HIGH COURT IN THE MATTER OF PCIT VS. M/S. STERLING OIL RESOURCES LTD.ITA NO. 341 OF 2017 ORDER DATED 1 ST JULY, 2019. 6. HOWEVER, AN ALTERNATIVE ARGUMENT HAS ALSO BEEN A DVANCED BY THE LD. AR TO THIS EFFECT THAT IN THE EVENT THE TRIBUNAL FINDS IT DEBT BUT NO EQUITY, ADJUSTMENT COULD BE CONFINED ONLY TO 80 DAYS IN VIEW OF THE PARTICULAR FACT THE SHARE WAS ALLOTTED AFTER 260 DAYS AND NOT WITHIN 180 DAYS BEING THE PERMISSIBLE LIMIT AS PER THE RBI MASTER CIRCULAR NO. 15/2014-15 DATED 01.07.2014. IN THIS REGARD, H E ALSO RELIED UPON THE JUDGMENT PASSED BY THE LD. CIT(A) IN MATTER FOR TORRENT PHAR MACEUTICALS LTD. FOR A.Y. 2012-13 DATED 23.03.2018. A COPY WHEREOF HAS ALSO BEEN HAN DED OVER TO US. 7. THE LD. DR RELIED UPON THE ORDER PASSED BY THE L D. CIT(A). 8. WE HAVE HEARD THE PARTIES AND PERUSED THE RELEVA NT MATERIALS AVAILABLE ON RECORD. SO FAR AS THE RE-CHARACTERIZATION OF THE TRANSACTI ON IS CONCERNED THE CASE OF THE ASSESSEE IS THIS THAT AFTER 240 DAYS, THE SHARE WAS ALLOTTED INSTEAD OF 180 DAYS AS STIPULATED BY THE RBI CIRCULAR BUT THE AO TREATED T HE ENTIRE TRANSACTION AS ON LOANS. THE ASSESSEE JOINS ISSUE HERE TO THIS EFFECT THAT THE T PO CANNOT QUESTION THE COMMERCIAL EXPEDIENCY OF THE ASSESSEE ENTERED INTO SUCH TRANSA CTION, NEITHER CANNOT DISREGARD THE APPELLANT TRANSACTION AND SUBSTITUTE THE SAME WITHO UT ANY MATERIAL OF EXCEPTIONAL CIRCUMSTANCES POINTING OUT THAT THE ASSESSEE HAD TR IED TO CONCEAL THE REAL TRANSACTION OR THE TRANSACTION IN QUESTION WAS SHAM. IN THIS REGA RD WE HAVE CAREFULLY CONSIDERED THE JUDGMENT PASSED BY THE HONBLE BOMBAY HIGH COURT IN THE MATTER OF PCIT VS. M/S. STERLING OIL RESOURCES LTD. ITA NO. 341 OF 2017 BY ITS ORDER DATED 1 ST JULY, 2019 WHEREIN IT HAS BEEN PLEASED TO HOLD THAT THE TPO CA NNOT QUESTION THE COMMERCIAL EXPEDIENCE OF THE ASSESSEE ENTERED INTO SUCH TRANSA CTION. WHEN NOTHING HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO SUGGEST THAT TH E TRANSACTION IS SHAM, THE TPO HAS NO AUTHORITY TO TREAT SUCH TRANSACTION AS A LOAN AN D CHARGE INTEREST THEREON ON NOTIONAL BASIS. THE RELEVANT PORTION DISCUSSING THE ISSUE I S AS FOLLOWS: ITA NO.1775/AHD/2018 ASTRAL POLY TECHNIK PVT. LTD.VS.DCIT ASST.YEAR 2014-15 - 5 - 5. THE FACTS AS NOTED, ARE NOT SERIOUSLY IN DISPUT E. THE ASSESSEE'S SHARE APPLICATION MONEY REMAINED WITH ITS AE FOR A CONSIDERABLE PERIO D OF TIME BEFORE THE SHARES WERE ALLOTTED. THE ASSESSING OFFICER, THEREFORE, TREATED THIS TRANSACTION AS ONE OF LOANS. IT WAS UNDER SIMILAR CIRCUMSTANCES THAT THIS COURT DIS MISSED REVENUE'S INCOME TAX APPEAL NO.1248/2016 VIDE ORDER DATED 28 TH JANUARY 2019 MAKING FOLLOWING OBSERVATIONS: '2. THE RESPONDENT- ASSESSEE IS A COMPANY REGISTERE D UNDER THE COMPANIES ACT. FOR THE ASSESSMENT YEAR 2009-10, THE ASSESSEE WAS SUBJECTED TO TRANSFER PRICING REGIME. QUESTION NO.1 ARISES OUT OF THE ACT ION OF THE REVENUE TO TAX NOTIONAL INTEREST IN THE HANDS OF THE ASSESSEE THRO UGH TRANSFER PRICING. THE FACTS ARE THAT, DURING THE PERIOD RELEVANT TO THE ASSESSM ENT YEAR IN QUESTION, THE ASSESSEE HAD SUBSCRIBED TO REDEEMABLE PREFERENTIAL SHARES OF ITS ASSOCIATED ENTERPRISES ('AE' FOR SHORT) AND REDEEMED SOME OF I TS SHARES AT PAR. THE TRANSFER PRICING OFFICER ('TPO' FOR SHORT) HELD THA T THE PREFERENCE SHARES WERE EQUIVALENT TO INTEREST FREE LOANS ADVANCED BY THE A SSESSEE AND ACCORDINGLY CHARGED THE INTEREST ON NOTIONAL BASIS. THE TRIBUNA L BY THE IMPUGNED JUDGMENT, DELETED THE ADDITION OBSERVING THAT THE TPO HAD RE- CHARACTERISED THE TRANSACTION OF SUBSCRIPTION OF SHARES INTO ADVANCIN G OF UNSECURED LOANS. THE TRIBUNAL DID NOT ACCEPT SUCH CONCLUSION, INTER-ALIA ON THE GROUNDS THAT THE TPO CANNOT DISREGARD THE APPARENT TRANSACTION AND SUBST ITUTE THE SAME WITHOUT ANY MATERIAL OF EXCEPTIONAL CIRCUMSTANCES POINTING OUT THAT THE ASSESSEE HAD TRIED TO CONCEAL THE REAL TRANSACTION OR THAT THE TRANSAC TION IN QUESTION WAS SHAM. THE TRIBUNAL OBSERVED THAT THE TPO CANNOT QUESTION THE COMMERCIAL EXPEDIENCY OF THE ASSESSEE ENTERED INTO SUCH TRANSA CTION. 3. WE ARE BROADLY IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL. THE FACTS ON RECORD WOULD SUGGEST THAT THE ASSESSEE HAD ENTERED INTO A TRANSACTION OF PURCHASE AND SALE OF SHARES OF AN AE. NOTHING IS BR OUGHT ON RECORD BY THE REVENUE TO SUGGEST THAT THE TRANSACTION WAS SHAM. I N ABSENCE OF ANY MATERIAL ON RECORD, THE TPO COULD NOT HAVE TREATED SUCH TRAN SACTION AS A LOAN AND CHARGED INTEREST THEREON ON NOTIONAL BASIS. NO QUES TION OF LAW ARISES.' 6. INCOME TAX APPEAL NO.1583/2016 HAS BEEN FILED BY THE ASSESSEE. IT IS A CASE IN WHICH THE TRIBUNAL HAS TAKEN A CONVERSE DECISION AN D, THEREFORE, THE ASSESSEE IS IN APPEAL. ADMISSION OF THE SAID APPEAL, THEREFORE, WO ULD NOT PERSUADE US TO ADMIT THE REVENUE'S APPEAL ALSO. IN THE RESULT, INCOME TAX AP PEAL IS DISMISSED. RESPECTFULLY RELYING UPON THE RATIO LAID DOWN BY T HE SAID JUDGMENT WE ARE AGREED TO THE PROPOSITION. 9. HOWEVER, SO FAR AS THE DELAY OF 80 DAYS IS CONCE RNED WE HAVE CONSIDERED THE SUBMISSION MADE BY THE AR IN CHARGING INTEREST ONLY ON THE PERIOD OF DELAY. THE ITA NO.1775/AHD/2018 ASTRAL POLY TECHNIK PVT. LTD.VS.DCIT ASST.YEAR 2014-15 - 6 - JUDGMENT CITED BY THE LD. AR IN THE CASE OF TORRENT PHARMACEUTICALS LTD. FOR A.Y. 2012-13 DATED 23.03.2018 HAS ALSO BEEN CONSIDERED B Y US. THE RELEVANT PORTION WHEREOF IS AS FOLLOWS:- 17.8 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE AS WELL AS CHAIN OF DECISIONS RELIED UPON BY HIM TO SUPPORT HI S CONTENTION THAT THE TPO DOES NOT HAVE THE POWER TO RE-CHARACTERIZE THE TRANSACTION FROM E QUITY TO DEBT. ON ANALYSIS OF THE FACTS, IT IS NOTICED THAT THERE IS A DELAY ON ONLY 4 DAYS I A LLOTMENT OF SHARES BY THE APPELLANT. THE APPELLANT HAS ALSO MADE AN ALTERNATIVE ARGUMENT THA T IF THE CONTENTION OF RE- CHARACTERIZATION IS NOT ACCEPTED THE ADJUSTMENT SHO ULD BE CONFINED ONLY TO 4 DAYS I.E. THE INORDINATES DELAY CAUSED BY ZAO TORRENT PHARMA, RUS SIA TO ALLOT THE SHARES AGAINST THE MONEY CONTRIBUTED. SINCE IN THIS CASE THERE IS A D ELAY OF ONLY 4 DAYS I ALLOTMENT OF SHARES WHICH IS IN CONTRAVENTION TO THE RBI GUIDELINES, TH ERE IS MERIT IN THE ALTERNATE ARGUMENT OF THE APPELLANT THAT IF INTEREST IS TO BE CHARGED IT CAN BE CHARGED ONLY FOR THE PERIOD OF DELAY. ACCORDINGLY, THE INTEREST IS CHARGED ONLY FOR 4 DAY S I.E. THE DELAY BEYOND THE PERMISSIBLE LIMIT OF 180 DAYS WHICH COMES TO RS. 89,934/- (RS. 27,20,516 / 121 X 4). HENCE, THE ADDITION ON THIS ACCOUNT IS RESTRICTED TO RS. 89,93 4/-. THIS GROUND OF APPEAL IS ACCORDINGLY PARTLY ALLOWED. THEREFORE, TAKING INTO CONSIDERATION THE ENTIRE AS PECT OF THE MATTER, THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT ON THE QUESTI ON OF TPOS JURISDICTION IN QUESTIONING THE COMMERCIAL EXPEDIENCY OF THE ASSESS EE OR SUGGESTING THIS TRANSACTION SHAM AND ALSO THE FACT OF CHARGING INTEREST ON TH E PERIOD OF DELAY IN VIEW OF THE MASTER CIRCULAR 15/2014-15 DATED 01.07.2014, WE ARE OF HE CONSIDERED OPINION OF RESTRICT THE ADJUSTMENT IN RESPECT TO THE ALLOTMENT OF SHARES FOR THE PERIOD OF 80 DAYS ONLY. ACCORDINGLY INTEREST IS CHARGED @2% FOR 80 D AYS; THE TOTAL ADDITION IS, THEREFORE, TO THE TUNE OF RS.3,53,108/-. THE LD. AO IS DIRECT ED TO GIVE EFFECT TO THIS ORDER. 10. IN THE RESULT,ASSESSEES APPEAL IS PARTLY ALLOW ED. THIS ORDER PRONOUNCED IN OPEN COURT ON 25/06/2020 SD/- SD/- (AMRJIT SINGH) (MADHUMITAROY) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 25/06/2020 TANMAY TRUE COPY ITA NO.1775/AHD/2018 ASTRAL POLY TECHNIK PVT. LTD.VS.DCIT ASST.YEAR 2014-15 - 7 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ %& ' / CONCERNED CIT 4. ' ( ) / THE CIT(A)- 5. *+, --%& , %&# , /01$1 / DR, ITAT, AHMEDABAD 6. ,23 4 / GUARD FILE. / BY ORDER, / !'# (DY./ASSTT.REGISTRAR) #$ %, / ITAT, AHMEDABAD 1. DATE OF DICTATION 26.06.2020 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26.06.2020 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 26.06.2020 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 26.06.2020 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 26.0 6.2020 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER