Emcure Pharmaceuticals Ltd, Pune V. Dy. CIT, Pune

ITA 2410/PUN/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88918 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 153A; 115JB; 12; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NOS.2409 & 2410/PN/2012 (ASSESSMENT YEARS : 2007-08 & 2009-10) EMCURE PHARMACEUTICALS LTD., T-184, MIDC, BHOSARI, PUNE 411 026. PAN : AAACE4574C . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(1), PUNE. . RESPONDENT ASSESSEE BY : MR. NIKHIL PATHAK DEPARTMENT BY : MR. B. C. MALAKAR DATE OF HEARING : 07-01-2015 DATE OF PRONOUNCEMENT : 21-01-2015 ORDER PER G. S. PANNU, AM THE CAPTIONED TWO APPEALS RELATE TO SAME ASSESSEE A ND AS SOME OF THE ISSUES INVOLVED ARE COMMON, THEY HAVE BEEN CLUB BED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SA KE OF CONVENIENCE AND BREVITY. 2. FIRSTLY, WE MAY TAKE-UP FOR CONSIDERATION THE AP PEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2007-08. THIS IS AN APPEAL DIRECTE D AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-CENTRAL, PUNE DATED 28.09.2012 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 24.0 2.2012 PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 144C(1) AND SEC TION 153A OF THE INCOME- TAX ACT, 1961 (IN SHORT THE ACT). 3. IN THIS APPEAL, FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED BY THE ASSESSEE :- ITA NOS.2409 & 2410/PN/2012 1. ON THE FACTS OF THE CASE AND IN LAW, THE LEARNE D CIT(A) ERRED IN CONFIRMING AN UPWARD ADJUSTMENT TO THE EXTENT OF RS .41,65,907/- IN RESPECT OF THE INTERNATIONAL TRANSACTION RELATING TO PROVISION OF INTEREST FREE LOAN BY THE APPELLANT COMPANY TO ITS ASSOCIATED ENTERPRISE BY H OLDING THAT THE APPELLANT COMPANY OUGHT TO HAVE CHARGED ARM'S LENGTH INTEREST RATE @ 6.35% P.A. (I.E. AVERAGE LIBOR OF 5.35% P.A. + 1%) ON THE LOAN ADVAN CED TO ITS ASSOCIATED ENTERPRISE. 2. THE LEARNED CIT(A)-CENTRAL, PUNE ERRED IN NOT A PPRECIATING THE FOLLOWING ALTERNATE SUBMISSIONS : (A) THAT THE UNSECURED LOAN TO ASSOCIATED ENTERPRIS E WAS FUNDED OUT OF OWN FUNDS OF THE APPELLANT COMPANY AND CONSI DERING THE FACT THAT THE ASSOCIATED ENTERPRISE WAS IN DEVELOPM ENT STAGE AND WAS DOING WORK EXCLUSIVELY FOR THE APPELLANT CO MPANY, NO INTEREST WAS CHARGED FOR COMMERCIALLY SOUND REASONS . (B) THE UNSECURED LOAN ADVANCED TO THE ASSOCIATED E NTERPRISE WAS FOR THE ULTIMATE BENEFIT OF THE APPELLANT COMPA NY AND HENCE, THE APPELLANT WAS JUSTIFIED IN NOT CHARGING INTEREST ON THE LOAN ADVANCED TO ITS AE AND NO ADJUSTMENT WAS R EQUIRED TO BE MADE. (C) WITHOUT PREJUDICE TO ABOVE, HE ERRED IN NOT APP RECIATING THAT THE ARM'S LENGTH INTEREST RATE WAS THE NORMAL FD RATES FOR FOREIGN CURRENCY DEPOSITS WHICH WERE IN THE RANGE OF 1% TO 2% P.A. AND HENCE, THE ADJUSTMENT MADE MAY KINDLY BE REDUCE D SUBSTANTIALLY. 3.1 THE LEARNED CIT(A) CENTRAL, PUNE ERRED IN CONFIRMING THAT THE LEARNED ASSESSING OFFICER WAS JUSTIFIED IN NOT REDU CING THE TAX-FREE DIVIDEND OF RS.68,00,184/- RECEIVED FROM DOMESTIC COMPANIES WHILE WORKING OUT THE BOOK PROFITS U/S. 115JB OF THE INCOME TAX ACT, 1961 . 3.2 HE ERRED IN NOT APPRECIATING THAT : (A) THE APPELLANT COMPANY HAD CLAIMED THE EXEMPT DI VIDEND OF RS.68,00,184/- AS A DEDUCTION WHILE COMPUTING THE T OTAL INCOME AS PER REGULAR PROVISIONS OF THE INCOME TAX ACT, 19 61 AND THE MISTAKE OF NOT CLAIMING THE DEDUCTION OF THE EXEMPT DIVIDEND WHILE COMPUTING THE BOOK PROFITS U/S 115JB OF THE I NCOME TAX ACT, 1961 WAS INADVERTENT. (B) THE LEARNED ASSESSING OFFICER HAD ALREADY ALLOW ED THE ABOVE EXEMPT DIVIDEND AS A DEDUCTION WHILE COMPUTING THE TOTAL INCOME AS PER REGULAR PROVISIONS OF THE INCOME TAX ACT, 1961 IN HIS ORDER U/S 143(3) R.W.S 144C AND 153A OF THE INCOME TAX ACT, 1961. (C) THE RATIO OF THE DECISION OF SUPREME COURT IN T HE CASE OF GOETZE (INDIA) LTD. V CIT [2006] 284 ITR 323 (SC) W AS NOT APPLICABLE ON THE FACTS OF THE CASE. 4. AT THE TIME OF HEARING, THE AFORESTATED GROUNDS OF APPEAL NO.1 & 2 HAVE NOT PRESSED BY THE LD. REPRESENTATIVE FOR THE ASSESSEE AND THE SAME ARE BEING DISMISSED AS NOT PRESSED. ITA NOS.2409 & 2410/PN/2012 5. THE ONLY GROUND PROSECUTED BEFORE US IS PERTAINI NG TO THE MANNER OF COMPUTING BOOK PROFIT FOR THE PURPOSES OF SECTION 115JB OF THE ACT, WHICH IS MANIFESTED IN GROUND OF APPEAL NO.3 ABOVE. 6. IN THIS CONTEXT, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT IN THE RETURN OF INCOME FILED, ASSESSEE HAD, INTER- ALIA, DECLARED AN INCOME OF RS.68,00,184/- REPRESENTING DIVIDEND INCOME WHICH W AS EXEMPT WITHIN THE MEANING OF SECTION 10(34) OF THE ACT. THE LD. REPR ESENTATIVE SUBMITTED THAT WHILE WORKING OUT OF THE TOTAL INCOME UNDER THE NOR MAL PROVISION OF ACT THE SAID INCOME THOUGH CREDITED IN ITS PROFIT & LOSS AC COUNT, WAS EXCLUDED. HOWEVER, WHILE COMPUTING THE BOOK PROFIT FOR THE PURPOSES OF COMPUTING TAX LIABILITY U/S 115JB OF THE ACT, THE SAID INCOME WAS NOT REDUCED ALTHOUGH THE SAID AMOUNT OF INCOME WAS CREDITED IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. IN THIS CONTEXT, OUR ATTENTIO N HAS BEEN INVITED TO COPY OF THE AUDITED FINANCIAL STATEMENTS OF THE ASSESSEE, W HICH ARE PLACED AT PAGES 1 TO 32 OF THE PAPER BOOK AND ALSO THE COMPUTATION OF TOTAL INCOME FILED ALONG WITH THE RETURN OF INCOME FOR THE YEAR UNDER CONSID ERATION. THE LD. REPRESENTATIVE POINTED OUT THAT THE SAID DEDUCTION FROM THE NET PROFIT SHOWN IN THE PROFIT & LOSS ACCOUNT FOR THE PURPOSES OF COMPU TING THE BOOK PROFIT U/S 115JB OF THE ACT HAS BEEN SPECIFICALLY PROVIDED FOR IN CLAUSE (II) BELOW EXPLANATION (1) TO SECTION 115JB(2) OF THE ACT. TH E AFORESAID PLEA OF THE ASSESSEE DID NOT FIND FOUND FAVOUR WITH THE ASSESSI NG OFFICER AND THE CIT(A) PRIMARILY FOR THE REASON THAT IT WAS NOT MADE IN TH E RETURN OF INCOME BUT WAS RAISED ONLY IN THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE ASSESSING OFFICER. THE LD. DEPARTMENTAL REPRESENTATIVE APPEA RING FOR THE REVENUE CONTENDED THAT THE LOWER AUTHORITIES WERE JUSTIFIED IN REJECTING THE PLEA OF THE ASSESSEE BECAUSE IT WAS A FRESH CLAIM MADE DURING T HE COURSE OF ASSESSMENT PROCEEDINGS AND THE SAME WAS NOT MADE BY WAY OF A R ETURN OF INCOME AND THEREFORE IT COULD NOT HAVE BEEN ENTERTAINED. ITA NOS.2409 & 2410/PN/2012 7. THE LD. REPRESENTATIVE FOR THE ASSESSEE VEHEMENT LY POINTED OUT THAT THE CLAIM OF THE ASSESSEE WAS IN ACCORDANCE WITH TH E SPECIFIC PROVISIONS CONTAINED IN SECTION 115JB OF THE ACT AND THAT THE SAME OUGHT TO HAVE ADMITTED BY THE CIT(A) FOLLOWING THE RATIO OF THE J UDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PRUTHVI BR OKERS & SHARES PVT. LTD., (2012) 349 ITR 336 (BOM). 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN SUM AND SUBSTANCE, THE DISPUTE IN THE PRESENT CASE PERTAINS TO THE DETERMINATION OF THE ASSESSEES TAX LIABILITY U/S 115JB OF THE ACT. AS PER THE ASSESSEE, IN ORDER TO COMPUTE BOOK PROFIT FOR THE PURPOSE OF SECTION 11 5JB OF THE ACT, IT DID NOT REDUCE FROM THE NET PROFIT SHOWN IN THE PROFIT & LO SS ACCOUNT THE AMOUNT OF INCOME TO WHICH THE PROVISIONS OF SECTION 10(34) OF THE ACT APPLY, WHICH IS SPECIFICALLY REQUIRED BY CLAUSE (II) TO EXPLANATION (1) BELOW SECTION 115JB(2) OF THE ACT, PERTINENTLY, THE INCOME OF THE ASSESSEE O F RS.68,00,184/- REPRESENTING DIVIDENDS IS EXEMPT IN TERMS OF SECTIO N 10(34) OF THE ACT. IN-FACT, THE CLAIM MADE BY THE ASSESSEE IS WITHIN FOUR CORNE RS OF THE STATUTORY PROVISIONS RELATING TO THE MANNER OF DETERMINATION OF THE BOOK PROFIT PROVIDED IN SECTION 115JB OF THE ACT ITSELF. MORE SPECIFICA LLY, CLAUSE (II) TO EXPLANATION (1) BELOW SECTION 115JB(2) OF THE ACT PROVIDES THAT IN CASE THE AMOUNT OF INCOME TO WHICH THE PROVISIONS OF SECTION 10 OR SEC TION 11 OR SECTION 12 APPLY THE SAME BE REDUCED IF SUCH AMOUNT IS CREDITED TO T HE PROFIT & LOSS ACCOUNT IN ORDER TO COMPUTE THE BOOK PROFIT. THE REVENUE DO ES NOT DISPUTE THE POSITION THAT THE CLAIM OF THE ASSESSEE IS COVERED WITHIN TH E PROVISIONS OF CLAUSE (II) OF EXPLANATION (1) TO SECTION 115JB(2) OF THE ACT. 9. HOWEVER, THE PLEA SETUP BY THE LOWER AUTHORITIES IS THAT SUCH THE IMPUGNED CLAIM WAS NOT MADE IN THE RETURN OF INCOME BUT WAS RAISED ONLY IN THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE ASS ESSING OFFICER. IN THIS ITA NOS.2409 & 2410/PN/2012 CONTEXT, RELIANCE HAS ALSO BEEN PLACED ON THE JUDGE MENT OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (S UPRA) FOR THE PROPOSITION THAT A CLAIM NOT MADE IN THE RETURN OF INCOME CANNO T BE ENTERTAINED. 10. WE HAVE CAREFULLY CONSIDERED THE OBJECTION PUT- FORTH BY THE REVENUE AND FIND THAT THE SAME IS NOT TENABLE. PERTINENTLY , THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA) IS NOT AN AUTHORITY FOR PUTTING ANY FETTERS ON THE POWERS OF THE APPELLATE AUTHORITY TO CONSIDER A CLAIM WHICH IS ADMISSIBLE IN LAW AND IS RELEVANT IN ORDER TO DETERMINE THE CORRECT TAX LIABILITY OF AN ASSESSEE. THE POWERS OF THE APPELLATE AUTHORITY TO ADMIT FRESH CLAIMS IS NOT DILUTED BY T HE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (S UPRA), WHICH DEALS ONLY WITH THE POWER OF THE ASSESSING OFFICER TO ENTERTAI N A FRESH CLAIM, HITHERTO NOT MADE IN THE NATURE OF INCOME. IN THIS CONTEXT, A G AINFUL REFERENCE CAN ALSO BE MADE TO THE JUDGEMENT OF THE HONBLE DELHI HIGH COU RT IN THE CASE OF CIT VS. JAI PRABOLIC SPRINGS LTD., (2008) 306 ITR 42 (DELHI ) AS ALSO THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRUTHV I BROKERS & SHARES PVT. LTD. (SUPRA). CONSIDERING THE AFORESAID, WE FIND T HAT THERE WAS NO REASON FOR THE CIT(A) NOT TO HAVE ENTERTAINED AND CONSIDERED T HE AFORESAID CLAIM OF THE ASSESSEE ESPECIALLY WHEN IT IS QUITE CLEAR THAT THE SAME IS WITHIN THE FOUR CORNERS OF LAW AND IS INDEED RELEVANT IN ORDER TO D ETERMINE THE CORRECT TAX LIABILITY OF THE ASSESSEE. THEREFORE, IN OUR VIEW, THE LOWER AUTHORITIES ERRED IN DISREGARDING THE CLAIM OF THE ASSESSEE. 11. AS A CONSEQUENCE, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO RE-WORK THE TAX LIABILITY OF T HE ASSESSEE IN TERMS OF SECTION 115JB OF THE ACT AFTER ALLOWING THE AFORESAID DEDUC TION IN ACCORDANCE WITH LAW. THUS, ON THIS ASPECT, ASSESSEE SUCCEEDS. ITA NOS.2409 & 2410/PN/2012 12. IN THE RESULT, APPEAL OF THE ASSESSEE FOR ASSES SMENT YEAR 2007-08 IS PARTLY ALLOWED. 13. NOW, WE MAY TAKE-UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2009-10. THIS IS AN APPEAL DIRECTED AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-CENTRAL, PUNE DATED 27.09.2012 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 24.02.2012 PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 144C(1) OF THE ACT. 14. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWI NG GROUND OF APPEAL :- 1.1 THE LEARNED CIT(A) CENTRAL, PUNE ERRED IN CON FIRMING THAT THE LEARNED ASSESSING OFFICER WAS JUSTIFIED IN NOT REDU CING THE TAX-FREE DIVIDEND OF RS.99,75,000/- RECEIVED FROM DOMESTIC COMPANIES WHILE WORKING OUT THE BOOK PROFITS U/S. 115JB OF THE INCOME TAX ACT, 1961 . 1.2 HE ERRED IN NOT APPRECIATING THAT : (A) THE APPELLANT COMPANY HAD CLAIMED THE EXEMPT DI VIDEND OF RS.99,75,000/- AS A DEDUCTION WHILE COMPUTING THE T OTAL INCOME AS PER REGULAR PROVISIONS OF THE INCOME TAX ACT, 19 61 AND THE MISTAKE OF NOT CLAIMING THE DEDUCTION OF THE EXEMPT DIVIDEND WHILE COMPUTING THE BOOK PROFITS U/S 115JB OF THE I NCOME TAX ACT, 1961 WAS INADVERTENT. (B) THE LEARNED ASSESSING OFFICER HAD ALREADY ALLOW ED THE ABOVE EXEMPT DIVIDEND AS A DEDUCTION WHILE COMPUTING THE TOTAL INCOME AS PER REGULAR PROVISIONS OF THE INCOME TAX ACT, 1961 IN HIS ORDER U/S 143(3) R.W.S 144C OF THE INCOME TA X ACT, 1961. (C) THE RATIO OF THE DECISION OF SUPREME COURT IN T HE CASE OF GOETZE (INDIA) LTD. V CIT [2006] 284 ITR 323 (SC) W AS NOT APPLICABLE ON THE FACTS OF THE CASE. 15. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE AFORESAID ISSUE HAS BEEN CONSIDERED BY US IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 AND OUR DECISION SHALL APPLY MUTATIS-MUTANDIS IN THIS ASSESSMENT YEAR ALSO. ACCORDINGLY, ITA NO.2410//PN/2012 FOR T HE ASSESSMENT YEAR 2009- 10 IS ALLOWED. ITA NOS.2409 & 2410/PN/2012 16. RESULTANTLY, WHEREAS APPEAL FOR ASSESSMENT YEAR 2007-08 IS PARTLY ALLOWED, THE APPEAL FOR ASSESSMENT YEAR 2009-10 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST JANUARY, 2015. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 21 ST JANUARY, 2015. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-CENTRAL, PUNE; 4) THE CIT-CENTRAL, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE