Roca Bathroom Products Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 352/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8411 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 29-08-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 16-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B MAURYA
• Keywords: Transfer pricing; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.352/MDS/2016 ( )( / ASSESSMENT YEAR : 2011-12 & ./ ITA NO.610/MDS/2015 ( )( / ASSESSMENT YEAR : 2010-11 M/S ROCA BATHROOM PRODUCTS PVT. LTD., (FORMERLY PARRYWARE ROCA PVT. LTD.), KGN TOWERS, 4 TH FLOOR, ETHIRAJ SALAI, EGMORE, CHENNAI - 600 105. PAN : AAACE 9982 E V. THE DEPUTY / ASSISTANT COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT I, CHENNAI. (+,/ APPELLANT) (-.+,/ RESPONDENT) ./ ITA NO.800/MDS/2016 & C.O. NO.74/MDS/2016 (IN I.T.A. NO.800/MDS/2016) ( )( / ASSESSMENT YEAR : 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT 1, 1775, JAWAHARLAL NEHRU INNER RING ROAD, ANNANAGAR WEST EXTENSION, CHENNAI - 600 101. V. M/S ROCA BATHROOM PRODUCTS PVT. LTD., KGN TOWERS, 4 TH FLOOR, ETHIRAJ SALAI, EGMORE, CHENNAI - 600 105. (+,/ APPELLANT) ( RESPONDENT & CROSS-OBJECTOR) 2 I.T.A. NO.352/MDS/16 I.T.A. NO.610/MDS/15 I.T.A. NO.800/MDS/16 C.O. NO.74/MDS/16 (/0 1 2 /ASSESSEE BY : SH.RAGHUNATHAN SAMPATH, ADVOCATE 3 1 2 /REVENUE BY : SHRI A.B. MAURYA, CIT 4 1 0% / DATE OF HEARING : 29.08.2016 5') 1 0% / DATE OF PRONOUNCEMENT : 23.09.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: I.T.A. NO.610/MDS/2015 FILED BY THE ASSESSEE WAS , IN FACT, DISPOSED OF BY THIS TRIBUNAL BY AN ORDER DATED 18.1 2.2015. THE ASSESSEE FILED A MISCELLANEOUS PETITION IN M.P. NO. 71/MDS/2016 ON THE GROUND THAT THE GROUNDS RAISED BY THE ASSESSEE IN GROUND NOS. 4 TO 7 WERE NOT DISPOSED OF. ACCORDINGLY, THIS APP EAL OF THE ASSESSEE WAS REOPENED ONLY FOR THE PURPOSE OF DISPO SING OF THE GROUND NOS.4 TO 7. 2. SHRI RAGHUNATHAN SAMPATH, THE LD.COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE TRANSFER PRICING OFFIC ER MADE ADJUSTMENT IN RESPECT OF INTEREST RATE FOR COMPULSO RY CONVERTIBLE DEBENTURES WITHOUT GIVING ADEQUATE REASONS. ACCORD ING TO THE LD. COUNSEL, THE ASSESSEE INVESTED IN CONVERTIBLE DEBEN TURES OF THE SISTER CONCERN IN FOREIGN COUNTRY. THE ASSESSING O FFICER WITHOUT ANALYSING THE FACTS AND BY PICKING UP THE CASES OF COMPULSORY 3 I.T.A. NO.352/MDS/16 I.T.A. NO.610/MDS/15 I.T.A. NO.800/MDS/16 C.O. NO.74/MDS/16 CONVERTIBLE DEBENTURES ISSUED BY OTHER COMPANIES, M ADE THE DISALLOWANCE. THE ASSESSEE IN FACT DETERMINED THE ARM'S LENGTH PRICE BY USING BANK PRIMARY LENDING RATE. THE LD.C OUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE MAIN ISSUE WITH REGARD TO APPLICATION OF BRIGHT LINE TEST WAS REMANDED BACK T O THE FILE OF THE ASSESSING OFFICER, THEREFORE, IN RESPECT OF THE GRO UND RAISED BY THE ASSESSEE WITH REGARD TO DETERMINATION OF ARM'S LENG TH INTEREST RATE FOR COMPULSORY CONVERTIBLE DEBENTURES MAY ALSO BE R EMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. 3. REFERRING TO GROUND NO.7, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THE EXPENSES BY APPLYING RULE 8D OF INCOME-TAX RULES, 1962 ON THE G ROUND THAT THE EXPENSES WERE INCURRED FOR EARNING THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. THE ASSESSING OFFICER FAILED TO NOTE THAT THE EXPENDITURES INCURRED BY THE ASSESSEE WERE NOT FOR EARNING THE EXEMPT INCOME. THE ASSESSING OFFICER ASSUMED HIMSE LF THAT THE ASSESSEE INCURRED EXPENDITURE FOR EARNING EXEMPTED INCOME. SINCE THE MAIN ISSUE WAS REMITTED BACK TO THE FILE OF THE ASSESSING 4 I.T.A. NO.352/MDS/16 I.T.A. NO.610/MDS/15 I.T.A. NO.800/MDS/16 C.O. NO.74/MDS/16 OFFICER, ACCORDING TO THE LD. COUNSEL, THIS ISSUE M AY ALSO BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. 4. WE HAVE HEARD SHRI A.B. MAURYA, THE LD. DEPARTME NTAL REPRESENTATIVE ALSO. AS RIGHTLY SUBMITTED BY THE L D.COUNSEL FOR THE ASSESSEE, THE MAIN ISSUE WITH REGARD TO APPLICATION OF BRIGHT LINE TEST WAS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE DETERMINATION OF ARM'S LENGTH INTEREST RATE FOR COM PULSORY CONVERTIBLE DEBENTURES AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER RULE 8D ALSO NEED TO BE REC ONSIDERED BY THE ASSESSING OFFICER ACCORDINGLY, THE ORDERS OF T HE AUTHORITIES BELOW ARE SET ASIDE AND THE ISSUE WITH REGARD TO DE TERMINATION OF ARMS LENGTH INTEREST RATE FOR COMPULSORY CONVERTIB LE DEBENTURES AS WELL AS DISALLOWANCE UNDER SECTION 14A OF THE INCOM E-TAX ACT, 1961 (IN SHORT 'THE ACT') READ WITH RULE 8D IS ALSO REMI TTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SH ALL RE-EXAMINE THE ISSUE AFRESH AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPORTUNITY TO THE AS SESSEE. 5 I.T.A. NO.352/MDS/16 I.T.A. NO.610/MDS/15 I.T.A. NO.800/MDS/16 C.O. NO.74/MDS/16 5. NOW COMING TO THE APPEAL OF THE ASSESSEE IN I.T. A. NO. 352/MDS/2016, THE FIRST ISSUE ARISES FOR CONSIDERAT ION IS COMPUTATION OF ARMS LENGTH INTEREST RATE FOR COMPULSORY CONVER TIBLE DEBENTURES AND THE SECOND ISSUE IS WITH REGARD TO DISALLOWANCE MADE UNDER RULE 8D. IN THE EARLIER PART OF THIS ORDER, WHILE CONSIDERING THE ASSESSEES APPEAL IN I.T.A. NO.610/MDS/2015, THIS T RIBUNAL REMITTED BACK THE ISSUES TO THE FILE OF THE ASSESSING OFFICE R FOR RE-EXAMINE THE MATTER. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DETERMINATION OF ARM'S LENGTH INTE REST RATE FOR COMPULSORY CONVERTIBLE DEBENTURES AND DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER RULE 8D NEED TO BE RECONSID ERED FOR THIS YEAR ALSO. ACCORDINGLY, THE ORDERS OF THE AUTHORIT IES BELOW ARE SET ASIDE AND THE DISALLOWANCE MADE BY THE ASSESSING OF FICER BY DETERMINING THE ARM'S LENGTH INTEREST RATE FOR COMP ULSORY CONVERTIBLE DEBENTURES AND IN RESPECT OF EXPENDITURE UNDER SECT ION 14A OF THE ACT READ WITH RULE 8D IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE TH E ISSUES IN THE LIGHT OF THE MATERIAL THAT MAY BE FILED BY THE ASSE SSEE AND THEREAFTER DECIDE THE ISSUE, IN ACCORDANCE WITH LAW, AFTER GIV ING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 6 I.T.A. NO.352/MDS/16 I.T.A. NO.610/MDS/15 I.T.A. NO.800/MDS/16 C.O. NO.74/MDS/16 6. NOW COMING TO ASSESSMENT YEAR 2011-12 IN I.T.A. NO. 800/MDS/2016, THE REVENUE HAS CHALLENGED THE CORREC TNESS OF THE ORDER OF THE TRANSFER PRICING OFFICER. THE ISSUE A RISES FOR CONSIDERATION IS ONLY IN RESPECT OF ADJUSTMENT OF I NTEREST RATE ON THE COMPULSORY CONVERTIBLE DEBENTURES. THE ASSESSEE CL AIMS BEFORE THIS TRIBUNAL THAT FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12, THE ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER WAS UPHELD BY THE DISPUTE RESOLUTION PANEL. HOWEVER, FOR THE ASS ESSMENT YEAR 2011-12, THE ADJUSTMENT MADE BY THE TRANSFER PRICIN G OFFICER WAS REVERSED BY THE DISPUTE RESOLUTION PANEL. THEREFOR E, THE REVENUE HAS FILED THE PRESENT APPEAL. THE MAIN CONTENTION OF THE DEPARTMENT IS THAT THE DRP DIRECTED THE TRANSFER PR ICING OFFICER TO DETERMINE THE ARM'S LENGTH INTEREST RATE ON COMPULS ORY CONVERTIBLE DEBENTURES BY ADOPTING SINGLE YEAR DATA. SINCE THE ISSUE FOR EARLIER YEAR WAS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSE SSING OFFICER SHALL RECONSIDER THIS ISSUE ALONG WITH OTHER ASSESSMENT Y EARS. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW AR E SET ASIDE AND THE ISSUE OF DETERMINATION OF ARM'S LENGTH INTEREST RATE ON 7 I.T.A. NO.352/MDS/16 I.T.A. NO.610/MDS/15 I.T.A. NO.800/MDS/16 C.O. NO.74/MDS/16 COMPULSORY CONVERTIBLE DEBENTURES IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE- EXAMINE THE MATTER IN THE LIGHT OF THE MATERIAL THAT MAY BE FIL ED BY THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 7. NOW COMING TO THE CROSS-OBJECTION FILED BY THE A SSESSEE, THE ISSUE RAISED BY THE ASSESSEE IS ONLY IN RESPECT OF DETERMINATION OF INTEREST RATE ON COMPULSORY CONVERTIBLE DEBENTURES BY ADOPTING SING YEAR DATA. AN IDENTICAL ISSUE WAS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER ON THE EARLIER PART OF THIS ORDER . THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSE SSING OFFICER SHALL RECONSIDER THE MATTER IN THE LIGHT OF THE MATERIAL AVAILABLE. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES ARE SET ASIDE AND ALL THE APPEALS OF THE ASSESSEE AND REVENUE ARE REMITTED BA CK TO THE FILE OF THE ASSESSING OFFICER. 8. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE A ND REVENUE AND CROSS-OBJECTION OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 8 I.T.A. NO.352/MDS/16 I.T.A. NO.610/MDS/15 I.T.A. NO.800/MDS/16 C.O. NO.74/MDS/16 ORDER PRONOUNCED ON 23 RD SEPTEMBER, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 23 RD SEPTEMBER, 2016. KRI. 1 -089 :9)0 /COPY TO: 1. (/0 /ASSESSEE 2. ASSESSING OFFICER 3. SECRETARY, DRP-2, BENGALURU 4. TPO 2(2), CHENNAI 5. 9; -0 /DR 6. ( < /GF.