HBL Power Systems Limited, Hyderabad, Hyderabad V. DCIT, Circle-2(2), Hyderabad, Hyderabad

ITA 189/HYD/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 5863 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 23-02-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 07-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Keywords: Transfer pricing; International transaction; Earning of tax free income; Notional interest; Rule 8D; FORM 26AS
• Section: 92C; 92B; 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER I.T.A. NO. 189/HYD/2017 ASSESSMENT YEAR: 2012-13 M/S.HBL POWER SYSTEMS LIMITED, HYDERABAD [PAN: AAACH8421K] VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(2), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P.V.S.S.PRASAD, AR FOR REVENUE : SMT. NIVEDITA BISWAS, DR DATE OF HEARING : 23-02-2021 DATE OF PRONOUNCEMENT : 23-04-2021 O R D E R PER S.S.GODARA, J.M. : THIS ASSESSEES APPEAL FOR AY.2012-13 IS DIRECTED A GAINST THE DCIT, CIRCLE-2(2)S ASSESSMENT DATED 06-12-2016 FR AMED IN FURTHERANCE TO THE DISPUTE RESOLUTION PANEL (DRP)-1, BENGALURUS DIRECTIONS IN FILE NO.85/DRP-BNG/2016-17 , DT.31-10-2016, INVOLVING PROCEEDINGS U/S.143(3) R.W. S.92CA R.W.S.144C OF THE INCOME TAX ACT, 1961 [IN SHORT, THE ACT]. HEARD BOTH THE PARTIES. CASE FILE PERUSED. ITA NO. 189/HYD/2017 :- 2 -: 2. THE ASSESSEE HAS PLEADED THE FOLLOWING SUBSTANTIVE GROUNDS IN THE INSTANT APPEAL: 1.THE LEARNED ASSESSING OFFICER (AO)/DISPUTE RESOL UTION PANEL (DRP) ARE ERRONEOUS IN LAW AND ON THE FACTS OF THE CASE. 2.THE LD.AO/DRP IS NOT LEGALLY JUSTIFIED IN MAKING AN ADJUSTMENT OF INTEREST @12% AMOUNTING TO RS.1,69,22,957/- AS ARM S LENGTH PRICE ON RECEIVABLES FROM GULF BATTER CO. LTD AFTER ALLOW ING 60 DAYS CREDIT PERIOD AND FROM HBL AMERICA INCOME. & HBL GERMANY G MBH AFTER ALLOWING 180 DAYS CREDIT PERIOD. 3.THE LD.AO/DRP OUGHT TO HAVE APPRECIATED THAT THE RECEIVABLES ARISE IN THE COURSE OF BUSINESS AND ARE NOT TO BE T REATED AS LOANS FOR LEVY OF INTEREST. 4.THE LD.AO/TPO HAVE ERRED BY TREATING RECEIVABLES FROM AES AS A SEPARATE INTERNATIONAL TRANSACTION. 5.THE LD.AO/TPO HAVE ERRED BY IGNORING THE FACT THA T THE ASSESSEE HAS EARNED HIGHER MARGIN THAN THE UNRELATED THIRD P ARTIES AND HENCE ANY NOTIONAL INTEREST ON THE EXTENDED CREDIT PERIOD IS FACTORED IN THE PRICING ITSELF AND NOT TO BE CHARGED ADDITIONALLY F ROM THE AE. 6.WITHOUT PREJUDICE TO OUR ABOVE GROUNDS NO.2 TO NO .6, AS THE RECEIVABLES ARE IN FOREIGN CURRENCY THE BASIS FOR B ENCHMARKING THE NOTIONAL LOAN TRANSACTION SHOULD BE THE LIBOR PLUS PERCENTAGE RATE. 7.THE LD.AO/DRP OUGHT TO HAVE REDUCED THE INCOME BY RS.68,81,044/- IN THIS ASSESSMENT YEAR SINCE THIS I NCOME WAS ALREADY INCLUDED IN EARLIER YEAR BY THE LD.AO DURIN G SCR5UTINY PROCEEDINGS THEN CONDUCTED, WHILE RECONCILING INCOM E AS PER BOOKS VIS--VIS TAX CREDIT AS PER FORM 26AS. 8.THE LD.AO IS LEGALLY NOT JUSTIFIED IN MAKING AN A DJUSTMENT OF RS.6,72,77,273/- U/S.14A IN THE FINAL ORDER WHEN TH E SAME WAS NOT PART OF DRAFT ORDER ORIGINALLY PASSED. 9.THE LD.AO OUGHT TO HAVE APPRECIATED THE FACT THAT THERE WAS NO EXEMPT INCOME EARNED DURING THE YEAR AND THE DISALL OWANCE U/S.14A AS PER NORMAL PROVISIONS WAS BASED ON RULE 8D WHICH CANNOT BE CONSIDERED WHILE COMPUTING BOOK PROFITS U/S.115JB. 10.ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING WITH THE PREVIOUS APPROVAL OF THE HON'BLE MEMBER OF THE DISPUTE RESOLUTION PANEL. ITA NO. 189/HYD/2017 :- 3 -: 3. WE NOW ADVERT TO THE FIRST ISSUE OF ARMS LENGTH PRIC E (ALP) ADJUSTMENT OF RS.1,69,22,957/- @12% QUA RECEIVABLES FROM ASSOCIATED ENTERPRISES (AES), M/S.GULF BATTER COM PANY LTD., AFTER ALLOWING 60 DAYS CREDIT PERIOD AND M/S.HBL AMERICA INC. AND HBL GERMANY, GMBH AFTER ALLOWING 18 0 DAYS CREDIT PERIOD; RESPECTIVELY. 4. LEARNED AUTHORISED REPRESENTATIVE VEHEMENTLY SUBMITT ED DURING THE COURSE OF HEARING THAT THE LEARNED LOWER AU THORITIES HAVE ERRED IN LAW AND ON FACTS IN MAKING IMPUGNED AL P ADJUSTMENT @12% INTEREST RATE WITHOUT BENCHMARKING IT WITH THE CORRESPONDING COMPARABLES AND ALSO THAT SUCH RECEI VABLES DO NOT FORM AN INTERNATIONAL TRANSACTIONS WITHIN THE MEAN ING OF SECTION 92B OF THE ACT. THE REVENUE, ON THE OTHER HAND, STRONGLY SUPPORTED THE IMPUGNED ALP ADJUSTMENT. IT QUOTED SECTION 92B EXPLANATION(C) INSERTED VIDE FINANCE ACT, 2012 W.E.F. 01-04- 2012 THAT SUCH A TRANSACTION INVOLVING RECEIVABLES INVO LVING ARE COVERED UNDER THE STATUTORY EXPRESSION OVER RECEI VABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS ONLY. 5. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RIVAL PLEADINGS AGAINST AND IN SUPPORT OF THE IMPUGNED ADJUS TMENT. IT TRANSPIRES FROM A PERUSAL OF THE ASSESSMENT ORDER THA T THE ASSESSING OFFICER HAS DISCUSSED THE ISSUE AS UNDER: ITA NO. 189/HYD/2017 :- 4 -: 5.00 COMPUTATION OF ARM'S LENGTH PRICE U/S.92CA 5.1 DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR 2012- 13, THE ASSESSEE COMPANY HAD ENTERED INTO INTERNATI ONAL TRANSACTIONS FOR AN AMOUNT OF RS.27,13,96,072/-. HENCE, REFERENC E WAS MADE TO THE TRANSFER PRICING OFFICER WITH PRIOR APPROVAL OF PRINCIPAL COMMISSIONER OF INCOME TAX-Z, HYDERABAD FOR DETERMI NING ARM'S LENGTH PRICE U/S.92CA OF I.T. ACT. THE DEPUTY COMMI SSIONER OF INCOME TAX (TRANSFER PRICING) VIDE HIS ORDER DATED 30.01.2016 HAS PROPOSED AN ADJUSTMENT OF RS.2,08,01,135/- U/S.92CA OF THE IT. ACT WITH REGARD TO ADJUSTMENTS IN RESPECT OF INTERNATIO NAL TRANSACTIONS ENTERED INTO BY AND BETWEEN THE TAXPAYER AND ITS AS SOCIATED ENTERPRISES FOR FINANCIAL YEAR 2011-12. THE PROVISI ONS OF SEC.92CA(4) ARE READ AS UNDER: 'ON RECEIPT OF THE ORDER UNDER SUB-SECTION (3), THE ASSESSING OFFICER SHALL PROCEED TO COMPUTE THE TOTAL INCOME O F THE ASSESSEE UNDER SUB-SECTION (4) OF SECTION 92C IN CO NFORMITY WITH THE ARM'S LENGTH PRICE AS SO DETERMINED BY THE TRANSFER PRICING OFFICER'. THEREFORE AN AMOUNT OF RS.2,08,01,135/- IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE U/S.92CA OF I.T ACT. ADDITION: RS.2,08,01,135/- 5.2 AGGRIEVED TO THE ABOVE ORDER, THE ASSESSEE FILE D AN OBJECTION BEFORE THE HON'BLE DISPUTE RESOLUTION PANEL, BANGAL ORE. THE HON'BLE DRP VIDE ORDER IN F.NO.85/DRP-BNG/2016-17 DATED 31- 10-2016 DIRECTED THE AO AS UNDER: ''HOWEVER, WITH REGARD TO THE OBJECTION OF THE ASSE SSEE REGARDING THE RATE OF INTEREST OF 14.75% CHARGED BY THE TPO IS CO NCERNED, WE ARE OF THE VIEW, THAT THE SAME CAN BE EQUIVALENT TO THE AV ERAGE COST OF THE BORROWED FUNDS. THIS CAN BE DONE ONLY IF THE ASSESS EE PRODUCES THE FINANCE COST DETAILS. THE REDUCTION OF ADJUSTMENT O N THIS ACCOUNT CAN ONLY BE CONSIDERED, IF THE ASSESSEE PRODUCES THE EV IDENCE BEFORE THE AO WITHIN 15 DAYS OF RECEIPT OF THIS ORDER, THAT TH E INTEREST PAID (WEIGHTED AVERAGE RATE OF INTEREST REFERRED HEREINA FTER AS RATE OF INTEREST) ON THE BORROWINGS IS LESS THAN THE RATE O F 14.75% APPLIED BY THE TPO. IT THE ASSESSEE FAILS TO PRODUCE SUCH EVID ENCE, THERE WILL BE NO VARIATION TO THE ADJUSTMENT PROPOSED BY THE TPO; HOWEVER, IF IT IS FOUND THAT RATE OF INTEREST ON BORROWINGS OF THE AS SESSEE IS LEE, WE DIRECT THE AO TO APPLY THE SAME FOR COMPUTATION OF ALP ON ADVANCES, THE OBJECTION IS DISPOSED OFF ACCORDINGLY.' ACCORDINGLY, THE ASSESSEE VIDE LETTER DATED 23-11-2 016 SUBMITTED THE DETAILS ON THE ABOVE OBJECTION. ITA NO. 189/HYD/2017 :- 5 -: 'IN THE TABLE 2 ANNEXED, THE RATE OF INTEREST IS AR RIVED AT TAKING INTO ACTUAL UTILISATION, ACTUAL INTEREST CHARGED BY THE BANKS ON DAILY PRODUCT OF LOAN OUTSTANDING WHICH IS MORE REALISTIC AVERAGE RATE OF INTEREST. THEREFORE WE REQUEST YOU TO ADOPT INTERES T AT 12% AS AGAINST.14.75% ADOPTED BY TRANSFER PRICING OFFICER AS DRP HAS DIRECTED THAT THE ASSESSING OFFICER MAY CONSIDER TH E WEIGHTED AVERAGE RATE WORKED OUT BY THE ASSESSEE VIDE PARA N O.1 OF PAGE NO.5 OF THE ORDER AND ACCORDINGLY APPLY THE SAME. INTEREST CHARGED @14.75% - RS.2,08,01,135 INTEREST OF CHARGED @12.00% - RS.1,69,22,957 ON PERUSAL OF THE SUBMISSION MADE BY THE ASSESSEE, THE CALCULATION MADE IS FOUND TO BE CORRECT. HENCE, THE ADJUSTMENT U/S.92CA(3) IS RESTRICTED TO RS.1,69,22,957/- ADHERING THE DIRECTI ONS OF THE DRP. ADDITION OF RS.1,69,22,957/- IT IS SUFFICIENTLY CLEAR FROM A PERUSAL OF THE ASSESSM ENT FINDINGS THAT THE IMPUGNED ALP ADJUSTMENT IS BASED ON THE ASSESSEES DETAILS PRODUCED IN ITS LETTER DT.23-11-201 6 CONTAINING AS WELL REQUEST TO ADOPT THE IMPUGNED INTEREST RATE @12% THAN 14.75% TAKEN BY THE TRANSFER PRICING OFFICER (TPO). WE OBSERVE IN THIS BACKDROP OF THE FACTS AS TO HOW THE ASSESSEE COULD NOT BE TAKEN AS AN AGGRIEVED PARTY ON CE THE IMPUGNED ADJUSTMENT IS BASED ON ITS OWN COMPUTATION SUBMITTED DURING THE COURSE OF ASSESSMENT. 5.1. COUPLED WITH THIS, THIS TRIBUNALS DECISION IN (20 17) 85 TAXMANN.COM 121 (DELHI-TRIB) BECHTEL INDIA PVT. LTD. HO LDS THAT SUCH INTEREST ON DELAYED REALISATION ON RECEIVABLE S IS AN INTERNATIONAL TRANSACTION IN ITSELF. WE THEREFORE FIND NO REASON TO INTERFERE WITH THE IMPUGNED ALP ADJUSTMENT OF RS.1,69,22,957/- IN ISSUE. THE ASSESSEES FORMER SI X SUBSTANTIVE GROUNDS TO THIS EFFECT ARE DECLINED. ITA NO. 189/HYD/2017 :- 6 -: 6. WE NEXT ADVERT TO THE ASSESSEES 7 TH SUBSTANTIVE GROUND CHALLENGING ADDITION OF RS.68,81,044/- ON ACCOUNT OF MIS- MATCHING OF TAX CREDIT AS PER FORM 26AS VIZ-A-VIZ ITS BOOKS OF ACCOUNTS. THE ASSESSEES CASE IS THAT THE VERY INCOME STANDS ASSESSED IN PRECEDING ASSESSMENT YEARS AND THEREFORE , IT AMOUNTS TO DOUBLE ADDITION. WE ARE OF THE OPINION THAT IN THIS BACKDROP OF THE FACTS ABOUT THE INSTANT ISSUE REQUIRES F ACTUAL VERIFICATION AT THE ASSESSING OFFICERS END SO THAT THE IMPUGNED SUM DOES NOT SUFFER DOBLE ADDITION IN DIFFERENT ASSESS MENT YEARS. THIS 7 TH SUBSTANTIVE GROUND IS TAKEN AS ACCEPTED FOR STATISTICAL PURPOSES IN FOREGOING TERMS. 7. LASTLY COMES SECTION 14A R.W.S.8D DISALLOWANCE AM OUNT OF RS.6,72,77,273/- INCLUDED IN SECTION 115JB MAT COMPUTATION. THIS TRIBUNAL IN ACIT VS.VIREET INVESTMENTS P. LTD., [165 ITD 267] (DEL)(SB) HOLDS THAT SUCH SECTI ON 14A DISALLOWANCE DOES NOT DESERVE TO BE INCLUDED IN SECTIO N 115JB MAT COMPUTATION. WE THEREFORE DIRECT THE ASSESSING OFFIC ER TO DELETE THE IMPUGNED MAT ADDITION IN FOREGOING TERMS. NECESSARY COMPUTATION TO FOLLOW AS PER LAW. 8. THIS ASSESSEES APPEAL IS PARTLY ALLOWED IN ABOVE TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD APRIL, 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.G ODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 23-04-2021 TNMM ITA NO. 189/HYD/2017 :- 7 -: COPY TO : 1.M/S.HBL POWER SYSTEMS LIMITED, C/O.PRASAD & PRASA D CHARTERED ACCOUNTANTS, FLAT NO.301, MJ TOWERS, 8-2- 698, ROAD NO.12, BANJARA HILLS, HYDERABAD. 2.THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(2 ), HYDERABAD. 3. DISPUTE RESOLUTION PANEL (DRP), BENGALURU. 4. DIRECTOR OF INCOME TAX (IT & TP), HYDERABAD. 5.ADDL. COMMISSIONER OF INCOME TAX (TRANSFER PRICIN G), HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.