M/s. Redington (India) Limited, CHENNAI V. ACIT, CHENNAI

ITA 221/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95888 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 08-02-2013
• Court: TRIBUNAL
• Department Lawyers: S BALASUBRAMANIAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Transfer pricing; Business expenditure; International transaction; Notional interest
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , ! ' , # $% & [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A.NO.221/MDS/2013 / ASSESSMENT YEAR : 2008-09 M/S REDINGTON (INDIA) LTD SPL GUINDY HOUSE 95, MOUNT ROAD, GUINDY CHENNAI 600 032 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE V(3) CHENNAI [PAN AABCR 0347 P ] ( '( / APPELLANT) ( )*'( /RESPONDENT) / APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : SHRI S. BALASUBRAMANIAN, CIT / DATE OF HEARING : 16-07-2015 / DATE OF PRONOUNCEMENT : 07-08-2015 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, CHENNA I, DATED 26.10.2012 AND PERTAINS TO ASSESSMENT YEAR 2008-09. 2. SHRI R. VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE FIRST ISSUE ARISES FOR CONSIDERA TION IS ADJUSTMENT OF ITA NO.221/13 :- 2 -: ` 5,49,000/- IN RESPECT OF CORPORATE GUARANTEE PROVID ED TO ASSOCIATED ENTERPRISE NAMELY, M/S REDINGTON DISTRIBUTION PTE L TD., SINGAPORE. 3. REFERRING TO THE ORDER OF THIS TRIBUNAL DATED 26.6. 2015 IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08, TH E LD. COUNSEL SUBMITTED THAT AN IDENTICAL ISSUE CAME BEFORE THIS TRIBUNAL AND THIS TRIBUNAL FOUND THAT THE CORPORATE GUARANTEE GIVEN B Y THE ASSESSEE TO THE ASSOCIATED ENTERPRISE DOES NOT INVOLVE ANY COST TO THE ASSESSEE, THEREFORE, IT HAS NO BEARING ON THE PROFIT, INCOME, LOSS OR ASSETS OF THE ASSESSEE. THEREFORE, SUCH GUARANTEE IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION. 4. ON THE CONTRARY, SHRI S. BALASUBRAMANIAN, LD. DEPAR TMENTAL REPRESENTATIVE SUBMITTED THAT AN IDENTICAL ISSUE CA ME BEFORE TRIBUNAL WITH REGARD TO CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE TO THE VERY SAME ASSOCIATED ENTERPRISE AT SINGAPORE. THIS TRIBUNAL AFTER PLACING ITS RELIANCE ON THE DECISION OF THE DELHI B ENCH OF THIS TRIBUNAL IN BHARTI AIRTEL LTD VS ADDL. CIT, 43 TAXMANN.COM 1 50, FOUND THAT CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE TO IT S ASSOCIATED ENTERPRISE AT SINGAPORE DOES NOT INVOLVE ANY COST T O THE ASSESSEE THEREFORE, IT WAS OUTSIDE THE AMBIT OF INTERNATIONA L TRANSACTION. THIS TRIBUNAL FURTHER FOUND THAT THE CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE CANNOT BE SUBJECT MATTER OF ADJUSTMENT FOR DETERMINING ALP. ITA NO.221/13 :- 3 -: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. AS RIGHTLY SUBMITTED BY THE LD. COUNSEL AND THE LD. DR, FOR THE ASSESSMENT YEAR 2007-08, A SIMILAR ADJUSTMENT WAS MADE TO THE EXTENT OF ` 1,84,17,371/-. THIS TRIBUNAL AFTER PLACING ITS RELIANCE ON THE DECISION OF THE DELHI BENCH OF THIS TRIBUNAL IN BHARTI AIRTEL LTD. (SUPRA), FOUND THAT PROVIDING CORPORATE GUARANTEE TO ITS ASSOCIATED ENTERPRISE DO ES NOT INVOLVE ANY COST TO THE ASSESSEE, THEREFORE, IT IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION TO WHICH ALP ADJUSTMENT HAS TO BE MADE. SINCE THE FACTS ARE IDENTICAL FOR THE YEAR UNDER CONSIDERATION, TH IS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DECISION OF THIS TRIBUN AL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 IS EQUALLY APP LICABLE. ACCORDINGLY, BY FOLLOWING THE DECISION OF THIS TRIB UNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08, THE ADDITION MADE BY THE LOWER AUTHORITIES TO THE EXTENT OF ` 5,49,000/- IS DELETED. 6. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISALLOW ANCE OF TRADE MARK LICENCE FEE. 7. SHRI R. VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE VERY SAME ISSUE CAME BEFORE THIS TRIBUNAL FOR ASSESSMENT YEAR 2007-08. THIS TRIBUNAL, REFERRING TO ITS EARLIER ORDER ITA NO.221/13 :- 4 -: FOR THE ASSESSMENT YEAR 2009-10 IN ASSESSEES OWN CASE AND THE JUDGMENT OF THE APEX COURT IN S.A. BUILDERS VS CIT , 288 ITR 1, FOUND THAT THE EXPENDITURE IS AN ALLOWABLE BUSINESS EXPEN DITURE. 8. WE HEARD SHRI BALASUBRAMANIAN, LD. DR ALSO. 9. AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FOR THE ASS ESSEE, FOR THE ASSESSMENT YEAR 2007-08, THE ASSESSING OFFICER DISALLOWED A SUM OF ` 1,80,98,708/- TOWARDS TRADE MARK LICENCE FEE. THI S TRIBUNAL FOUND THAT NOTHING UNCOMMON IN THE ASSESSEES MAKING PAY MENT TO USE THE TRADE MARK REDINGTON TO M/S REDINGTON DISTRIBUTIO N PTE. LTD., SINGAPORE. BY PLACING ITS RELIANCE ON THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 AND THE JUDGMENT OF THE APEX COURT IN S.A. BUILDERS(SUPRA), THIS TRIBUN AL FOUND THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS AN ALLOWABL E EXPENDITURE. SINCE THE FACTS ARE IDENTICAL, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CLAIM OF THE ASSESSEE HAS TO BE ALLOWED A S BUSINESS EXPENDITURE. BY FOLLOWING THE ORDERS OF THIS TRIBU NAL FOR ASSESSMENT YEAR 2009-10 AND 2007-08, THE ORDERS OF THE LOWER A UTHORITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLO W THE CLAIM OF THE ASSESSEE TOWARDS TRADE MARK LICENCE FEE AS BUSINESS EXPENDITURE. 10. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISALLOW ANCE OF ` 2,55,33,000/- U/S 14A OF THE ACT. ITA NO.221/13 :- 5 -: 11. SHRI R. VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE INVESTMENT WAS MADE OUT OF THE I NTERNAL ACCRUALS. THE LD. COUNSEL FURTHER SUBMITTED THAT THE PAID UP CAPITAL AND RESERVES AND SURPLUS OF THE ASSESSEE FOR THE YEAR ENDING 31 .3.2008 WAS ` 569,55,22,000/-. THE INVESTMENT IN INDIAN COMPANIES WERE ONLY TO THE EXTENT OF ` 89,07,33,000/-. THE LD. COUNSEL FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT RECEIVED ANY INCOME BY W AY OF DIVIDEND DURING THE YEAR UNDER CONSIDERATION. REFERRING TO THE DECISION OF THIS TRIBUNAL IN ACIT VS SHRI M.BASKARAN IN I.T.A.NO. 17 17/MDS/2013 DATED 31.7.2014, THE LD. COUNSEL SUBMITTED THAT ON IDENTI CAL SET OF FACTS, THIS TRIBUNAL FOUND THAT SECTION 14A HAS NO APPLICATION AND ACCORDINGLY, DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER U/S 14A OF THE ACT. THE LD. COUNSEL HAS ALSO PLACED HIS RELIANCE ON THE JUDGMENT OF THE DELHI HIGH COURT IN CIT VS HOLCIM INDIA P. LTD [2014] 90 CCH 81, THE COPY OF WHICH IS FILED BEFORE THIS TRIBUNAL. 12. ON THE CONTRARY, SHRI S.BALASUBRAMANIAN, LD. DEPART MENTAL REPRESENTATIVE SUBMITTED THAT AS ON 31.3.2008, THE ASSESSEE MADE INVESTMENT TO THE EXTENT OF ` 3,20,82,00,000/- AS AGAINST ` 2,38,07,00,000/- IN THE PRECEDING YEAR. THE ASSES SEE HAS NOT OFFERED ANY DIVIDEND INCOME FOR TAXATION. THE ASSESSING OF FICER ALSO FOUND THAT NO DISALLOWANCE WAS MADE BY THE ASSESSEE U/S 14A OF THE ACT. ITA NO.221/13 :- 6 -: ACCORDING TO THE LD. DR, A PORTION OF THE EXPENDITU RE ATTRIBUTABLE FOR MAKING SUCH A HUGE INVESTMENT HAS TO BE COMPUTED BY APPLYING RULE 8D OF THE INCOME TAX RULES. THE LD. DR FURTHER SUB MITTED THAT THE ASSESSEE NOW CLAIMS BEFORE THIS TRIBUNAL THAT NO BO RROWED FUNDS WERE USED FOR MAKING INVESTMENT AND THE ASSESSEE HAS IN VESTED ITS OWN FUNDS IN OTHER COMPANIES. THE ASSESSEE ALSO CLAIM S THAT AS ON 31.3.2008 ` 569,55,22,000/- WAS THE CAPITAL AND RESERVES AND SURPLUS. THESE FACTS WERE NOT AVAILABLE BEFORE THE LOWER AUTHORITIES. THEREFORE, ACCORDING TO THE LD. DR, THE CIT(A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. TH E ASSESSEE NOW CLAIMS BEFORE THIS TRIBUNAL THAT THE INVESTMENT WAS MADE OUT OF ITS OWN FUNDS ACCRUED INTERNALLY. THE ASSESSEE ALSO C LAIMS THAT AS ON 31.3.2008 THE CAPITAL AND RESERVES AND SURPLUS WAS AVAILABLE TO THE EXTENT OF ` 569,55,22,000/- AND THE INVESTMENT WAS MADE TO THE EXTENT OF ` 32,082.47 LAKHS. IN THE IMMEDIATELY PRECEDING YEA R THE INVESTMENT WAS ` 23,808.73 LAKHS. NO MATERIAL IS AVAILABLE ON RECO RD WITH REGARD TO INTERNAL ACCRUAL OF FUNDS IN THE REG ULAR COURSE OF ITS BUSINESS ACTIVITY. AS RIGHTLY SUBMITTED BY THE LD. COUNSEL, IF THE ASSESSEE HAS ITS OWN FUNDS FOR MAKING INVESTMENT TH EN THERE IS NO ITA NO.221/13 :- 7 -: QUESTION OF ANY DISALLOWANCE OF NOTIONAL INTEREST O N THE BORROWED FUNDS. SINCE THE ASSESSEE SPECIFICALLY CLAIMS THA T NO BORROWED FUNDS WERE DIVERTED FOR INVESTMENT IN OTHER COMPANIES, T HIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT FUNDS AVAILABLE WITH TH E ASSESSEE ON THE DATE OF MAKING INVESTMENT HAS TO BE EXAMINED. ACCO RDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND T HE ISSUE OF DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A OF THE ACT TO THE EXTENT OF ` 2,55,33,000/- IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE TH E ISSUE AFRESH AND FIND OUT THE AVAILABLE INTEREST FREE FUNDS WITH THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH OF AUGUST, 2015, AT CHENNAI. SD/- SD/- ( ! ' ) (CHANDRA POOJARI) # / ACCOUNTANT MEMBER ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER '# / CHENNAI $% / DATED: 07 TH AUGUST, 2015 RD ITA NO.221/13 :- 8 -: %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 4. ' + / CIT 2. / RESPONDENT 5. ),-' . / DR 3. ' +'/! / CIT(A) 6. -0'1 / GF