M/s. TCG Lifesciences Private Limited., Kolkata V. ACIT, Circle-11(2), Kolkata, Kolkata

ITA 2169/KOL/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1367 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 09-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: MANONEET DALAL; GYAN P SRIVAS TAVA
• Keywords: Transfer pricing; International transaction; Deemed to accrue or arise in india; Initiation of penalty proceedings; Notional interest
• Section: 143(3); 234B; 14A

Judgement Text

ITA NO. 2169/KOL/2017 A.Y. 2013 -2014 M/S. TCG LIFESCIENCES PVT. LIMITED 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT (KZ) AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 2169/KOL/2017 ASSESSMENT YEAR: 2013-2014 M/S. TCG LIFESCIENCES PVT. LIMITED,................ ......................APPELLANT (FORMERLY TCG LIFESCIENCES LIMITED) BLOCK-BN, PLOT-7, SECTOR-V, SALT LAKE ELECTRONICS COMPLEX, KOLKATA-700 091 [PAN: AABCC 0401 D] -VS.- ASSISTANT COMMISSIONER OF INCOME TAX,.............. ................RESPONDENT CIRCLE-11(2), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 APPEARANCES BY: SHRI MANONEET DALAL, ADVOCATE & SHRI GYAN P. SRIVAS TAVA, ADVOCATE, FOR THE APPELLANT DR. P.K. SRIHARI, CIT, D.R. , FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : JANUARY 24, 2019 DATE OF PRONOUNCING THE ORDER : MARCH 15, 2019 O R D E R PER SHRI P.M. JAGTAP, VICE-PRESIDENT (KZ):- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. ASSESSING OFFICER, I.E. ASSISTANT COMMISSIONER OF I NCOME TAX, CIRCLE- 11(2), KOLKATA DATED 28.07.2017 PASSED UNDER SECTIO N 143(3) READ WITH SECTION 144C(5) OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF ANALYSIS AND SYNTHESIS OF CHEMICAL COMPOUNDS AND DATA PROCESSING. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY THE ASSESSEE ON 30.11.2013 DECLARING TOTAL INCOME OF RS.13,89,39,620/-. AS NOTED BY THE ASSESSING OFFICE R, THE ASSESESE- ITA NO. 2169/KOL/2017 A.Y. 2013 -2014 M/S. TCG LIFESCIENCES PVT. LIMITED 2 COMPANY DURING THE YEAR UNDER CONSIDERATION HAD ENT ERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOC IATED ENTERPRISES:- (I) MANAGEMENT CONSULTANCY AND ADVISORY SERVICES RS. 2,49,42,286/ - (II) CORPORATE GUARANTEE FEE RECEIVED RS. 1,75,52,320/ - (III) SALE OF LONG-TERM INVESTMENT MADE IN THE SHARES OF ASSOCIATED ENTERPRISES RS.71,88,98,240/ - IN ORDER TO DETERMINE THE ARMS LENGTH PRICE OF THE AFORESAID INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSE SSEE-COMPANY WITH ITS AES, A REFERENCE UNDER SECTION 92CA(2) OF THE ACT W AS MADE BY THE ASSESSING OFFICER TO THE TRANSFER PRICING OFFICER. IN THE ORDER PASSED UNDER SECTION 92CA(3) ON 28 TH DAY OF OCTOBER, 2016, THE TRANSFER PRICING OFFICER ACCEPTED THE PRICE CHARGED BY THE ASSESESE- COMPANY TO ITS A.E. FOR PROVIDING MANAGEMENT CONSULTANCY AND ADVISORY SERVI CES AS AT ARMS LENGTH. HE, HOWEVER, DID NOT ACCEPT THE RATE OF COR PORATE GUARANTEE FEES CHARGED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRIS ES AS AT ARMS LENGTH AND BY FOLLOWING THE VIEW TAKEN BY HIM IN A.Y. 2011 -12 IN ASSESSEES OWN CASE ON A SIMILAR ISSUE WHICH WAS UPHELD BY THE DIS PUTE RESOLUTION PANEL, HE TOOK THE RATE OF CORPORATE GUARANTEE FEES AT 2.3 2% AS AT ARMS LENGTH AND WORKED OUT THE TRANSFER PRICING ADJUSTMENT TO B E MADE ON THIS ISSUE AT RS.27,98,944/-. SIMILARLY, FOLLOWING THE VIEW TA KEN BY HIM FOR A.Y. 2010-11 AND 2011-12 IN ASSESSEES OWN CASE WHICH WA S UPHELD BY THE DISPUTE RESOLUTION PANEL, THE TRANSFER PRICING OFFI CER TREATED THE INVESTMENT MADE BY THE ASSESSEE-COMPANY IN THE SHAR E CAPITAL OF ITS A.E. AS DEEMED LOAN AND WORKED OUT THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF INTEREST ON SUCH LOAN AT RS.8,67,68,889/ -. HE ACCORDINGLY WORKED OUT THE TOTAL TRANSFER PRICING ADJUSTMENT TO BE MADE IN THE ASSESSEES CASE AT RS.8,95,57,833/-. IN THE DRAFT A SSESSMENT ORDER DATED 26.12.2016 ADDITION TO THAT EXTENT WAS MADE BY THE ASSESSING OFFICER TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSING OFF ICER ALSO MADE FURTHER ITA NO. 2169/KOL/2017 A.Y. 2013 -2014 M/S. TCG LIFESCIENCES PVT. LIMITED 3 ADDITIONS OF RS.5,38,000/- ON ACCOUNT OF DISALLOWAN CE UNDER SECTION 14A AND RS.6,025/- ON ACCOUNT OF DISALLOWANCE OF INTERE ST EXPENSES. 3. AGAINST THE DRAFT ORDER OF THE ASSESSING OFFICER , OBJECTIONS WERE RAISED BY THE ASSESSEE BEFORE THE DISPUTE RESOLUTIO N PANEL (DRP). THE DRP VIDE ITS ORDER DATED 29.05.2017 PASSED UNDER SE CTION 144C(5) OF THE ACT CONFIRMED THE TRANSFER PRICING ADJUSTMENT WORKE D OUT BY THE TRANSFER PRICING OFFICER (TPO) ON ACCOUNT OF INTERE ST BY TREATING THE INVESTMENT MADE BY THE ASSESSEE IN THE SHARE CAPITA L OF ITS ASSOCIATED ENTERPRISE AS A DEEMED LOAN. THE DRP ALSO CONFIRMED THE DISALLOWANCE OF RS.5,38,000/- MADE BY THE ASSESSING OFFICER UNDER S ECTION 14A. THE DRP, HOWEVER, ALLOWED A PART RELIEF TO THE ASSESSEE IN T HE TRANSFER PRICING ADJUSTMENT OF RS.27,98,944/- WORKED OUT BY THE TPO IN RESPECT OF CORPORATE GUARANTEE FEES AND RESTRICTED THE SAID AD JUSTMENT TO RS.14,84,912/-. IN PURSUANCE OF THE ORDER PASSED BY THE DRP UNDER SECTION 144C(5), THE TOTAL INCOME OF THE ASSESSEE W AS DETERMINED BY THE ASSESSING OFFICER AT RS.22,77,37,443/- VIDE THE FIN AL ASSESSMENT ORDER PASSED UNDER SECTION 143(3) READ WITH SECTION 144C( 5) OF THE ACT VIDE ORDER DATED 28.07.2017 AFTER MAKING, INTER ALIA, THE FOLLOWING ADDITIONS:- (I) TRANSFER PRICING ADJUSTMENT RS.8,82,53,801/ - (II) DISALLOWANCE U/S 14A RS. 5,38,000/ - (III) DISALLOWANCE OF INTEREST EXPENSES RS. 6,025/ - 4. AGGRIEVED BY THE ORDER PASSED BY THE ASSESSING O FFICER UNDER SECTION 143(3)/144C(5) OF THE ACT, THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS:- 1. ORDERS BAD IN LAW AND ON FACTS 1.1. THAT THE ORDER PASSED BY THE LD. AO UNDER SECTION 1 43(3) READ WITH SECTION 144C(S) OF THE INCOME-TAX ACT, 1961 ( THE ACT') READ WITH THE ORDER PASSED BY THE LD. TRANSFER PRIC ING OFFICER ('TPO') UNDER SECTION 92CA(3) OF THE ACT AND THE DI RECTIONS ISSUED BY THE HON'BLE DISPUTE RESOLUTION PANEL CDRP ') IS BAD IN LAW AND VOID AB-INITIO. ITA NO. 2169/KOL/2017 A.Y. 2013 -2014 M/S. TCG LIFESCIENCES PVT. LIMITED 4 1.2. THAT THE HON'BLE DRP ERRED IN NOT HOLDING THA T THE ORDER OF TPO AND THE ORDER OF THE AO (IN SO FAR IT RELATES T O TRANSFER PRICING PROCEEDINGS) ARE VOID AB INITIO AS THE CONDITIONS O F SECTION 92C(3) OF THE ACT HAVE NOT BEEN SATISFIED. 1.3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP AND THE LD. TPO/AO, ERRED IN NOT DE MONSTRATING THAT THE MOTIVE OF THE APPELLANT WAS TO SHIFT PROFITS OU TSIDE OF INDIA BY MANIPULATING THE PRICES CHARGED IN ITS INTERNATIONA L TRANSACTIONS, WHICH IS A PRE-REQUISITE CONDITION TO MAKE ANY ADJU STMENT UNDER THE PROVISION OF CHAPTER X OF THE ACT. 2. ERRONEOUS TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF INVESTMENT MADE IN SHARES OF THE ASSOCIATED ENTERPRISE - 2.1. THE HON'BLE DRP AND THE LD. TPO/AO ERRED IN NO T APPRECIATING THAT THE TRANSACTION PERTAINING TO 'INVESTMENT IN E QUITY SHARES OF AE (COMPRISING OF SHARE PURCHASE/ SHARE SUBSCRIPTION)' IS NOT AN INTERNATIONAL TRANSACTION. 2.2. THE HON'BLE DRP AND THE LD. TPO/AO ERRED IN CO NSIDERING THE TRANSACTIONS OF SHARE SUBSCRIPTION/PURCHASE UNDERTA KEN BY THE APPELLANT DURING THE ASSESSMENT YEARS (AY') 2010-1 1 AND AY 2011-12 AS CONTINUING, AND THEREBY ERRED IN MAKING A TRANSF ER PRICING ADJUSTMENT, EVEN THOUGH THE APPELLANT HAD NOT ENTER ED INTO ANY SUCH TRANSACTION DURING THE AY 2013-14. 2.3. THE HON'BLE DRP AND THE LD. TPO/ AO ERRED IN N OT APPRECIATING THAT NO INCOME/POTENTIAL INCOME HAS ARISEN TO THE A PPELLANT FROM SUCH INTERNATIONAL TRANSACTION OF INVESTMENT IN EQU ITY SHARES AND THUS WOULD NOT FALL WITHIN THE PURVIEW OF INDIAN TR ANSFER PRICING REGULATIONS. 2.4. THE HON'BLE DRP AND THE LD. TPO/AO ERRED IN RE -CHARACTERIZING THE TRANSACTION OF INVESTMENT IN EQUITY SHARES AS D EEMED LOAN, PROVIDED BY THE APPELLANT TO ITS AE, BY TREATING TH E DIFFERENCE IN THE VALUE OF EQUITY SHARES INVESTED IN, I.E. DIFFERENCE BETWEEN THE ALLEGED ARM'S LENGTH PRICE AS ARRIVED BY THE LD. TPO AND AC TUAL INVESTED PRICE, WHICH IS BAD IN LAW AND NON-EST IN THE EYES OF LAW. 2.5. THE HON'BLE DRP AND THE LD. TPO/AO ERRED IN MA KING AN ADJUSTMENT FOR NOTIONAL INTEREST TOWARDS SUCH SHARE CAPITAL RE- CHARACTERIZED AS LOAN, WHICH IS NOT TENABLE AND PER MISSIBLE UNDER THE LAW. THE HON'BLE DRP AND THE LD. TPO/ AO FAILED TO APPRECIATE THE FACT THAT PROVISIONS OF CHAPTER X OF THE ACT DOES N OT CONFER THE POWER AND JURISDICTION UPON THE REVENUE DEPARTMENT TO MAK E SUCH AN ADJUSTMENT. 2.6. THE HON'BLE DRP ERRONEOUSLY UPHELD THE ACTION/ APPROACH OF THE LD. TPO/AO BY HOLDING THE INVESTMENT IN SHARES AS A N INTERNATIONAL TRANSACTION AND BENCHMARKING THE SAME FOR ARRIVING AT THE ARM'S ITA NO. 2169/KOL/2017 A.Y. 2013 -2014 M/S. TCG LIFESCIENCES PVT. LIMITED 5 LENGTH PRICE OF THE INTEREST RECEIVABLE ON THE EXCE SS AMOUNT INVESTED IN SHARES OF THE AE, BY PLACING RELIANCE ON THEIR O RDER OF EARLIER YEARS. 2.7. THE HON'BLE DRP HAS GROSSLY ERRED IN NOT GIVIN G CLEAR DIRECTIONS ON THE INTEREST RATE TO BE CONSIDERED WITH RESPECT TO THE TRANSFER PRICING ADJUSTMENT FOR NOTIONAL INTEREST MADE BY TH E LD. TPO/AO ON ACCOUNT OF SUCH INVESTMENT MADE IN SHARES OF THE AE S, EVEN THOUGH THE DRP IN EARLIER YEAR, I.E. AY 2012-13 HAD HELD SUCH INTEREST RATE TO BE LIBOR + 350 BPS. 2.8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE HON'BLE DRP AND THE LD. TPO/AO ERRED IN NOT CONSIDERING THAT TH E APPELLANT, BEING THE PARENT COMPANY, WAS CONCERNED WITH ONLY THE TOT AL AMOUNT TO BE INVESTED AS SHARE CAPITAL IN THE CONCERNED YEAR, AN D NOT THE NUMBER OF SHARES TO BE INVESTED PER SE AS SUCH, IF THE VALUE ALLEGED BY THE LEARNED TPO/AO WAS TO BE CONSIDERED, THE APPELLANT WOULD HAVE ONLY INVESTED IN HIGHER NUMBER OF SHARES AND THE TOTAL I NVESTMENT IN SHARE CAPITAL OF THE AE WOULD HAVE REMAINED UNCHANGED. 2.9. THE HON'BLE DRP AND THE LD. TPO/AO OUGHT TO HA VE APPRECIATED THAT THE SHARE SUBSCRIPTION IN AY 2010-11 AND AY 20 11-12 HAVE BEEN MADE OUT OF RESERVES AND SURPLUS OF THE APPELLANT I .E. OUT OF PROFITS, WHICH WERE ALREADY TAXED UNDER THE RELEVANT PROVISI ONS OF THE ACT, AND AS SUCH ADJUSTMENT ON ACCOUNT OF SHARES SUBSCRI PTION/ SHARE PURCHASE, WHICH IS MADE OUT OF TAXED PROFITS WOULD LEAD TO DOUBLE TAXATION. 2.10. THE HON'BLE DRP AND LD. TPO/AO ERRED IN DISRE GARDING THE FACT THAT INVESTMENT IN SHARES OF THE AE WAS A LEGITIMAT E BUSINESS TRANSACTION FOR WHICH THE APPELLANT EVEN PAID THE C APITAL GAINS TAX ACCRUING ON THE ACCOUNT OF INCOME ARISING DUE TO DI SPOSAL OF SUCH SHARES OF AE DURING THE YEAR. 3. ERRONEOUS TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF THE GUARANTEE FEES CHARGED TO THE ASSOCIATED ENTERPRISE- 3.1. THE HON'BLE DRP AND THE LD. TPO/ AO ERRED IN M AKING A TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF THE GUARANTEE FEES CHARGED BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISE. 3.2. THE CORPORATE GUARANTEE ISSUED BY THE APPELLAN T IN FAVOUR OF THE AE IS A SHAREHOLDER'S ACTIVITY WHICH DOES NOT REQUI RE ANY CHARGE AND HENCE CANNOT BE CONSIDERED AS AN INTERNATIONAL TRAN SACTION. 3.3. WITHOUT PREJUDICE TO THE ABOVE, THE DRP ERRED IN CONSIDERING 2.19% AS GUARANTEE FEE RECEIVABLE AS AGAINST 2% ACT UALLY RECEIVED BY THE APPELLANT. 3.4. WITHOUT PREJUDICE TO THE ABOVE, THE DIRECTIONS OF THE DRP IS ERRONEOUS IN SO FAR AS CONFIRMING THE ACTION OF THE TPO IN NOT FOLLOWING ANY OF THE PRESCRIBED METHODS FOR THE PUR POSE OF DETERMINATION OF ARM'S LENGTH PRICE OF GUARANTEE FE E. ITA NO. 2169/KOL/2017 A.Y. 2013 -2014 M/S. TCG LIFESCIENCES PVT. LIMITED 6 3.5. WITHOUT PREJUDICE TO THE ABOVE, THE HON'BLE DR P AND THE LD. TPO/AO ERRED IN REJECTING THE METHODICAL APPROACH O F THE APPELLANT WITHOUT ANY BASIS AND ASSUMING THE CREDIT RATING OF THE ASSOCIATED ENTERPRISE PURELY BASED ON GROSS ASSUMPTIONS. 3.6. WITHOUT PREJUDICE TO THE ABOVE, THE HON'BLE DR P AND THE LD. TPO/AO FOLLOWED AN AD-HOC APPROACH TO DETERMINE THE GUARANTEE FEE RATE AND DISREGARDED THE METHODICAL BENCHMARKING AP PROACH/ FRESH BENCHMARKING FOLLOWED BY THE APPELLANT. 4. ERRONEOUS DISALLOWANCE OF AMOUNT UNDER SECTION 1 4A OF THE ACT 4.1. THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN DISALLOWING AN AMOUNT OF RS. 5,38,000 UNDER SECTION 14A OF THE ACT. 5. ERRONEOUS DISALLOWANCE OF AMOUNT PAID AS INTERES T ON SERVICE TAX 5.1. THE LD. AO ERRED IN DISALLOWING AN AMOUNT OF R S. 3,924 PAID AS INTEREST ON SERVICE TAX. 6. INTEREST UNDER SECTION 2348 OF THE ACT 6.1. THE LD. AO ERRED IN LEVYING RS.23,24,948 AS IN TEREST UNDER SECTION 234B OF THE ACT. 7. INTEREST UNDER SECTION 234C OF THE ACT 7.1. THE LD. AO ERRED IN LEVYING RS.39,46,000 AS IN TEREST UNDER SECTION 234C OF THE ACT. 8. INITIATION OF PENALTY PROCEEDINGS 8.1. THE APPELLANT SUBMITS THAT BASED ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THERE WAS NO BASIS FOR T HE AO TO PROPOSE TO INITIATE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C ) OF THE ACT. THE APPELLANT SUBMITS THAT THE ABOVE GROUNDS ARE IN DEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, GROUND NO. 1 RAISED IN THIS APPEAL OF THE ASSESSEE IS GENERAL IN NATURE, WHICH DOES NOT CALL FOR ANY SPECIFIC ADJ UDICATION. 6. AS REGARDS GROUND NO. 2, THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE ISSUE INVOLVED THEREIN RELATIN G TO THE TRANSFER ITA NO. 2169/KOL/2017 A.Y. 2013 -2014 M/S. TCG LIFESCIENCES PVT. LIMITED 7 PRICING ADJUSTMENT MADE ON ACCOUNT OF INTEREST BY T REATING THE INVESTMENT MADE BY THE ASSESSEE IN THE SHARE CAPITA L OF ASSOCIATED ENTERPRISES AS DEEMED LOANS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSE ES OWN CASE FOR A.Y. 2010-11 VIDE ITS ORDER DATED 22.09.2017 PASSED IN I TA NOS. 966 & 1053/KOL/2017 VIDE PARAGRAPHS NO. 15 & 16, WHICH RE AD AS UNDER:- 15. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE PRELI MINARY ISSUE THAT ARISES FOR OUR CONSIDERATION IS WHETHER INTERNATIONAL TRANSACTION OF INVESTMENT IN EQUITY S HARES OF AN AE WOULD NOT FALL WITHIN THE PURVIEW OF SEC.92 OF T HE ACT, BECAUSE NO INCOME ARISES OUT OF SUCH INTERNATIONAL TRANSACTIONS? AS WE HAVE ALREADY SEEN THE HON'BLE B OMBAY HIGH COURT IN THE CASE OF SHELL INDIA MARKETS LTD. (SUPRA) AND VODAFONE (SUPRA) HAS TAKEN THE VIEW THAT AMOUNTS RE CEIVED ON ISSUE OF SHARE CAPITAL INCLUDING PREMIUM IS ON CAPI TAL ACCOUNT. SHARE PREMIUM HAVE BEEN MADE TAXABLE BY A LEGAL FICTION UNDER SECTION 56(2)(VIIB) OF THE ACT AND TH E SAME IS ENUMERATED AS INCOME IN SECTION 2(24 )(XVI) OF THE ACT. HOWEVER, WHAT IS BOUGHT INTO THE AMBIT OF INCOME IS THE PREMIUM RECEIVED FROM A RESIDENT IN EXCESS OF THE F AIR MARKET VALUE OF THE SHARES. IN THIS CASE WHAT IS BEING SOU GHT TO BE TAXED IS CAPITAL NOT RECEIVED FROM A NON-RESIDENT I .E. PREMIUM ALLEGEDLY NOT RECEIVED ON APPLICATION OF ALP, THERE FORE, IN THE ABSENCE OF EXPRESS LEGISLATION, NO AMOUNT RECEIVED, ACCRUED OR ARISING ON CAPITAL ACCOUNT TRANSACTION CAN BE SUBJE CTED TO TAX AS INCOME. THE SAID VIEW HAS BEEN REITERATED BY THE BOMBAY HIGH COURT IN THE CASE OF SHELL INDIA MARKETS LTD. (SUPRA). THE ITAT MUMBAI IN THE CASE OF TOPSGROUP ELECTRONIC SYS TEMS (SUPRA) HAS TAKEN THE VIEW THAT THE RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE ( SUPRA) WILL APPLY TO A CASE WHERE AN INDIAN ENTITY INVESTS IN SHARES OF AN AE ALSO. THE TRIBUNAL HELD THAT WHAT IS MADE APP LICABLE FOR INBOUND SHARE INVESTMENT (INVESTMENTS IN SHARES OF INDIAN SUBSIDIARY BY THE HOLDING COMPANY (NON-RESIDENT) WO ULD BE EQUALLY APPLICABLE TO OUTBOUND SHARE INVESTMENTS AL SO (INVESTMENT BY A RESIDENT INDIAN COMPANY IN THE SHA RES OF THE NON-RESIDENT AE). THE PARAMETERS TO BE APPLIED CANN OT BE DIFFERENT FOR OUTBOUND INVESTMENT AND INBOUND INVES TMENTS. THE TRANSACTION OF PURCHASE OF SHARES BEING ON CAPI TAL ACCOUNT HAS NOW BEEN SETTLED WITH THE PRESS NOTE RE LEASED BY THE GOVERNMENT OF INDIA DATED 28.01.2015. THE UNION CABINET ACCEPTED THE ORDER OF BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES PRIVATE LIMITED (VISPL) DAT ED 10.10.2014. 16. THE UNION CABINET WHILE ACCEPTING THE BOMBAY HI GH COURT ORDER, DATED 10.10.2014, SPECIFICALLY NOTED THE FOL LOWING OBSERVATIONS: ITA NO. 2169/KOL/2017 A.Y. 2013 -2014 M/S. TCG LIFESCIENCES PVT. LIMITED 8 ..... B) THE CRUCIAL WORDS 'SHALL BE CHARGEABLE TO INCOME TAX' WHICH ARE FOUND IN SECTION 42(2) OF THE 1922 ACT ARE ABSENT IN CHAPTER X OF THE ACT. .... THEREFORE IT IS CLEAR THAT THE DEEMED INCOME WHICH WAS CHARGED TO TAX UNDER SECTION 42(2) OF 1922 ACT WAS DONE AWAY WITH UNDER THIS ACT. ' C) THE TAX CAN BE CHARGED ONLY ON INCOME AND IN THE ABSENCE OF ANY INCOME ARISING, THE ISSUE OF APPLYIN G THE MEASURE OF ARM'S LENGTH PRICING TO TRANSACTIONAL VALUE/ CONSIDERATION ITSELF DOES NOT ARISE.' D) IF ITS INCOME WHICH IS CHARGEABLE TO TAX, UNDER THE NORMAL PROVISIONS OF THE ACT, THEN ALONE CHAPTER X OF THE ACT COULD BE INVOKED. SECTIONS 4 AND 5 OF THE ACT BRINGS /CHARGES TO TAX TOTAL INCOM E OF THE PREVIOUS YEAR. THIS WOULD TAKE US TO THE MEANING OF THE WORD INCOME UNDER THE ACT AS DEFINED IN SECTION 2(24) OF THE ACT. THE AMOUNT RECEIVED ON ISSUE OF SHARES IS ADMITTEDLY A CAPITAL ACCOUNT TRANSACTION NOT SEPARATELY BROUGHT WITHIN THE DEFINITION OF INCOME, EXCEPT IN CASES COVERED B Y SECTION 56(2)(VIIB) OF THE ACT. THUS SUCH CAPITAL ACCOUNT CANNOT BE BROUGHT TO TAX AS ALREADY DISCUSSED HEREIN ABOVE WHILE CONSIDERING THE CHALLENGE TO THE GROUNDS AS MENTIONED IN IMPUGNED ORDER. E) ..........THE ALP IS MEANT TO DETERMINE THE REAL VALUE OF THE TRANSACTION ENTERED INTO BETWEEN AES. IT IS A RE-COMPUTATION EXERCISE TO BE CARRIED OUT ONLY WHEN THE INCOME ARISES IN CASE OF AN INTERNATIONAL TRANSACTION BETWEEN AES. IT DOES NOT WARRANT RE- COMPUTATION OF A CONSIDERATION RECEIVED/GIVEN ON CAPITAL ACCOUNT.' IT IS CLEAR FROM A READING OF PARA 'E' OF THE CABIN ET PRESS RELEASE THAT, COMPUTATION OF ALP WILL ARISE INCOME ARISES FROM AN INTERNATIONAL TRANSACTION BETWEEN AES. IT DOES N OT WARRANT DETERMINATION OR RE-COMPUTATION OF A CONSIDERATION RECEIVED / GIVEN ON CAPITAL ACCOUNT. THUS, GOING BY THE ABOVE, THE TRANSACTION OF INVESTMENT IN SHARES BEING PAYMENT O N CAPITAL ACCOUNT FALLS OUTSIDE THE PURVIEW. 7. THE AFORESAID DECISION RENDERED FOR A.Y. 2010-11 HAS SUBSEQUENTLY BEEN FOLLOWED BY THE TRIBUNAL IN A.Y. 2011-12 & 201 2-13 TO DECIDE THE SIMILAR ISSUE IN FAVOUR OF THE ASSESESE VIDE ITS OR DER DATED 17.11.2017 PASSED IN ITA NOS. 121/KOL/2016 & 647/KOL/2017. SIN CE THE ISSUE ITA NO. 2169/KOL/2017 A.Y. 2013 -2014 M/S. TCG LIFESCIENCES PVT. LIMITED 9 INVOLVED IN THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF A.YS. 2010- 11, 2011-12 AND 2012- 13, WE RESPECTFULLY FOLLOW THE ORDERS OF THE COORDI NATE BENCH OF THIS TRIBUNAL FOR A.YS. 2010-11, 2011-12 & 2012-13 AND D ELETE THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN R ESPECT OF INTEREST BY TREATING THE INVESTMENT MADE BY THE ASSESSEE-COMPAN Y IN THE SHARE CAPITAL OF ITS ASSOCIATED ENTERPRISES AS DEEMED LOA NS. GROUND NO. 2 OF THE ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. 8. AS REGARDS THE GROUND NO. 3, THE LD. REPRESENTAT IVES OF BOTH THE SIDES HAVE AGREED THAT THE ISSUE INVOLVED THEREIN R ELATING TO THE TRANSFER PRICING ADJUSTMENT MADE ON ACCOUNT OF GUARANTEE FEE S IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 22.09.2017 (SUPRA) FOR A.Y. 2010-11, WHEREIN A SIMILAR ISSUE W AS DECIDED VIDE PARAGRAPHS NO. 25 & 26 AS UNDER:- 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN T HE FOLLOWING DECISIONS, VARIOUS BENCHES OF ITAT HAVE TAKEN THE V IEW THAT 0.25% TO 0.60% GUARANTEE COMMISSION CHARGED FOR PROVIDING GU ARANTEE WAS AT ANN'S LENGTH: SL. NO. NAME OF CASE LAWS RELEVANT PARA CORPORATE GUARANTEE FEE UPHELD MOSTLY IN THE RANGE OF 0.25% TO 0.60% REFERENCE 1. THOMAS COOK(LNDIA) LIMITED VS.- DCIT[2016]70 AXMANN.COM 322 (MUMBAI - TRIB) '6..... CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE AND ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD, WE, THEREFORE PROCEED TO UPHOLD THE RATE OF 0.50% FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH RATE OF THE GUARANTEE COMMISSION FEE.' PARA-6 PG, NO.10/11 2. THOMAS COOK (LNDIA) LIMITED VS ACIT[20L6]69 TAXMANN.COM 443 (MUMBAI - TRIB) '6 ..... CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE AND ON THE BASIS OF THE MATERIAL AVAILABLE NO RECORD, WE, THEREFORE PROCEED TO UPHOLD THE RATE OF 0.50% FOR THE PARA-6 PG. NO.5 ITA NO. 2169/KOL/2017 A.Y. 2013 -2014 M/S. TCG LIFESCIENCES PVT. LIMITED 10 PURPOSE OF DETERMINING THE ARM'S LENGTH RATE OF THE GUARANTEE COMMISSION FEE.' 3. GODREJ CONSUMER PRODUCTS LTD. VS ACIT [2016] 69 TAXMANN. CORN 436 '46 .... THUS, ON CONSIDERATION OF OVERALL FACTS AND CIRCUMSTANCES IN THE LIGHT OF JUDICIAL PRONOUNCEMENTS REFERRED TO ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE ARM'S LENGTH PRICE OF THE CORPORATE GUARANTEE SHOULD BE FIXED AT 0.5% PARA-46, PG. NO.16 4. EVEREST KANTO CYLINDER LTD. VS ACIT [2015] 56 TAXMANN.COM 361 (MUMBAI - TRIB.) '15 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL AND ALSO CONSIDERING THE INTERNAL CUP BEING THE GUARANTEE COMMISSION PAID BY THE ASSESSEE TO THE ICICI BANK FOR OBTAINING GUARANTEE, WE HOLD THAT THE ARM'S LENGTH GUARANTEE COMMISSION IN RESPECT OF ALL THREE TRANSACTIONS OF GUARANTEE TO ITS AE AT DUBAI, CHINA AND USA SHALL BE TAKEN AT 0.5%. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE ADJUSTMENT ON ACCOUNT OF GUARANTEE COMMISSION BY TAKING THE ARM'S LENGTH GUARANTEE COMMISSION AT 0.5%. PARA-15, PG. NO.7 5. ADITYA BIRLA MINACS WORLDWIDE LTD. VS. DCIT [2015] 56 TAXMANN. CORN 317 (MUMBAI - TRIB.) '2.6 ACCORDINGLY, FOLLOWING THE EARLIER DECISIONS OF THIS TRIBUNAL, WE DIRECT THE AO/TPO TO ADOPT 0.5% AS ARM'S LENGTH GUARANTEE COMMISSION CHARGES IN RESPECT OF THE GUARANTEE PROVIDED BY THE ASSESSEE FOR OBTAINING THE LOAN BY THE AE.' PARA-15, PG.NO.7 6. MYLAN LABORATORIES LTD. VS ACIT [2015] 63 TAXMANN.COM 1 79 (HYDERABAD - TRIB.) '7.2 ..... RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE TPO TO ADOPT 0.53% AS THE GUARANTEE COMMISSION RATE INSTEAD OF 2% ADOPTED BY HIM.' PARA-7.2, PG NO.8 ITA NO. 2169/KOL/2017 A.Y. 2013 -2014 M/S. TCG LIFESCIENCES PVT. LIMITED 11 M/S. MAHINDRA INTERTRADE LTD. VS DCIT [ITA NO.269IMUML2014] 5 CONSIDERING THE DECISION OF CO- ORDINATE BENCH ON SIMILAR ISSUE, WE DIRECT THE AO TO EXCEED THE CORPORATE GUARANTEE FEES @ .5% AND MADE THE ADJUSTMENT ACCORDINGLY. PARA-5, PG NO.3 26. IN THE LIGHT OF THE AFORESAID JUDICIAL PRONOUNC EMENTS, WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE AO OUGHT TO HAVE BEEN DELETED BY THE CIT(A) AS THE GUARANTEE COMMISSION CHARGED B Y THE ASSESSEE HAS TO BE REGARDED AS AT ARMS LENGTH. WE THEREFORE DIR ECT THE ADDITION MADE IN THIS REGARD BE DELETED. FURTHER, IT IS WORT HWHILE TO MENTION THAT THE RECENT SAFE HARBOUR RULES NOTIFIED BY THE CENTRAL BOARD OF DIRECT TAXES (NOTIFICATION NO. 46/2017 DATED 7 JUNE 2017) THE GUARANTEE COMMISSION/FEE DECLARED IN RELATION TO TH E ELIGIBLE INTERNATIONAL TRANSACTION IS AT THE RATE NOT LESS T HAN 1% PER ANNUM ON THE AMOUNT GUARANTEED. THE RELEVANT EXTRACTS ARE RE PRODUCED BELOW: 6. PROVIDING CORPORATE GUARANTEE REFERRED TO IN SUB-ITEM (A) OR SUB- ITEM (B) OF ITEM (V) OF RULE 10TC. THE COMMISSION OR FEE DECLARED IN RELATION TO THE ELIGIBLE INTERNATIONAL TRANSACTION IS AT THE RATE NOT LESS THAN ONE PERCENT PER ANNUM ON THE AMOUNT GUARANTEED. THUS, BASED ON THE ABOVE, IT IS EVIDENT THAT THE GU ARANTEE FEES CHARGED BY THE ASSESSEE IS AT ARMS LENGTH. WE, THEREFORE, DIRECT THAT THE ADJUSTMENT PROPOSED BY THE LD. TPO/AO BE DELETED. THE ABOVE DECISION RENDERED FOR A.Y. 2010-11 HAS BE EN FOLLOWED BY THE TRIBUNAL TO DECIDE THE SIMILAR ISSUE IN FAVOUR OF T HE ASSESSEE EVEN IN A.Y. 2011-12 AND 2012-13 VIDE ITS COMMON ORDER DATED 17. 11.2017 PASSED IN ITA NO. 121/KOL/2016 & 647/KOL/2017. SINCE THE ISSU E INVOLVED IN THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MATERIA L FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF A.YS. 2010-11, 2011-12 AND 2 012-13, WE RESPECTFULLY FOLLOW THE ORDERS OF THE COORDINATE BE NCH OF THIS TRIBUNAL FOR A.YS. 2010-11, 2011-12 & 2012-13 AND DELETE THE ADD ITION RELATING TO THE TRANSFER PRICING ADJUSTMENT MADE ON ACCOUNT OF GUAR ANTEE FEES CHARGED TO THE ASSOCIATED ENTERPRISES. GROUND NO. 3 OF THE ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. ITA NO. 2169/KOL/2017 A.Y. 2013 -2014 M/S. TCG LIFESCIENCES PVT. LIMITED 12 9. AS REGARDS THE GROUND NO. 4, IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATING TO DISALLOWANCE UNDER SECTION 14A IS ALSO COVERED BY THE ORDER OF THE TRIBUNAL DATED 17.11.2017 FOR A.YS. 20 11-12 AND 2012-13 (SUPRA), WHEREIN THE DISALLOWANCE MADE UNDER SECTIO N 14A WAS DELETED BY THE TRIBUNAL ON THE GROUND THAT THERE WAS NO EXE MPT INCOME ACTUALLY EARNED BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. TO ARRIVE AT THIS CONCLUSION, THE TRIBUNAL RELIED ON THE DECISIO N OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED VS.- CIT [317 ITR 33]. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, NO E XEMPT INCOME WAS EARNED BY THE ASSESSEE EVEN DURING THE YEAR UNDER C ONSIDERATION AND KEEPING IN VIEW THIS UNDISPUTED FACTUAL POSITION, W E DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 14A BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR A.Y. 2011-12 AS WELL AS THE DECISION OF THE HONBLE DELH I HIGH COURT IN THE CASE OF CHEMINVEST LIMITED (SUPRA). GROUND NO. 4 IS ACCORDINGLY DISMISSED. 10. AT THE TIME OF HEARING BEFORE US, THE LD. COUNS EL FOR THE ASSESSEE HAS NOT PRESSED GROUNDS NO. 5 TO 8. THE SAME ARE ACCORD INGLY DISMISSED AS NOT PRESSED. 11. AS REGARDS THE ISSUES RAISED IN GROUNDS NO. 6 & 7 RELATING TO LEVY OF INTEREST UNDER SECTION 234B AND 234C, IT IS OBSERVE D THAT THE SAME ARE CONSEQUENTIAL IN NATURE. THE ASSESSING OFFICER IS A CCORDINGLY DIRECTED TO ALLOW CONSEQUENTIAL RELIEF TO THE ASSESSEE ON THESE ISSUES. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 15, 201 9. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER VICE -PRESIDENT (KZ) KOLKATA, THE 15 TH DAY OF MARCH, 2019 ITA NO. 2169/KOL/2017 A.Y. 2013 -2014 M/S. TCG LIFESCIENCES PVT. LIMITED 13 COPIES TO : (1) M/S. TCG LIFESCIENCES PVT. LIMITED, (FORMERLY TCG LIFESCIENCES LIMITED) BLOCK-BN, PLOT-7, SECTOR-V, SALT LAKE ELECTRONICS COMPLEX, KOLKATA-700 091 (2) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(2), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (3) DISPUTE RESOLUTION PANEL-2, NEW DELHI, (4) COMMISSIONER OF INCOME TAX , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.