DINSHAW TRAPINEX BUILDERS PVT. LTD, MUMBAI V. ASSISTANT DIRECTOR OF INCOME TAX CIRCLE-5(4)), MUMBAI

ITA 2097/MUM/2016

AI Insights

The case involves M/s. Dinshaw Trapinex Builders Pvt. Ltd., a builder and developer, which entered into international transactions with its Associated Enterprise in Dubai, primarily involving loans. The Assessing Officer (AO) referred these transactions to the Transfer Pricing Officer (TPO) to determine the Arms Length Price of the interest receivable from these loans. Adjustments were made by the TPO and subsequently by the AO based on the directions from the Dispute Resolution Panel (DRP). The Tribunal examined the appeals for the assessment years 2011-12 to 2014-15 and 2016-17 to 2017-18, focusing on the appropriate interest rates applied to these loans and various disallowances made under the Income Tax Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 136436 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: K
• Next Hearing Date: 28-02-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 30-03-2016
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Earning of tax free income; Sham transactions
• Section: 43B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI ‘K’ BENCH, MUMBAI. Before Shri B.R. Baskaran (AM) & Shri Rahul Chaudhary (JM) I.T.(TP)A. No. 2097/Mum/2016 (A.Y. 2011-12) I.T.(TP)A. No. 2602/Mum/2017 (A.Y. 2012-13) I.T.A. No. 7469/Mum/2017 (A.Y. 2013-14) I.T.A. No. 5159/Mum/2018 (A.Y. 2014-15) I.T.A. No. 1386/Mum/2021 (A.Y. 2016-17) I.T.A. No. 525/Mum/2022 (A.Y. 2017-18) M/s. Dinshaw Trapinex Builders Pvt. Ltd. 9/02, Dheeraj Arma Anant Kanekar Marg Bandra, Mumbai-400 051. PAN : AAACD1897R Vs. ACIT, Circle-5(4) 9102, Dheeraj Arma Anant Kanekar Marg Bandra Mumbai-400 051. (Appellant) (Respondent) Assessee by None Department by Shri Purnesh Gururani Date of Hearing 01.03.2023 Date of Pronouncement 06.03.2023 O R D E R PER BENCH:- The assessee has filed these appeals for assessment years 2011-12 to 2014-15 and 2016-17 to 2017-18. All these appeals are directed against the assessment orders passed by the AO in pursuance to the directions given by Ld Dispute Resolution Panel (DRP). 2. None appeared on behalf of the assessee. An adjournment letter has been moved the Representative M/s Nimesh Thar & Co., Chartered Accountants stating that the directors/promoters of the assessee company are under judicial custody and hence it is not able to take any decision. We notice that the authorized representative has been taking adjournment citing M/s. Dinshaw Trapinex Builders Pvt. Ltd. 2 similar reasons. Hence we proceed to dispose of the appeals ex-parte, without presence of the assessee. 3. The assessee is a builder and developer. The assessee had entered into international transactions with its Associated Enterprise located in Dubai in the form of giving loans. Hence the AO referred the matter of determination of Arms Length Price of interest receivable from the above said loans to Transfer Pricing Officer (TPO) in all the years. The TPO made transfer pricing adjustment and hence the AO has passed draft assessment orders in all these years, which were objected to by the assessee before the Dispute Resolution Panel (DRP). After receipt of directions from DRP, the AO passed final assessment orders. The assessee has challenged the assessment orders for the above said years before the Tribunal. 4. We shall first take up the appeal relating to AY 2011-12. The only issue urged in this year relate to the Transfer pricing adjustment made in respect of outstanding loan due from AE located in Dubai. The TPO made adjustment of Rs.4.66 crores. The Ld DRP has enhanced it to Rs.10.72 crores. The TPO had taken interest rate @ 10.589% and charged interest on the loan amount of Rs.88.38 crores. Since the assessee had charged interest @ 5.31%, the TPO made transfer pricing adjustment by adopting differential interest rate of 5.279%. The Ld DRP directed the AO/TPO to adopt interest rate of LIBOR + 500 basis points. It also noticed a difference on the quantum of loan. Accordingly, the Ld DRP directed the AO to compute interest on the loan of USD 2,33,02,194 and convert the interest amount in USD to Rupees by adopting the conversion rate of Rs.44.65 per dollar. 4.1 We heard ld D.R and perused the record. We notice that these loans have been given in the earlier years. In AY 2009-10 and 2010-11, the assessee did not make transfer pricing study. It was noticed that the assessee had charged interest @ 5.14% and 5.08% respectively in those M/s. Dinshaw Trapinex Builders Pvt. Ltd. 3 years, while the average LIBOR rate was 2.853742 and 1.284833 in those years respectively. It appears that no TP adjustment was made in those years. Considering these facts, we are of the view that interest rate may be fixed at LIBOR + 300 basis points. Accordingly, we direct the AO/TPO to recompute the transfer pricing adjustment by adopting interest rate of average LIBOR + 300 basis points. 5. We shall now take up the appeal for AY 2012-13. The first issue urged in this year relates to the transfer pricing adjustment made in respect of outstanding loan due from its AE located in Dubai. In this year, the Ld DRP noticed that the assessee has not made provision for foreign exchange rate fluctuation in respect of outstanding loan. Accordingly, Ld DRP presumed that the loan has been converted into rupee loan and accordingly directed the AO to compute interest @ SBI PLR + 300 basis points. 5.1 We heard ld D.R on this issue and perused the record. We do not find any rationale for treating the loan due from Dubai AE as rupee loan only for the reason that the assessee has not provided for foreign exchange fluctuation. No material was brought on record to show that the Dubai AE has agreed to repay the loan in INR. Accordingly, we modify the directions given by Ld DRP on this issue and direct the AO to adopt interest rate at average LIBOR + 300 basis points, as decided by us in AY 2011-12. 6.0 The next issue urged by the assessee relates to the disallowance made u/s 14A of the Act. Since the assessee had made investments, the AO disallowed 0.5% of the average value of investments, income from which does not form part of investments. However, we notice that the details of quantum of exempt income were not given. It is well settled proposition that the amount of disallowance u/s 14A should not exceed exempt income. Accordingly, we restore this issue to the file of AO and direct him to restrict the disallowance to the quantum of exempt income. M/s. Dinshaw Trapinex Builders Pvt. Ltd. 4 7. The next issue relates to the disallowance of Travelling expenses. The AO asked for explanations for the expenses of Rs.22,60,521/- incurred towards purchase of foreign exchange. Since no explanation was forthcoming, the AO disallowed the above said amount relating to purchase of foreign exchange. In our view, the assessee may be provided with one more opportunity to offer explanations. Accordingly, we restore this issue to the file of AO for examining it afresh. 8. The next issue relates to the addition of interest income of Rs.21,947/- from M/s Reliance infrastructure, found in ITS data, but not reported by the assessee in the return of income. We notice that the assessee has accepted this addition before the AO. Hence we dismiss this ground of the assessee. 9. We shall now take up the appeal filed for AY 2013-14. The first issue relates to the addition relating to transfer pricing adjustment on the outstanding loan. As in 2012-13, the ld DRP directed the AO to compute interest adopting interest rate of SBI PLR + 300 basis points. In 2012-13, we directed the AO to adopt interest rate of average LIBOR + 300 basis points. Following the same, we modify the directions given by Ld DRP and direct the AO to adopt interest rate of average LIBOR + 300 basis points and compute the transfer pricing adjustment accordingly. 10. The next issue relates to the disallowance made u/s 14A of the Act, which was equivalent to 0.5% of average value of investments. However, we notice that the details of quantum of exempt income were not given. It is well settled proposition that the amount of disallowance u/s 14A should not exceed exempt income. Accordingly, we restore this issue to the file of AO and direct him to restrict the disallowance to the quantum of exempt income. 11. We shall now take up the appeal filed by the assessee for AY 2014-15. The only issue urged in this year relates to the transfer pricing adjustment made in respect of outstanding loan due from Dubai AE by computing M/s. Dinshaw Trapinex Builders Pvt. Ltd. 5 interest at higher rate. As in 2012-13, the ld DRP directed the AO to compute interest adopting interest rate of SBI PLR + 300 basis points. In 2012-13, we directed the AO to adopt interest rate of average LIBOR + 300 basis points. Following the same, we modify the directions given by Ld DRP and direct the AO to adopt interest rate of average LIBOR + 300 basis points and compute the transfer pricing adjustment accordingly. 12. We shall now take up the appeal filed by the assessee for AY 2016-17. The first issue urged in this year relates to the transfer pricing adjustment made in respect of outstanding loan due from Dubai AE by computing interest at higher rate. As in 2012-13, the ld DRP directed the AO to compute interest adopting interest rate of SBI PLR + 300 basis points. In 2012-13, we directed the AO to adopt interest rate of average LIBOR + 300 basis points. Following the same, we modify the directions given by Ld DRP and direct the AO to adopt interest rate of average LIBOR + 300 basis points and compute the transfer pricing adjustment accordingly. 13. The next issue relates to the addition made u/s 14A of the Act under normal provisions and u/s 115JB. We notice that the details of quantum of exempt income were not given. It is well settled proposition that the amount of disallowance u/s 14A should not exceed exempt income. Accordingly, we restore this issue to the file of AO and direct him to restrict the disallowance to the quantum of exempt income. 14. The next issue relates to the addition of Rs.3.36 crores made u/s 41(1) of the Act. The AO noticed that a sum of Rs.3.36 crores was due from M/s Viva Holdings for quite long time. Since the assessee did not furnish relevant details, the AO assessed the same as income u/s 41(1) of the Act towards remission of liability. We notice that the AO has not examined as to whether the above said amount was claimed as expenditure in any of the years, which is the paramount condition for invoking provisions of sec.41(1) of the Act. M/s. Dinshaw Trapinex Builders Pvt. Ltd. 6 Accordingly, we are of the view that this issue requires fresh examination. Accordingly, we restore this issue to the file of AO. We also direct the assessee to furnish all the relevant details to the assessing officer. 15. The next issue urged by the assessee relates to the disallowance of set off of short term capital gain considering it as bogus/sham transactions. In our view, this issue also requires fresh examination. Accordingly, we restore this issue to the file of AO. We also direct the assessee to furnish all the relevant details to the assessing officer. 16. The next issue relates to the disallowance made u/s 43B of the Act and reducing the same from closing Work in Progress. We notice that the interest was payable to Punjab and Maharashtra Co-operative Bank. We also notice that the interest payable to a co-operative bank was brought within the ambit of sec.43B of the Act with effect from AY 2018-19. Accordingly, we direct the AO to delete this disallowance and consequently, the same is not required to be deducted from the value of Work in Progress. 17. The last issue relates to the disallowance of claim of set off of brought forward loss. In our view, this issue requires re-consideration. Accordingly, we restore this issue to the file of AO. We also direct the assessee to furnish all the relevant details to the assessing officer. 18. We shall now take up the appeal filed by the assessee for AY 2017-18. The first issue urged in this year relates to the transfer pricing adjustment made in respect of outstanding loan due from Dubai AE by computing interest at higher rate. As in 2012-13, the ld DRP directed the AO to compute interest adopting interest rate of SBI PLR + 300 basis points. In 2012-13, we directed the AO to adopt interest rate of average LIBOR + 300 basis points. Following the same, we modify the directions given by Ld DRP M/s. Dinshaw Trapinex Builders Pvt. Ltd. 7 and direct the AO to adopt interest rate of average LIBOR + 300 basis points and compute the transfer pricing adjustment accordingly. 19. The next issue relates to the addition made u/s 14A of the Act under normal provisions and u/s 115JB. We notice that the details of quantum of exempt income were not given. It is well settled proposition that the amount of disallowance u/s 14A should not exceed exempt income. Accordingly, we restore this issue to the file of AO and direct him to restrict the disallowance to the quantum of exempt income. 20. The next issue relates to the addition made u/s 41(1) of the Act. The long outstanding liabilities to the tune of Rs.6.35 crores were added by the AO u/s 41(1) of the Act. We notice that the AO has not examined as to whether the above said amount was claimed as expenditure in any of the years, which is the paramount condition for invoking provisions of sec.41(1) of the Act. Accordingly, we are of the view that this issue requires fresh examination. Accordingly, we restore this issue to the file of AO. We also direct the assessee to furnish all the relevant details to the assessing officer. 21. The next issue relates to the disallowance of Rs.3,03,000/- made u/s 40(a)(ia) of the Act. We notice that the assessee has accepted this disallowance before the AO and hence we reject this ground of the assessee. 22. The next relates to the disallowance made u/s 43B of the Act and reducing the same from closing Work in Progress. We notice that the interest was payable to Punjab and Maharashtra Co-operative Bank. We also notice that the interest payable to a co-operative bank was brought within the ambit of sec.43B of the Act with effect from AY 2018-19. Accordingly, we direct the AO to delete this disallowance and consequently, the same is not required to be deducted from the value of Work in Progress. M/s. Dinshaw Trapinex Builders Pvt. Ltd. 8 23. The last issue relates to the interest disallowance made u/s 36(1)(iii) of the Act. We notice that the AO has made this addition on notional basis and the same has been reduced from the Work in Progress. In our view, this issue requires fresh examination at the end of AO. Accordingly, we restore this issue to his file. 24. In the result, all the appeals of the assessee are treated as partly allowed. Pronounced in the open court on 06.03.2023. Sd/- Sd/- (RAHUL CHAUDHARY) (B.R. BASAKARAN) Judicial Member Accountant Member Mumbai; Dated : 06/03/2023 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai