APAR INDUSTRIES LTD, MUMBAI V. DCIT CC 6(1), MUMBAI

ITA 4134/MUM/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1181 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 16-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 92B; 142(1); 92E; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , AM AND SHRI AMARJIT SINGH, JM / I .T.A. (TP) NO. 4134 /MUM/201 6 ( / ASSESSMENT YEAR: 20 1 1 - 12 ) APAR INDUSTRIES LIMITED APAR HOUSE, CORPORATE PARK, BUILDING NO.5, SION TROMBAY ROAD, CHEMBUR, MUMBAI - 400071 . / VS. DCIT CC 6(1) (ERSTWHILE ACIT CENTRAL CIRCLE - 34) 19 TH FLOOR, AIR INDIA BUILDING, MUMBAI. ./ ./ PAN/GIR NO. : AAACG1840M ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 03 / 0 6 / 201 9 / DATE OF PRONOUNCEMENT : 03 / 06 / 201 9 / O R D E R PER AMARJ IT SINGH, J M: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 31 . 0 3 .201 6 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 55 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 20 11 - 1 2 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. ADDITION OF RS.1,15,06,800/ - ON ACCOUNT OF COMMISSION ON CORPORATE GUARANTEE GIVEN FOR AE AS PER ORDER U/S 92CA(3) OF THE INCOME TAX ACT: 1.1 ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMIN G THE ADDITION OF PS. 1,15,06,800/ - MADE BY AO ON ACCOUNT OF COMMISSION OF CORPORATE GUARANTEE. THE LEARNED CIT(A) ASSESSEE BY : NONE REVENUE BY: SHRI MANISH KANAJIA (DR) ITA NO. 4134 / M/201 6 A.Y.20 11 - 12 2 ERRED IN NOT APPRECIATING THAT THE SAID CORPORATE GUARANTEES GIVEN FOR M/S PETROLEUM SPECIALTIES PTE LTD (PSPL), THE AE, DO NOT HAVE ANY IMPA CT ON PROFITS, INCOME, LOSSES OR ASSETS OF THE APPELLANT. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT THE GUARANTEE AGREEMENT IS BETWEEN THE APPELLANT AND THE BANKERS AND NOT WITH PSPL. ACCORDINGLY, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT S AID TRANSACTION BETWEEN THE BANKERS AND THE APPELLANT DOES NOT FALL WITHIN THE SCOPE OF THE TERM 'INTERNATIONAL TRANSACTION' U/S 92B OF THE INCOME TAX ACT. THUS ADDITION OF COMMISSION OF RS.1,15,06,800/ - ON NOTIONAL BASIS WHEREIN THERE IS NO LIABILITY AND NO CHANGE IN THE ASSETS GIVEN AS SECURITY IS BAD - IN - LAW AND MUST BE DELETED. 1.2 WITHOUT PREJUDICE TO THE ABOVE AND WITHOUT ADMITTING, ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT THE ISSUANCE OF CORP ORATE GUARANTEE FOR PSPL IS INEXTRICABLY LINKED WITH THE TRANSACTION OF IMPORT OF OIL FROM PSPL. THUS THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT WHEN THE PRICE AT WHICH IMPORTS ARE MADE IS AT ARM'S LENGTH THEN ISSUANCE OF CORPORATE GUARANTEE WILL AL SO BE AT ARM'S LENGTH. 1.3 WITHOUT PREJUDICE TO THE ABOVE AND WITHOUT ADMITTING, ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE BENCHMARKING RATE OF GUARANTEE COMMISSION @ 2.58% P.A. WHEN SIMILAR GUARANTEE COM MISSION IS PAID BY THE APPELLANT ON OTHER TRANSACTIONS @ 0.495%. 1.4 WITHOUT PREJUDICE TO THE ABOVE AND WITHOUT ADMITTING, ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT THE CALCULATION OF GUARANTEE COMMISS ION SHOULD BE FOR THE PERIOD OF UTILIZATION OF THE SAID GUARANTEE TO AVAIL CREDIT FACILITIES AND NOT FOR THE ENTIRE YEAR. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETU RN OF INCOME ON 29 . 11 .201 0 DECLARING TOTAL INCOME TO THE TUNE OF R S.72,710,364/ - UNDER THE NORMAL PROVISIONS OF THE I.T. ACT, 1961 AND RS.1,265,764,744/ - U/S 115JB OF THE I.T. ACT, 1961. THEREAFTER, THE ASSESSEE AGAIN REVISED ITS RETURN OF INCOME ON 11.10.2012 DECLARING TOTAL INCOME TO THE TUNE OF RS.NIL AFTER CLAIMING D EDUCTION U/S 80IC OF THE ACT OF RS.146,851,875/ - UNDER THE NORMAL PROVISIONS OF THE ACT ITA NO. 4134 / M/201 6 A.Y.20 11 - 12 3 AND RS.1,265,764,744/ - U/S 115JB OF THE I.T. ACT, 1961. THE ASSESSEE AGAIN REVISED ITS RETURN OF INCOME ON 27.02.2013 DECLARING TOTAL INCOME TO THE TUNE OF RS.NIL AFTER CLAIMING DEDUCTION U/S 80IC OF RS.146,851,875/ - UNDER THE NORMAL PROVISIONS OF THE ACT AND RS.988,351,173/ - U/S 115JB OF THE I.T. ACT, 1961. THE RETURN WAS ACCOMPANIED WITH AUDIT REPORT U/S 44AB IN FORM NO.3CA & 3CD ALONG WITH COMPUTATION OF INCOME, P&L A CCOUNT, BALANCE - SHEET AND SCHEDULES THEREON. THE ASSESSEE HAS ALSO FILED THE REPORT IN FORM 3CEB U/S 92E R.W. RULE 10E IN CONNECTION WITH THE INTERNATIONAL TRANSACTION WITH ITS ASSOCIATES CONCERNS. THE CASE WAS SELECTED FOR SCRUTINY, THEREFORE, THE NOTICES U/S 143 (2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CONDUCTOR, OIL AND RUBBER. THE COMPANY WAS HAVING OIL DIVISIONS AT SILVASSA AND RABALE WHEREIN THE COMPANY WAS MAN UFACTURING TRANSFORMER OIL AND OTHER OILS. THE CONDUCTOR DIVISIONS OF THE COMPANY WERE SITUATED AT SILVASSA AND NALAGARAH. IN THE YEAR CONSIDERATION, M/S. UNIFLEX CABLE LTD. WAS AMALGAMATED WITH THE ASSESSEE M/S. APAR INDUSTRIES LTD. W.E.F. 01.04.2010 VIDE ORDER DATED 13.09.2012 FROM BOARD FOR INDUSTRIAL AND FINANCIAL RE - CONSTRUCTION (BIFR) UNDER CASE NO.28/2010. THEREAFTER, THE COMPANY REVISED ITS RETURN OF INCOME ON 31.03.2011 . M/S. UNIFLEX CABLE LTD. HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTION WIT H AE. THEREAFTER, THE MATTER WAS REFERRED TO THE TPO, MUMBAI FOR DETERMINING THE ARMS LENGTH PRICE (ALP). THE TPO PASSED THE ITA NO. 4134 / M/201 6 A.Y.20 11 - 12 4 ORDER U/S 92CA(3) OF THE I.T. ACT, 1961 AND MADE ADJUSTMENT IN SUM OF RS. 1,15,06,800/ - IN CONNECTION WITH THE CORPORATE GUARA NTEE AMOUNTING TO RS.44,60,00,000/ - WITH THE PETROLEUM SPECIALTIES LTD. SINGAPORE. ACCORDINGLY, THE AO PASSED THE ORDER U/S 143(3) R.W. RULE 144C(3) DATED 29.01.2015. FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO , THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO . 1 4. UNDER THIS ISSUE T HE ASSESSEE HAS CHALLENGED THE ADDITION OF RS.1,15,06,800/ - ON ACCOUNT OF COMMISSION ON CORPORATE GUARANTEE GIVEN FOR AE AS PER ORDER U/S 92CA(3 ) OF THE I.T. ACT, 1961. WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD. REPRESEN TATIVE OF THE DEPARTMENT AND HAS GONE THROUGH CASE FILE CAREFULLY. WE NOTICED THAT THE MATTER OF CONTROVERSY HAS BEEN ADJUDICATED BY THE HONBLE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2009 - 10 IN ITA. NO. 956/M/2015 DATED 04.05.2018. THE RELEVANT FINDING HAS BEEN GIVEN IN PARA NO.4 WHICH IS HEREBY REPRODUCED AS UNDER.: - 4. WE HAVE HEARD CAREFULLY HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. IN OUR OP INION CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE BROUGHT CERTAIN BENEFITS TO ITS AE BY WAY OF CREDIT FACILITY AND THEREFORE, THE SAME WAS REQUIRED TO BE COMPENSATED BY ITS AE. OUR VIEW IS DULY SUPPORTED BY THE DECISION OF THIS TRIBUNAL RENDERED IN EVERES T KANTO CYLINDERS LTD. VS. DCIT [34 TAXMANN.COM 19] AS AFFIRMED BY HONBLE BOMBAY HIGH COURT ON 08/05/2015 [58 TAXMANN.COM 254] WHEREIN THE RATE OF COMMISSION HAS BEEN ADOPTED @0.5%. RESPECTFULLY, FOLLOWING THE SAME, WE ESTIMATE THE IMPUGNED ADDITIONS @0.5 % PER ANNUM. THE LD. AO IS DIRECTED TO QUANTITY THE ITA NO. 4134 / M/201 6 A.Y.20 11 - 12 5 ADDITION AND RE - COMPUTE THE INCOME OF THE ASSESSEE IN TERMS OF OUR ABOVE ORDER. 5. ON APPRAISAL OF THE ABOVE SAID FINDING, WE NOTICED THAT THE HONBLE ITAT HAS PASSED THE ORDER ADOPTING THE RATE OF COMMI SSION @ 0.5%. THE RATE OF COMMISSION WAS ADOPTED ON THE BASIS OF THE DECISION OF HONBLE ITAT IN THE CASE OF EVEREST KANTO CYLINDER LTD. VS. DCIT (34 TAXMANN.COM 19) AND THE SAID DECISION WAS AFFIRMED BY HONBLE BOMBAY HIGH COURT ON 08.05.2015 (58 TAXMANN. COM 254). NO LAW CONTRARY TO THE LAW RELIED BY THE HONBLE ITAT HAS BEEN PLACED RELIANCE UPON BY THE REVENUE BEFORE US. THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE ALSO. TAKING INTO ACCOUNT, ALL THE FACTS AND CIRCUMSTANCES AND BY RELYING UPON THE ABOV E MENTIONED LAW, WE ESTIMATE THE ADDITION @ 05% PER ANNUM. THE AO IS ACCORDINGLY DIRECTED TO QUANTITY THE ADDITION AND RE - COMPUTE THE INCOME OF THE ASSESSEE ACCORDINGLY. 6 . RESULTANTLY, THE APPEAL FILED BY THE ASSESSEE IS HEREBY ALLOWED IN TERMS STATED AB OVE . ORDER PRONOUNCED IN THE OPEN COURT ON 03 /06 /2019 SD/ - SD/ - ( SHAMIM YAHYA ) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 03 /06 /2019 V IJAY ITA NO. 4134 / M/201 6 A.Y.20 11 - 12 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) , / ITAT, MUMBAI