M/s ADAMAS Builders Pvt Ltd , Bangalore V. Deputy Commissioner of Income TAx Circle-1(1)(1), Bangalore

ITA 2477/BANG/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7609 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 22-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S UMA VENKATESAN
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3); 234B; 37

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 . 2 477 /BANG/201 7 ASSESSMENT YEAR : 201 3 - 14 M/S. ADAMAS BUILDERS PVT. LTD., TOWER A, GROUND FLOOR, GLOBAL TECHNOLOGY PARK, MARATHAHALLI OUTER RING ROAD, DEVARABEESANAHALLI VILLAGE, VARTHUR HOBLI, BANGALORE 560 103. PAN: AAJCA7789C VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1 (1) (1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI NAGESHWAR RAO, ADVOCATE RESPONDENT BY : SMT. S. UMAVENKATESAN, CIT (DR) DATE OF HEARING : 1 6 .0 7 .2018 DATE OF PRONOUNCEMENT : 20 .0 7 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIREC TED AGAINST THE ASSESSMENT ORDER PASSED BY THE AO ON 25.09.2017 FOR ASSESSMENT YEAR 2013-14 U/S. 143(3) R.W.S. 144C OF IT ACT AS PER THE DIRECTIONS OF DRP. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, ADAMAS BUILDERS PRIVATE LIMITED (HEREINAFTER REFERR ED TO AS 'ABPL' OR THE 'COMPANY' OR THE 'APPELLANT'), RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED, DATED 25 SEPTEMBER 2017 (SERVED ON THE APPELLANT ON 28 SEPTEMBER 2017) BY T HE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 1(1)(1) (THE ' LD. AO') UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE IN COME TAX ACT, 1961 ('THE ACT') IN PURSUANCE OF THE DIRECTIONS ISS UED BY THE DISPUTE RESOLUTION PANEL ('DRP'), BANGALORE ON THE FOLLOWIN G GROUNDS: EACH OF THE FOLLOWING GROUNDS ARE WITHOUT PREJUDICE TO EACH ANOTHER: IT(TP)A NO. 2477/BANG/2017 PAGE 2 OF 5 GENERAL GROUNDS: 1. THE ASSESSMENT ORDER ISSUED UNDER SECTION 143(3) READ WITH SECTION 144C(13) PURSUANT TO DRP DIRECTIONS IS BASED ON INC ORRECT FACTS AND WRONG INTERPRETATION OF LAW AND IS THEREFORE, BAD I N LAW 2. THE LD. AO HAS ERRED IN ASSESSING THE TOTAL INCO ME AT RS 22,68,58,470 AS AGAINST THE RETURNED INCOME OF RS 1 0,45,81,138 COMPUTED BY THE APPELLANT IN ITS RETURN OF INCOME F OR AY 2013-14. 3. THE HON'BLE DRP AND THE LD AO/ TPO HAVE ERRED IN LAW AND IN FACTS, BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDER TAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME TAX RULES, 1962 ('THE RULES') AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ARM' S LENGTH PRICE ('ALP') IN CONNECTION WITH THE IMPUGNED INTERNATION AL TRANSACTION,AND HOLDING THAT THE APPELLANT'S IMPUGN ED INTERNATIONAL TRANSACTION IS NOT AT ARM'S LENGTH. 4. THE LD. AO HAS ERRED IN LEVYING INTEREST OF RS 2 ,42,55,486 UNDER SECTION 234B AND RS 9,19,834 UNDER SECTION 234C OF THE ACT. 5. THE LD. AO HAS ERRED, IN LAW AND IN FACTS, IN IN ITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. GROUNDS SPECIFIC TO THE TRANSFER PRICING ADJUSTMENT 6. THE HON'BLE DRP AND THE LD. AO/ TPO HAS ERRED IN LAW AND IN FACTS, IN APPLYING LIBOR BASED INTEREST RATE IN DET ERMINATION OF ALP FOR THE INTERNATIONAL TRANSACTION OF INTEREST PAYME NTS ON CCD WITHOUT APPRECIATING THAT DEBENTURES ISSUED BY INDIAN COMPA NY REPRESENTS DEBT IN INDIAN CURRENCY. 7.THE HON'BLE DRP HAS ERRED IN LAW AND IN FACTS, BY NOT APPRECIATING THAT THE LD. TPO HAD ALSO ACCEPTED THAT IF THE INTE REST ON CCD IS COMPARED TO COMPARABLE CCD TRANSACTIONS THEN THE AR M'S LENGTH RATE WOULD BE 14.63 PERCENT. 8. WITHOUT PREJUDICE TO GROUND NUMBER 7 AND 8. THE LD. AO/ DRP HAS ERRED IN LAW AND IN FACTS, BY ADDING TP ADJUSTMENT IN RELATION TO INTEREST PAYMENT ON CCDS AMOUNTING TO RS 15.16,43.8 36, WITHOUT APPRECIATING THAT SUCH INTEREST PAYMENT TO THE EXTE NT OF RS 15.00,00.000 WAS DISALLOWED U/S 40(A)(I) OF THE ACT AND BALANCE AMOUNT OF RS 16,43,836 WAS DISALLOWED U/S 37 OF THE ACT BY THE ASSESSEE ITSELF WHILE COMPUTING ITS TAXABLE INCOME FOR THE AY 2013-14 THEREBY, RESULTING IN DOUBLE DISALLOWANCE. THE APPELLANT SUBMITS THAT EACH OF ABOVE GROUNDS IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENAB LE THE HON'BLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. 3. THE LD. AR OF ASSESSEE SUBMITTED THAT GROUND NO. 8 IS NOT PRESSED AND ACCORDINGLY, GROUND NO. 8 IS REJECTED AS NOT PRESSE D. REGARDING THE REMAINING GROUNDS, HE SUBMITTED THAT ONLY ONE ISSUE IS INVOLV ED AS TO WHETHER IN RESPECT IT(TP)A NO. 2477/BANG/2017 PAGE 3 OF 5 OF BORROWINGS OF THE ASSESSEE IN INDIAN RUPEES, INT EREST RATE TO BE ADOPTED FOR PLI SHOULD BE LIBOR OR STATE BANK OF INDIA PRIME LE NDING RATE (PLR). THE BENCH WANTED TO KNOW REGARDING THE FINDING OF TPO A ND OF DRP AS TO WHETHER THE LOAN IS BORROWED IN FOREIGN CURRENCY OR INR AND WHETHER LOAN IS REPAYABLE IN FOREIGN CURRENCY OR INR. IN REPLY, LD. AR OF AS SESSEE DRAWN OUR ATTENTION TO PAGE NO. 6 OF THE TPOS ORDER AND POINTED OUT THAT AS PER THE TPO, THE ASSESSEES BORROWING BY COMPULSORY CONVERTIBLE DEBE NTURE (CCD) IS EQUITY CAPITAL AND THEREFORE, THE AO HELD THAT NO INTEREST IS ALLOWABLE ON THE SAME. THEREAFTER, HE DRAWN OUR ATTENTION TO PAGE NO. 3 OF THE DIRECTIONS OF DRP AND POINTED OUT THAT THE DRP HAS HELD THAT THE TPO IS N OT JUSTIFIED IN HOLDING THAT THE CCDS ARE IN NATURE OF EQUITY. HE SUBMITTED THA T THIS ISSUE HAS ATTAINED FINALITY BECAUSE NO APPEAL IS FILED BY THE REVENUE AGAINST THIS DIRECTION OF DRP. THEREAFTER HE DRAWN OUR ATTENTION TO LAST PARA OF P AGE 3 OF DRP DIRECTIONS AND POINTED OUT THAT IN THIS PARA, THE DRP HAS NOTED TH AT AS PER THE ASSESSEE, THE ALP INTEREST RATE WAS 15.875%. THEREAFTER IT IS NO TED BY DRP IN THE SAME PARA THAT IT IS RELEVANT TO NOTE THAT THE ASSESSEE HAS R ECEIVED THE AMOUNT IN FOREIGN CURRENCY, THOUGH RECORDED IN THE DEBENTURE NOTE IN TERMS OF RUPEES AND THEREAFTER, IT IS HELD BY DRP THAT AS THE AMOUNTS W ERE RECEIVED IN FOREIGN CURRENCY AND TO BE REPAID IN FOREIGN CURRENCY, LIBO R WOULD BE THE APPROPRIATE BASIS TO BENCHMARK SUCH TRANSACTION, AS THE COST OF MONEY IS THE MOST RELEVANT FACTOR TO BENCHMARK SUCH TRANSACTION. AFTER POINTI NG OUT THESE FACTS, HE PLACED RELIANCE ON A TRIBUNAL ORDER OF HYDERABAD BENCH REN DERED IN THE CASE OF ADAMA INDIA PVT. LTD. VS. DCIT AS REPORTED IN [2017 ] 78 TAXMANN.COM 75. HE SUBMITTED A COPY OF THIS TRIBUNAL ORDER AND POINTED OUT THAT IN THAT CASE ALSO, THE ASSESSEE HAS PAID INTEREST AT RATE OF 12% ON TH E CCDS AND THE ASSESSEES CLAIM WAS THIS THAT FOR BENCHMARKING THE INTEREST E XPENDITURE, WEIGHTED AVERAGE RATE OF PLR AS PER SBI WHICH WAS AT 12.26% SHOULD BE CONSIDERED AND SINCE THE RATE OF INTEREST PAID BY THE ASSESSEE IS LESS THAN SBI PLR, THE ASSESSEE HAS SUBMITTED THAT INTEREST PAYMENT BY ASS ESSEE IS AT ARMS LENGTH. THEREAFTER HE POINTED OUT THAT UNDER THESE FACTS, I T WAS HELD BY THE TRIBUNAL THAT THE RATE AT WHICH THE INTEREST ON CCDS WERE PAID AR E WITHIN THE RANGE AND THEREFORE, NO ADDITION CAN BE MADE. THE TPO CONSID ERED THE CCDS AS LOAN AND BENCHMARKED THE INTEREST RATE AT LIBOR PLUS 200 BASIS POINTS, THEREBY IT(TP)A NO. 2477/BANG/2017 PAGE 4 OF 5 DETERMINING ARMS LENGTH PRICE (ALP) AT RS. 129.10 LAKHS AND MADE AN ADJUSTMENT OF RS. 393.54 LAKHS. HE SUBMITTED THAT THEREFORE, THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS IN THE CASE O F ADAMA INDIA PVT. LTD. VS. DCIT (SUPRA) AND HENCE, THIS TRIBUNAL ORDER SHOULD BE FOLLOWED IN THE PRESENT CASE AND THE ISSUE SHOULD BE DECIDED IN FAVOUR OF T HE ASSESSEE. AT THIS JUNCTURE, THE BENCH WANTED TO WHETHER THE COPY OF C CD ISSUED BY THE PRESENT ASSESSEE IS AVAILABLE ON RECORD. IN REPLY, THE LD. AR OF ASSESSEE SUBMITTED A COPY OF DEBENTURE CERTIFICATE ISSUED BY THE ASSESSE E ON 27.03.2014 BEING CERTIFICATE NO. 01 WITH NAME OF HOLDERS AS GOLDEN B ELLA HOLDINGS LIMITED AND NUMBER OF DEBENTURES HELD IS 5000 AND THE AMOUNT PA ID IS RS. 2 LAKHS FOR EACH DEBENTURE. THE BENCH POINTED OUT THAT THE PRE SENT ASSESSMENT YEAR INVOLVED IS ASSESSMENT YEAR 2013-14 THEN HOW DEBENT URE ISSUED ON 27.03.2014 IS RELEVANT FOR DECIDING THE ISSUE IN PR ESENT YEAR AND PARTICULARLY WHEN THE FINDING GIVEN BY DRP IS THIS THAT THE AMOU NTS WERE RECEIVED IN FOREIGN CURRENCY AND IS TO BE REPAID IN FOREIGN CURRENCY. THE BENCH OBSERVED THAT UNDER THESE FACTS, IT WILL BE APPROPRIATE THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF DRP FOR FRESH DECISION IN THE LIGHT OF THIS TRIBUNAL ORDER CITED BEFORE US AND ANY OTHER JUDGEMENT WHICH MAY BE AVAILABLE B Y THE TIME DRP DECIDES THE ISSUE AFRESH. IN REPLY, BOTH SIDES AGREED TO T HIS PROPOSITION PUT FORWARD BY THE BENCH. IN VIEW OF ABOVE DISCUSSION, WE SET ASI DE THE ASSESSMENT ORDER ON THIS ISSUE AND CONSEQUENTLY SET ASIDE THE DIRECTION S OF DRP ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF DRP FOR FRES H DECISION IN THE LIGHT OF ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. GROUND NOS. 1 TO 7 ARE ALLOWED FOR STATISTICAL PURP OSES. 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 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 ACCOUNTANT MEMBER BANGALORE, DATED, THE 20 TH JULY, 2018. /MS/ IT(TP)A NO. 2477/BANG/2017 PAGE 5 OF 5 COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.