M/s.Tuppadahalli Energy India Private Limited, Bangalore V. Deputy Commissioner of Income Tax, Bangalore

ITA 2207/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7476 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 17-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 15-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: SAMPATH RAGHUNATHAN
• Keywords: Transfer pricing; Principle of natural justice; Additional evidence
• Section: 143(3); 244A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER IT (TP) A NO. 2207 /BANG/201 6 ASSESSMENT YEAR : 20 12 - 13 M/S. TUPPADAHALLI ENERGY INDIA PVT. LTD., C-402, 4 TH FLOOR, TOWER C, THE MILLENIA 1 & 2, MURPHY ROAD, ULSOOR, BANGALORE 560 008. PAN: AADCT 5680R VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 7(1)(1), BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI SAMPATH RAGHUNATHAN, ADVOCATE REVENUE BY : SHRI S.K. SINGH, CIT (DR) DATE OF HEARING : 03 . 10 .201 7 DATE OF PRONOUNCEMENT : 13 .10 .2017 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ASSESSMENT ORDER DATED 13.10.2016 FOR ASSESSMENT YEAR 2012-13 PASSED BY TH E AO U/S. 143(3) R.W.S. 144C OF THE IT ACT, 1961 AS PER THE DIRECTIONS OF D RP. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. THE GROUNDS STATED HEREUNDER ARE INDEPENDENT OF, AN D WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT SUBMITS AS UNDER: 1 THE ASSESSMENT ORDER ISSUED BY THE ASSESSING OFFI CER AND THE TRANSFER PRICING ORDER ISSUED BY THE TRANSFER PRICI NG OFFICER ARE BAD IN LAW (A) THE LD. DEPUTY COMMISSIONER OF INCOME-TAX, CIRC LE 7(1)(1) ('LD. AO') / LD. DEPUTY COMMISSIONER OF INCOME TAX (TRANS FER PRICING) - 2(2)(2) ('LD. TPO') ERRED ON FACTS AND IN LAW IN MA KING AN ADDITION OF INR 14,215,217 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT TO THE ARM'S LENGTH PRICE WITH RESPECT T O INTEREST PAID ON EXTERNAL COMMERCIAL BORROWING ('ECB') AVAILED FROM ITS ASSOCIATED IT(TP)A NO.2207/BANG/2016 PAGE 2 OF 5 ENTERPRISE ('AE'). (B) THE DRAFT / ASSESSMENT ORDER ISSUED BY THE LD. AO, IS BAD ON FACTS AND IN LAW, AND IS IN VIOLATION OF THE PRINCIPLES O F NATURAL JUSTICE. (C) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO / TPO ERRED IN NOT PROVIDING THE APPELLANT AN OPPORTU NITY OF BEING HEARD PRIOR TO INCORPORATING A TRANSFER PRICING ADJ USTMENT ON THE BASIS OF THE SPANISH PRIME LENDING RATE ('PLR') VIS -A-VIS THE BASIS DEMONSTRATED BY THE APPELLANT FOR CONCLUDING THE AR M'S LENGTH NATURE OF INTEREST PAID ON ECB (I.E. INTERNAL COMPARABLE U NCONTROLLED PRICE ('CUP') DATA FURNISHED BY THE APPELLANT / RELIANCE PLACED ON RBI MASTER CIRCULAR). (D) THE LD. DISPUTE RESOLUTION PANEL ('DRP') ERRED IN REJECTING THE ECB BENCHMARKING ANALYSIS FURNISHED BY THE APPELLAN T AS ADDITIONAL EVIDENCE, DURING THE COURSE OF PROCEEDINGS BEFORE T HE LD. DRP. (E) THE LD. AO / TPO ERRED ON FACTS AND IN LAW IN R EJECTING THE TRANSFER PRICING STUDY MAINTAINED BY THE APPELLANT, WITHOUT PROVIDING COGENT REASONS FOR REJECTING THE APPROACH ADOPTED BY THE APPELLANT FOR JUSTIFYING THE ARM'S LENGTH NATURE OF INTEREST PAID ON ECB AVAILED. 2 DETERMINATION OF ARM'S LENGTH PRICE BY THE TPO (A) THE LD. AO / TPO ERRED ON FACTS AND IN LAW IN D ISREGARDING EURLBOR AS THE BASIS FOR BENCHMARKING ARM'S LENGTH PRICE OF INTEREST PAID ON ECB, BEING A FOREIGN CURRENCY DENOMINATED L OAN AVAILED BY THE APPELLANT. (B) THE LD. AO / TPO ERRED ON FACTS AND IN LAW IN D ISREGARDING EURLBOR ADOPTED BY THE APPELLANT AS THE BASIS FOR A VAILING A EURO DENOMINATED ECB, VIS-A-VIS THE LIBOR, WHICH IS PREV ALENT FOR TRANSACTIONS BETWEEN BANKS FOR SHORT TERM LOANS. (C) THE LD. AO / TPO ERRED ON FACTS AND IN LAW IN C OMPUTING THE EFFECTIVE RATE OF INTEREST PAID ON ECB AT 7.90% VIS -A-VIS 6.65% DEMONSTRATED BY THE APPELLANT BASED ON 6-MONTHS EUR LBOR RATE PREVAILING DURING FY 2011-12. (D) THE LD. AO / TPO ERRED ON FACTS AND IN LAW IN A DOPTING THE FOREIGN AE (VIZ. ACCIONA ENERGIA INTERNACIONAL SA) AS THE TESTED PARTY, DISREGARDING THE FACT THAT THE TESTED PARTY OUGHT TO TAKEN AS THE APPELLANT, BEING RESIDENT OF THE COUNTRY WHEREIN TH E ECB HAS BEEN RECEIVED / CONSUMED (VIZ. INDIA). (E) THE LD. AO / TPO ERRED IN ADOPTING THE SPANISH PLR AS THE EXTERNAL BENCHMARK RATE FOR DETERMINING THE ARM'S L ENGTH RATE OF INTEREST ON ECB AVAILED, DISREGARDING THE INTERNAL CUP DATA IT(TP)A NO.2207/BANG/2016 PAGE 3 OF 5 FURNISHED BY THE APPELLANT. (F) THE LD. AO / TPO ERRED IN NOT TAKING COGNIZANCE OF THE FACT THAT THE INTERNAL CUP DATA FURNISHED BY THE APPELLANT WA S PREFERABLE AS BENCHMARK VIS-A-VIS EXTERNAL CUP ADOPTED BY THE LD. TPO. (G) WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LD. TPO ERRED IN NOT UNDERTAKING A BENCHMARKING ANALYSIS FOR DETERMINING ARM'S LENGTH NATURE OF INTEREST PAID ON ECB, ADOPTING THE INDIAN APPELLANT AS THE TESTED PARTY. 3 INTEREST UNDER SECTION 244A OF THE ACT THE LEARNED AO HAS ERRED IN COMPUTING INTEREST UNDE R SECTION 244A OF THE ACT PURSUANT TO THE REFUND DUE TO THE APPELL ANT. 4 DIRECTIONS ISSUED BY THE LD. DRP THE LD. DRP HAS ERRED IN LAW AND ON FACTS IN NOT TA KING COGNIZANCE OF THE OBJECTIONS FILED BY THE APPELLANT IN RELATION T O THE DRAFT ASSESSMENT ORDER ISSUED BY THE LD. AO / TP ORDER AND CONFIRMIN G THE DRAFT ORDER OF THE LD. AO. 5 PENALTY PROCEEDINGS THE APPELLANT SUBMITS THAT BASED ON THE FACTS AND C IRCUMSTANCES OF THE CASE, THERE WAS NO BASIS FOR THE AO TO INITIATE PROCEEDINGS UNDER SECTION 274 READ WITH SECTION 271 OF THE ACT. 6 RELIEF THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER, BY D ELETION, SUBSTITUTION, MODIFICATION OR OTHERWISE, THE ABOVE GROUNDS OF APP EAL, EITHER BEFORE OR DURING THE HEARING OF THE APPEAL. THE APPELLANT SUBMITS THAT THE ABOVE GROUNDS ARE IN DEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 3. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT INTE REST ON ECB IS PAID BY THE ASSESSEE AS PER THE LOAN AGREEMENT BETWEEN THE ASSE SSEE AND ITS AE DATED 18.11.2010 COPY AVAILABLE ON PAGES 167 TO 172 OF PA PER BOOK. IN PARTICULAR OUR ATTENTION WAS DRAWN TO PAGE NO. 168 OF PAPER BOOK A ND IT WAS POINTED OUT THAT AGREED RATE OF INTEREST IS 6 MONTHS EURIBOR + 500 B ASIS POINTS AND THE PERIOD OF LOAN IS 8 YEARS. THEREAFTER HE DRAWN OUR ATTENT ION TO RBI CIRCULAR NO. RBI/2011-12/356 DATED 01.07.2011 COPY AVAILABLE ON PAGES 112 TO 166 OF THE PAPER BOOK AND IN PARTICULAR, OUR ATTENTION WAS DRA WN TO PAGE NO. 120 OF PAPER BOOK AND IT WAS POINTED OUT THAT FOR LOAN HAVING MA TURITY PERIOD OF MORE THAN 5 YEARS, THE INTEREST CAN BE PAID AT THE RATE OF EURI BOR + 500 BASIS POINTS. IT(TP)A NO.2207/BANG/2016 PAGE 4 OF 5 THEREAFTER HE SUBMITTED THAT AS PER THE TRIBUNAL OR DER RENDERED IN THE CASE OF DCIT VS. GEODESIC LTD. AS REPORTED IN 62 TAXAMANN.C OM 383 (MUMBAI TRIBUNAL) ORDER COPY AVAILABLE ON PAGES 21 TO 23 OF THE COMPILATION OF THE CASE LAWS, IT WAS HELD THAT IF INTEREST PAYMENT IS AS PE R RBI MASTER CIRCULAR THEN THE SAME CAN BE FOLLOWED FOR BENCH MARKING THE ALP IN R ESPECT OF INTEREST PAYMENT ON ECB. HE ALSO SUBMITTED THAT COPY OF ANOTHER TRI BUNAL ORDER RENDERED IN THE CASE OF ION EXCHANGE (I) LTD. VS. ADDL. CIT IN ITA NO. 5109/MUM/2013 DATED 10.02.2014 IS AVAILABLE ON PAGES 24 TO 34 AND IN TH IS CASE ALSO, SIMILAR ISSUE WAS DECIDED ON THE SAME LINE AND IN THAT CASE ALSO, IT WAS HELD THAT LD. CIT(A) HAS RIGHTLY HELD THAT ACCORDING TO MASTER CIRCULAR ISSUED BY RBI, THE ALP IS PROPER. HE POINTED OUT IN THAT CASE ALSO, THE ISSU E IN DISPUTE WAS OF PAYMENT OF INTEREST ON ECB. 4. AS AGAINST THIS, THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND RELIANCE HAS BEEN PLACED BY HIM ON JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. COTTON NATURALS (I) (P.) LTD. AS REPORTED IN 55 TAXMANN.COM 523 (DELHI). HE SUBMITTED COPY OF THIS JUDGMENT AND POINTED OUT THAT AS PER THIS JUDGMENT, INTEREST RATE FOR LOAN A DVANCED TO FOREIGN SUBSIDIARY BY INDIAN COMPANY SHOULD BE COMPUTED BASED ON MARKE T INTEREST APPLICABLE TO THE COUNTRY IN WHICH LOAN HAS TO BE REPAID. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIN D THAT THERE IS NO DISPUTE THAT THE INTEREST PAID BY THE ASSESSEE ON ECB IS WITHIN THE RANGE OF INTEREST PAYMENT SANCTIONED BY RBI IN ITS MASTER CIRCULAR BE ING LIBOR + 500 BASIS POINTS. AS PER TWO TRIBUNAL ORDERS CITED BY LD. AR OF ASSESSEE, IT WAS HELD THAT THIS IS A VALID BASIS TO DETERMINE THE ALP OF INTER EST PAYMENT ON ECB. REGARDING JUDGMENT OF HONBLE DELHI HIGH COURT CITE D BY LD. DR OF REVENUE, WE FIND THAT AS PER THIS JUDGMENT ALSO, INTEREST RATE FOR LOAN ADVANCED IS TO BE DETERMINED AS PER MARKET RATE APPLICABLE ON THE BAS IS OF INTEREST PAYABLE ON CURRENCY IN WHICH THE LOAN HAS TO BE REPAID. IN TH E PRESENT CASE, LOAN HAS TO BE REPAID IN EURO AND THEREFORE, EURIBOR + 500 BASIS P OINTS IS PROPER FOR DETERMINING THE ALP OF INTEREST PAYMENT AS PER THIS JUDGMENT ALSO. THUS THE REVENUE GETS NO HELP FROM THIS JUDGMENT RATHER THIS JUDGMENT OF HPNBLE DELHI IT(TP)A NO.2207/BANG/2016 PAGE 5 OF 5 HIGH COURT SUPPORTS THE CASE OF THE ASSESSEE. HENC E WE DELETE THE ADDITION MADE BY THE AO AND TPO. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNT ANT MEMBER BANGALORE, DATED, THE 13 TH OCTOBER, 2017. /MS/ COPY TO: 1. APP ELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.