M/s. Siva Industries & Holdings Limited, CHENNAI V. ACIT, CHENNAI

ITA 1917/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61063 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 25-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 30-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S DEEPAC A
• Keywords: Transfer pricing; International transaction; Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI (BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ) .. I.T.A. NO. 1917/MDS/2011 ASSESSMENT YEAR : 2007-08 M/S.SIVA INDUSTRIES &HOLDINGS LIMITED, (FORMERLY KNOWN AS STERLING INFOTECH LTD.,) 327,ANNA SALAI, TEYNAMPET, CHENNAI 600 018. PAN : AAACS 4460 M (APPELLANT) V. ASSISTANT COMMISSIONER OF INCOME TAX , COMPANY CIRCLE VI(4), CHENNAI. (RESPONDENT) APPELLANT BY : SHRI MS. S.DEEPA,C.A. RESPONDENT BY : SHRI SHAJI P. JACOB DATE OF HEARING : 25.04.12 DATE OF PRONOUNCEMENT : 30.04.12 O R D E R PER N.S.SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF DISPUTE RESOLUTION PANEL (DRP) DATED 08.09.2011. ITA NO. 1917/MDS/12 2 2. THE GROUND NO.1 OF THE APPEAL IS DIRECTED AGAIN ST THE DISALLOWANCE OF `72,83,21,913/- MADE BY THE ASSESSING OFFICER U/S.14A READ WITH RULE 8D OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER OBSERVED THAT WHETHER THE SHARES ARE HELD AS INVEST MENTS OR AS STOCK-IN-TRADE OR HELD FOR STRATEGIC PURPOSES IS A BUSINESS DECISION TAKEN BY THE ASSESSEE. WHATEVER BE SUCH D ECISION, ANY DIVIDEND EARNED ON SUCH SHARES WILL BE EXEMPT B Y VIRTUE OF SECTION 10. AS THE DIVIDEND INCOME DOES NOT FOR M PART OF THE TOTAL INCOME UNDER THE ACT, THE PROVISIONS OF S EC.14A WOULD COME INTO PLAY. THEREFORE, THE ASSESSING OFF ICER DISALLOWED THE INTEREST OF `72,83,21,913/- ON THE G ROUND OF BORROWED FUNDS UTILIZED FOR INVESTMENT IN SHARES. T HE SAME WAS CONFIRMED IN APPEAL BY THE DRP. 4. LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE F ILED A COPY OF ORDER OF THE TRIBUNAL FOR IMMEDIATELY PRECE DING ITA NO. 1917/MDS/12 3 ASSESSMENT YEAR 2006-07 IN ASSESSEE'S OWN CASE IN I TA NO.2148/MDS./2010 ORDER DATED 20 TH MAY, 2011 WHEREIN THE TRIBUNAL AT PAGE-14, PARA NOS.7 TO 8 OF ITS ORDER H ELD THAT WHERE THE ASSESSEE DOES NOT HAVE ANY INCOME, WHICH DOES NOT FORM A PART OF THE TOTAL INCOME, NO DISALLOWANC E U/S.14A CAN BE MADE ON THE ASSESSEE. LD. AR SUBMITTED THAT FOLLOWING THE SAME AS THE FACTS IN THE PRESENT YEAR ARE ALSO SAME, THE DISALLOWANCE MADE SHOULD BE DELETED. 5. LD. DR ,ON THE OTHER HAND, SUBMITTED THAT THE D ECISION OF THE TRIBUNAL WAS PER INCURIM AS THE TRIBUNAL FAILED TO TAKE INTO CONSIDERATION THE DECISION OF SPECIAL BENCH O F THE TRIBUNAL IN THE CASE OF CHEMINVEST LTD. VS. ITO [20 09] 121 ITD 318 (DEL.)(SB) WHERE IT WAS HELD THAT DISALLOWA NCE U/S.14A CAN BE MADE IN THE YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. ITA NO. 1917/MDS/12 4 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAIL ABLE ON RECORD, WE FIND THAT THE ASSESSING OFFICER HAS DISA LLOWED THE INTEREST OF `72,83,21,913/- ON THE GROUND OF BORROW ED FUNDS WERE USED BY THE ASSESSEE FOR MAKING INVESTMENT IN SHARES. THE CONTENTION OF THE ASSESSEE IS THAT IN THE EARLI ER ASSESSMENT YEAR 2006-07 WHERE NO DIVIDEND INCOME WA S RECEIVED BY THE ASSESSEE, THE TRIBUNAL HAS HELD THA T NO DISALLOWANCE OF EXPENDITURE CAN BE MADE U/S.14A OF THE ACT AND THEREFORE, THE DISALLOWANCE MADE IN THE YEAR UN DER APPEAL MAY ALSO BE DELETED AS IN THIS YEAR ALSO THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND INCOME ON THE SHARES, WHICH IS EXEMPT FROM TAX. WE FIND THAT THE TRIBUNAL WHIL E DECIDING THE APPEAL OF ASSESSEE FOR ASSESSMENT YEAR 2006-07 FAILED TO CONSIDER THE DECISION OF THE DELHI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF CHEMINVEST LTD. (SUPRA) WH ERE IT WAS HELD THAT EVEN IN A YEAR WHERE NO EXEMPT INCOME WAS EARNED OR RECEIVED BY THE ASSESSEE, DISALLOWANCE U/ S.14A CAN BE MADE. RESPECTFULLY FOLLOWING THE DECISION O F THE ITA NO. 1917/MDS/12 5 DELHI SPECIAL BENCH OF THE TRIBUNAL, WE DISMISS THI S GROUND OF APPEAL OF ASSESSEE. 7. THE GROUND NO.2 OF THE APPEAL OF ASSESSEE RELAT ES TO HONBLE DRP ERRED IN HOLDING THAT THE TRANSACTION B ETWEEN THE ASSESSEE AND ITS AE WERE NOT AT ARMS LENGTH A ND IN UPHOLDING THE ADJUSTMENTS OF `4,72,06,208/- MADE TO THE INTEREST INCOME OF THE ASSESSEE BY THE TPO. LD. AR SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF T HE ASSESSEE BY THE ORDER OF TRIBUNAL IN ASSESSEE'S OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2006-07 IN IT A NO.2148/MDS./2010 ORDER DATED 20TH MAY, 2011. LD. D R ALSO AGREED WITH THE SUBMISSIONS OF THE ASSESSEE. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAIL ABLE ON RECORD. THE BRIEF FACTS OF CASE ARE THAT THE ASSESS EE HAS ENTERED INTO INTERNATIONAL TRANSACTION WITH ITS ASS OCIATED ENTERPRISES, INDIA TELECOM HOLDINGS LTD., MAURITIUS BY WAY OF ITA NO. 1917/MDS/12 6 GRANTING A LOAN IN INDIAN `248.50 CRORES. AS THE CA SE WAS COVERED UNDER TRANSFER PRICING, REFERENCE WAS MADE TO THE TPO. THE TPO VIDE ORDER U/S.92CA(3) DATED 28.10.1 0 SUGGESTED UPWARD REVISION IN THE INCOME OF ASSESSEE AMOUNTING TO `4,72,06,028/- BY ADOPTING INTEREST RA TE AT 14% ON THE LOANS ADVANCED FOR THE REASON THAT ASSES SEE HAD HUGE ADVERSE FOREIGN CURRENCY MOVEMENT RISK WHICH ASSESSEE HAD NOT FACTORED IN. RUPEE APPRECIATED BY 10% IN 2006 AND 13.5% IN 2007. THEREFORE, INTEREST SHOULD HAVE BEEN CHARGED @ 14%. 9. ON APPEAL, DRP CONFIRMED THE ACTION OF THE ASSE SSING OFFICER BY OBSERVING THAT THOUGH IT IS TRUE THAT TH E DECISION IN THE EARLIER YEAR IS IN FAVOUR OF THE ASSESSEE, WITH DUE RESPECT THE DECISION IS NOT BEING FOLLOWED AS IT HAS NOT AT TAINED FINALITY. ITA NO. 1917/MDS/12 7 10. WE FIND THAT THE TRIBUNAL IN THE IMMEDIATELY PR ECEDING ASSESSMENT YEAR 2006-07 WHILE DECIDING THE SAME ISS UE, HAS OBSERVED AT PAGE -19 AT PARA-11 AS UNDER:- 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL OF THE ORDER OF THE TPO CLEARLY SHOWS THAT THE ASSESSEE HAD RAISED THE FUNDS BY WAY OF ISSUANCE OF 0% OPTIONAL CONVERTIBLE PREFERENTIAL SHARES. THUS IT IS NOTICED THAT THE FUNDS RAISED BY THE ASSESSEE COMPA NY FOR GIVING THE LOAN TO INDIA TELECOM HOLDINGS LTD., MAURITIUS, WHICH IS ITS ASSOCIATED ENTERPRISES AND WHICH IS THE SUBSIDIARY COMPANY, IS OUT OF THE FUNDS OF T HE ASSESSEE COMPANY. IT IS NOT BORROWED FUNDS. THE ASSESSEE HAS GIVEN THE LOAN TO THE ASSOCIATED ENTERPRISES IN US DOLLARS. THE ASSESSEE IS ALSO RECEIVING INTEREST FROM THE ASSOCIATED ENTERPRISES IN INDIAN RUPEES. ONCE THE TRANSACTION BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES IS IN FOREI GN CURRENCY AND THE TRANSACTION IS AN INTERNATIONAL ITA NO. 1917/MDS/12 8 TRANSACTION, THEN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APPLYING THE COMMERCIAL PRINCIPLES I N REGARD TO INTERNATIONAL TRANSACTION. IF THIS IS SO, THEN THE DOMESTIC PRIME LENDING RATE WOULD HAVE NO APPLICABI LITY AND THE INTERNATIONAL RATE FIXED BEING LIBOR WOULD COME INTO PLAY. IN THE CIRCUMSTANCES, WE ARE OF TH E VIEW THAT IT LIBOR RATE WHICH HAS TO BE CONSIDERED WHILE DETERMINING THE ARMS LENGTH INTEREST RATE IN RESPECT OF THE TRANSACTION BETWEEN THE ASSESSEE AND THE ASSOCIATE ENTERPRISES. AS IT IS NOTICED THAT T HE AVERAGE OF THE LIBOR RATE FOR 1.4.05 TO 31.3.06 IS 4.42% AND THE ASSESSEE HAS CHARGED INTEREST AT 6% WHICH I S HIGHER THAN THE LIBOR RATE, WE ARE OF THE VIEW THAT NO ADDITION ON THIS COUNT IS LIABLE TO BE MADE IN THE HANDS OF THE ASSESSEE. IN THE CIRCUMSTANCES, THE ADDITIO N AS MADE BY THE ASSESSING OFFICER ON THIS COUNT IS DELT ED. LD. DR COULD NOT BRING ANY MATERIAL ON RECORD TO SH OW THAT THE ABOVE QUOTED DECISION OF THE TRIBUNAL HAS BEEN REVERSED ITA NO. 1917/MDS/12 9 IN APPEAL BY A HIGHER FORUM. AS THE FACTS ARE IDEN TICAL, THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE REVE RSE THE ORDER OF DRP AND ALLOW THIS GROUND OF APPEAL OF ASS ESSEE. 11. THE GROUND NO.3 OF THE APPEAL IS DIRECTED AGAI NST THE ORDER OF DRP IN CONFIRMING THE DISALLOWANCE OF TDS CREDIT MADE BY THE ASSESSING OFFICER. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER HAD TAKEN THE FIGURE OF `61,04,722/- AS TDS PAID FOR COMPUTING THE TAX PAYA BLE. THE ASSESSEE CLAIMED TDS IN THE RETURN OF INCOME AT `7,49,23,898/-. THE DRP HAS OBSERVED THAT IN THE SUBMISSIONS ASSESSEE HAS NOT GIVEN ANY BASIS FOR TD S CLAIM MADE BY IT. IN THE EARLIER YEAR ALSO, DISPUTE ON T DS HAS RAISED AND IT WAS FOUND BY THE DRP THAT THE TDS CRE DIT WAS NOT GIVEN FOR DEFECTIVE CERTIFICATES. THE ISSUE WAS RESTORED T THE ASSESSING OFFICER BY THE HONBLE ITAT. IN THE PRESENT YEAR, THE ASSESSEES CLAIM WAS QUITE BAD AND UNSUBSTANTIATED AND THEREFORE, THE OBJECTION WAS NO T ACCEPTED. HOWEVER, DRP DIRECTED THE ASSESSING OFFIC ER TO ITA NO. 1917/MDS/12 10 CONSIDER THE CLAIM AS PER LAW WITH RESPECT TO THE C LAIM OF TDS. 12. BEFORE US, THE LD. AUTHROISED REPRESENTATIVE O F THE ASSESSEE SUBMITTED THAT ISSUE OF CREDIT OF TDS SHO ULD BE RESTORED TO THE FILE OF ASSESSING OFFICER BY FOLLOW ING THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006-07. W E FIND THAT THE TRIBUNAL IN THE CASE OF THE ASSESSEE IN AS SESSMENT YEAR 2006-07 HELD AS UNDER:- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS IT I S NOTICED THAT THE REMAND REPORT HAS BEEN RECEIVED BY THE DRP ON 27.08.2010 AND THE SAME HAS NOT BEEN GRANTED TO THE ASSESSEE FOR ITS REBUTTAL, THIS ISSU E IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION. THE ASSESSING OFFICER SHALL RECON SIDER THE ISSUE OF GRANT OF CREDIT FOR THE TDS CERTIFICAT ES AND IF HE FINDS ANY OF THEM TO BE DEFECTIVE, HE SHALL G IVE THE ASSESSEE ADEQUATE OPPORTUNITY TO RECTIFY THE SA ME AND RE-ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW. ITA NO. 1917/MDS/12 11 WE FIND THAT THE DRP HAS HELD THAT THE ASSESSING OF FICER WILL BE FREE TO CONSIDER THE CLAIM AS PER LAW BEFORE COM PLETING THE ASSESSMENT WITH RESPECT TO CLAIM OF TDS. THUS, WE FIND THAT IN FACT THE ASSESSEE HAS NO GRIEVANCE FROM THE ABOVE DIRECTION OF THE DRP. THEREFORE, WE DISMISS THIS G ROUND OF APPEAL OF THE ASSESSEE. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON 30 TH APRIL, 2012 SD/- SD/- (VIKAS AWASTHY) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 30 TH APRIL , 2012. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE