DCIT, Central Circle- 28, New Delhi V. Alchem International Pvt. Ltd., New Delhi

ITA 3986/DEL/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2803 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 15-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA ANAND
• Assessee Lawyers: UTKARSH AGGARWAL
• Keywords: Transfer pricing; Wholly owned subsidiary; Sham transactions

Judgement Text

Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI BEFORE DR. B.R.R. KUMAR, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR US, JUDICIAL MEMBER ITA No. 3986/Del/2017 (Assessment Year: 2011-12) DCIT, Central Circle-28, New Delhi Vs. Alchem International Pvt. Ltd, 301, Avlon Apartment Mehrauli Gurgaon Road, Manglapuri, New Delhi PAN: AAACA2251L (Appellant) (Respondent) Revenue by : Ms. Anupama Anand, CIT DR Assessee by: Shri Utkarsh Aggarwal, CA Shri Pradeep Kumar Gupta, CA Date of Hearing 17/05/2022 Date of pronouncement 27/06/2022 O R D E R Per Dr. B.R.R. Kumar, Accountant Member: This is an appeal filed by the revenue against the order of the ld CIT(A)-29, New Delhi dated 16.03.2017 for Assessment Year 2011- 12. 2. The revenue has raised the following grounds of appeal:- “1. Whether on the facts and in the circumstances of the case, the Id. CIT(A) is right in deleting the addition of Rs.22,47,16,299/- made by the AO on the ground that M/s Alchem International (HK) Ltd. which is a 100% subsidiary of the assessee company, without appreciating the fact that a legal facade was created by the assessee by forming the above company at Hongkong, which is a tax heaven, with the purpose of diversion of its profit to its 100% subsidiary at Hongkong. Page | 2 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is right in deleting the additional of Rs.22,47,16,29/- without appreciating the detailed evidences and reasoning discussed in the assessment order for holding that the effective management and control of M/s Alchem International (HK) Ltd. Which is a 100% subsidiary of the assessee company, was in India.” 3. The issue involved in the departmental appeal for AY 2011-12 relates to addition of Rs. 22,47,16,299/- which was made by the assessing officer. The addition made was on account of the profit earned by Hongkong Subsidiary of the assessee based on the presumption of the Assessing Officer that this legal facade was created by the assessee and effective management and control of the subsidiary company was in India. 4. Relevant extract of the order of CIT (A) as per Para 8.4 on page No 23 of order of CIT(A) vide Appeal No. 158/15-16/CIT(A)-29 AY 2011-12 is reproduced hereunder for ready reference: "8.4 Accordingly, based on the same reasoning as mentioned in the appellate orders for earlier assessment years and looking to the facts and circumstances of this case and in law, the addition made under section 6(3)(ii) of the Act with respect to clubbing of income of the appellant from its subsidiary at Hongkong i.e. AIHK is held to be not called for and accordingly the addition made amounting to Rs.22,47,16,299/- is directed to be deleted. These grounds of appeal (5 and 6) are allowed." 5. At the outset, we find that the identical issue has been decided by this Tribunal in assessee's own case for AYs 2006-07 to 2009-10 in C. O. No. 225/Del/2016 in ITA. No. 2825/Del/2016 dated 7.12.2021. Relevant extract of the order for AY 2006-07 is reproduced below: "5. It is evident that Hongkong entity was a separate legal entity and was registered in Hong Kong. There are enough evidences which show that the Hongkong entity was doing the business and was subject to Hongkong Page | 3 laws. Transfer Pricing Officer has found the transactions between the assessee-company and Hongkong entity at arms-length which also establish that the transactions between the assessee company and Hongkong entity were genuine business transactions. There is no evidence brought on record to prove that the control and management of Hongkong entity was being done wholly from India. In any case, even if control and management of Hongkong entity had been found situated wholly in India, though this is not the proved case of Revenue, yet the profit of Hongkong entity could not be clubbed with the profits of the assessee company. There is no evidence brought on record by the revenue to prove that the transactions undertaken by Hongkong entity were sham transactions and were transactions of the assessee company. Hongkong entity was registered in Hongkong on 20.9.2002 and was working since then, independently. Revenue itself has accepted that the assessee company has made exports to Hongkong entity. Transactions between the assessee company and its Hongkong Subsidiary have taken place at arms length as found out by TPO also. Payments have been made & received by the assessee and Hongkong entity through banking channels only. All the factual matrix of the case have been captured and finding have been recorded by the first appellate authority. Merely because Hongkong may be a tax free or low tax jurisdiction, that alone does not prove that the Hong Kong entity was legal facade of the assessee company. CIT(A) has exhaustively discussed the issue at hand and has recorded his findings which are based on the material. It is the assessing officer who himself has accepted in para 4 of the assessment order that exports were made by the assessee company to Hong Kong entity. Reading of the assessment order para 9.1 suggests that it was the finding of DDI that Hong Kong entity was not doing any actual activity which unfortunately has been followed by the assessing officer without adverting to the facts available on record which prove that exports were made by the assessee company to Hong Kong entity. Even the finding of Transfer Pricing Officer in AY 2010-11 cannot be ignored when he records that exports executed by the assessee company to its associated enterprise was short of arms length price by Rs. 3,64,43,842/-. Had there been no activity done by Hong Kong Entity, how could such finding be arrived at by TPO in the first place? Exports were Page | 4 made under the government policies and as per Import Export regulations and this cannot be ignored. There is nothing on record to suggest that the statement of Ms. Chanchal Bhutani was given to the assessee even. Thus, there is nothing before us to take a view different from the view taken by Commissioner of Income Tax (Appeal) and thus we dismiss all these grounds raised by Revenue in this regard." 6. Further, the matter was also decided in favour of assessee in the similar matter in assessee's own case for the AYs 2007-08, 2008- 09 and 2009-10 vide C. O. Nos. 226, 227 & 228/Del/2016 in ITA. Nos. 2826, 2827 and 2828/Del/2016 dated 7.12.2021. 7. Since, the issue stands covered in favour of the assessee by a number of orders for four various assessment years, in the absence of any material change in the factual matrix and the legal proposition, we hereby hold that the appeal of the revenue is liable to be dismissed. 8. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 27/06/2022. -Sd/- -Sd/- (YOGESH KUMAR US) (Dr. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 27/06/2022 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi