Ballarpur Industries Ltd., Gurgaon V. ITO, New Delhi

ITA 447/DEL/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6463 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 13-02-2017
• Assessment Year: misc
• Appeal Filed On: 27-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Assessee Lawyers: PANKAJ ROHRA
• Keywords: Double taxation relief; Opportunity of being heard; Period of limitation; Time period of passing order; Capital expenditure
• Section: 201(1)

Judgement Text

I.T.A .NO.-447 TO 449/DEL/2011 BALLARPUR INDUSTRIES LTD. VS ITO IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SH.S.V.MEHROTRA, ACCOUNTANT MEMBER AND SMT DIVA SINGH, JUDICIAL M EMBER I.T.A .NO.-447 TO 449/DEL/2011 (ASSESSMENT YEAR-2006-07 TO 2008-09) BALLARPUR INDUSTRIES LTD. FIRST INDIA PLACE, TOWER C, BLOCK-A, MEHRAULI, GURGAON. PAN-AAACB6343E ( APPELLANT) VS ITO, TDS WARD-1(1), INTERNATIONAL TAXATION, NEW DELHI. (RESPONDENT) ASSESSEE BY S.D.KAPILA, ADV. R.R. MAURYA, ADV., PRAVESH SHARMA, ADV., SANJAY KUMAR, ADV. & PANKAJ ROHRA, CA REVENUE BY SH.S.K.JAIN, DR DATE OF HEARING 13 . 02 .201 7 DATE OF PRONOUNCEMENT 10 . 0 3 .201 7 ORDER PER DIVA SINGH, JM THESE THREE APPEALS HAVE BEEN FILED BY THE ASSESSEE ASSAILING THE CORRECTNESS OF THE CONSOLIDATED ORDER DATED 03.11.2010 OF CIT(A)-11, N EW DELHI PERTAINING TO FYS 2005-06, 2006- 07 AND 2007-08. ALL THESE APPEALS ARE BEING DECIDED BY A COMMON ORDER AS IT WAS A COMMON STAND OF THE PARTIES BEFORE THE BENCH THAT FACTS, C IRCUMSTANCES AND ARGUMENTS IN REGARD TO THE ISSUES CONTINUE TO REMAIN THE SAME. 2. ALTHOUGH IN EACH OF THESE APPEALS, VARIOUS GROUN DS HAVE BEEN RAISED BY THE ASSESSEE WHICH ARE IDENTICAL, HOWEVER, THE PARTIES WERE HEAR D ONLY IN REGARD TO THE ADDITIONAL GROUND SOUGHT TO BE RAISED BY THE ASSESSEE IN EACH OF THES E APPEALS VIDE APPLICATION DATED 30/11/2011 UNDER RULE 11 OF THE ITAT RULES. THE SAME IS REPROD UCED FROM ITA NO.448/DEL/2011 HEREUNDER:- THE LEARNED CIT(A) WHILE DISPOSING THE APPEAL OF T HIS APPELLANT HAD NOT DISPOSED SPECIFIC GROUNDS RAISED BY THIS APPELLANT. HENCE, T HE ADDITIONAL GROUND, WHICH READS AS FOLLOWS:- 'THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT APPEALS HAD ERRED IN NOT DISPOSING THE GROUND ON LIMITATION AND JURISDICTION SPECIFICALLY TAKEN IN THE GROUND OF APPEAL FILED BEFORE HIM '. THE ADDITIONAL GROUND CAN BE DISPOSED OF ON THE BAS IS OF MATERIAL EXISTING ON RECORD AND NO FRESH MATERIAL IS REQUIRED FOR ITS DI SPOSAL. IN THIS VIEW OF THE MATTER, IT IS HUMBLY PRAYED THAT THE HON'BLE BENCH MAY ADMIT T HIS ADDITIONAL GROUND KEEPING IN VIEW THE JUDGMENT OF THE APEX COURT IN THE CASE OF NTPC (229 ITR 383). PAGE 2 OF 6 I.T.A .NO.-447 TO 449/DEL/2011 BALLARPUR INDUSTRIES LTD. VS ITO 2.1. A PRAYER FOR ADMISSION OF THE SAID GROUND WAS RAISED, RELYING UPON THE DECISION OF THE APEX COURT IN THE CASE OF NTPC 229 1TR 383 (SC). IN VITING ATTENTION TO THE COPY OF THE GROUNDS RAISED BEFORE THE CIT(A) IN EACH OF THESE APPEALS, IT WAS SUBMITTED THAT THE ASSESSEE SPECIFICALLY VIDE GROUND NOS. 2 AND 3 HAD ASSAILED THE JURISDICTION OF THE ASSESSING OFFICER IN PASSING THE ORDER AND HAD ALSO ASSAILED THE ORDER P ASSED UNDER SECTION 201(1)/201(1A) ON THE GROUNDS OF LIMITATION. THESE GROUNDS ARE REPRODUCED HEREUNDER:- 2. THE LD. ASSESSING OFFICER HAS ERRED ON THE FACT S AND IN LAW IN ASSUMING THE JURISDICTION FOR PASSING THE ORDER UNDER 201(1) AND 201(1A) OF THE ACT IN THE APPELLANTS CASE, BY GROSSLY IGNORING THE FACT THAT THE JURISDICTION OVER THE APPELLANT LIES WITH THE TDS OFFICER IN NAGPUR (MAHARASHTRA). 3. ON THE FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE THE IMPUGNED ORDER PASSED BY THE LD. ASSESSING OFFICER IS TIME B ARRED AND VOID AB-INITIO SINCE IT HAS BEEN PASSED AFTER THE EXPIRY OF THE LIMITATION PERIOD FOR PASSING THE ORDER UNDER 201(1)/ 201(1A) OF THE ACT AS HELD BY THE SPE CIAL BENCH DECISION OF MUMBAI TRIBUNAL IN THE CASE OF MAHINDRA & MAHINDRA LIMITED V DCIT (ITA NO.2606/MUM/2000). 2.2. INVITING ATTENTION TO THE CONSOLIDATED ORDER, IT WAS SUBMITTED THAT WHILE DISMISSING THE APPEAL OF THE ASSESSEE ON MERITS, MAKING INACCURATE FACTUAL OBSERVATIONS WHICH ARE CONTRARY TO THE VIEW TAKEN BY THE ASSESSING OFFICER ITSELF, THE CIT(A) HAS NOT CARED TO GIVE ANY FINDING EITHER ON JURISDICTION OR ON THE LIMITATION ISSUE. ACCORDINGLY, IT WAS HIS PRAYER THAT THE ORDER IS PERVERSE AND MAY BE SET-ASIDE IN ORDER TO ADDRESS T HE ISSUE IN THE LIGHT OF THE FACTUAL POSITION ACCEPTED BY THE ASSESSING OFFICER HIMSELF. ATTENTI ON WAS INVITED TO THE CONSOLIDATED ORDER PASSED BY THE ASSESSING OFFICER DATED 05/03/2009 WH EREIN COGNIZANCE HAS BEEN TAKEN OF THE LETTER HEAD OF STANDARD CHARTERED BANK (MAURITIUS) AT PAGE 5 AND 6 OF THE ORDER OF THE ASSESSING OFFICER:- THIS LETTER IS BEING ACCEPTED BASED ON THE LETTER FROM STANDARD CHARTERED BANK, NEW DELHI DT. 21 ST DEC.05, CONFIRMING THAT ECB OF USD 10 MN FROM SCB SINGAPORE IS BEING TRANSFERRED TO SCB MAURITIUS AT AN RAISED INTEREST RATE OF LIBOR + 140 BPS W.E.F. 23 RD DECEMBER 2005. ALL OTHER TERMS AND CONDITIONS OF THE FACILITY AGREEMENT DATED 8 TH JULY 2004 AND SUBSEQUENT AMENDMENTS DATED 30 TH JULY 2004 AND 13 TH JUNE 2005 REMAIN UNCHANGED. 2.3. REFERRING TO PAGE 7 IT WAS SUBMITTED THAT HE H AS TAKEN NOTE OF THE FACT THAT THE ARRANGEMENT FEE WAS LIBOR PLUS MARGIN OF 1.80% PER ANNUM WHICH WHEN COMPARED WITH THE PAGE 3 OF 6 I.T.A .NO.-447 TO 449/DEL/2011 BALLARPUR INDUSTRIES LTD. VS ITO PRICING AT PAGE 5 WOULD SHOW WAS AT LIBOR PLUS 1.40 BPS PER ANNUM. THE CIT(A) HOWEVER IGNORING THE FACTS AS SET OUT AT PAGE 11 AND 12 IN PARAS 11 AND 12 OF HIS OWN ORDER MISDIRECTED HIMSELF BY IGNORING THAT THOUGH THE PAYMENTS ARE MA DE TO STANDARD CHARTERED BANK, NEW YORK HOWEVER THE BENEFICIARY ACCOUNT NAME WAS CHANGED FR OM STANDARD CHARTERED BANK, SINGAPORE TO STANDARD CHARTERED BANK (MAURITIUS) LTD. THUS, T HE FINDINGS OF THE LD. CIT(A) WERE ASSAILED TO BE CONTRARY TO THE FACTUAL NOTINGS MADE BY THE A SSESSING OFFICER. APART FROM THESE FACTS, IT WAS ALSO SUBMITTED THAT THE ASSESSING OFFICER HAS P ASSED A CONSOLIDATED ORDER FOR THE THREE FINANCIAL YEARS AND THE SAID ACTION IS CONTRARY TO THE STATUTORY REQUIREMENTS WHEREIN THE ASSESSING OFFICER IS REQUIRED TO PASS A SEPARATE OR DER FOR EACH FINANCIAL YEAR AND RAISE A SEPARATE NOTICE OF DEMAND IN EACH OF THE YEARS. IT WAS ALSO HIS SUBMISSION THAT EVEN ON MERITS, THE FACTUAL INACCURACIES HAVE NOT BEEN ADDRESSED BY THE CIT(A) AND EVEN OTHERWISE THE BASIC SETTLED PRINCIPLES OF THE LAW OF CONTRACTS AND THE CONSEQUENCES OF AMALGAMATION BY THE ORDER OF THE HON'BLE HIGH COURT DATED 01/04/2006 HAVE NOT BEEN APPRECIATED OR CONSIDERED BY THE SAID AUTHROITY. IT WAS ALSO HIS SUBMISSION THAT THE ASSESSING OFFICER THOUGH CONCLUDES THAT THERE IS NO CONTRACT AND IGNORE THE FACT THAT THE APPLICA TION OF LIBOR + 140 BPS BY HIM WHICH FIGURE HAS BEEN OFFERED AND ACCEPTED IN THE RE-NEGOTIATED CONTRACT BY THE ASSESSEE WITH THE STANDARD CHARTERED BANK (MAURITIUS). ACCORDINGLY, IT WAS HIS PRAYER THAT ALL NECESSARY FACTS AND EVIDENCES THOUGH FOR DECIDING THE JURISDICTIONAL AN D THE LIMITATION ISSUE ARE AVAILABLE ON RECORD, HOWEVER, EVEN SINCE ON FACTS ALSO THE IMPUGNED ORDE R DOES NOT ADDRESS THE SHORTCOMINGS IN THE ORDER OF THE ASSESSING OFFICER, THE IMPUGNED OR DER MAY BE SET ASIDE BACK TO THE FILE OF THE ASSESSING OFFICER. 3. THE LD. SR. DR THOUGH RELIED UPON THE IMPUGNED O RDER HOWEVER, HAD NO OBJECTION IF THE ISSUE IS RESTORED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT APR PACKAGING LTD (AP RPL) A COMPANY INCO RPORATED IN INDIA WAS ENGAGED IN THE BUSINESS OF MANUFACTURER OF DIFFERENT VARIETIES OF PAPER. AS PER LOAN AGREEMENT DATED PAGE 4 OF 6 I.T.A .NO.-447 TO 449/DEL/2011 BALLARPUR INDUSTRIES LTD. VS ITO 08/07/2004 AP RPL HAD EXECUTED A LOAN AGREEMENT WIT H STANDARD CHARTERED BANK (ECB) SINGAPORE BRANCH OF ACB, UK ON THE FOLLOWING TERMS AS PER THE STATEMENT OF FACTS FILED BEFORE THE CIT(A):- A FACILITY OF USD 10 MILLION BY WAY OF EXTERNAL CO MMERCIAL BORROWINGS ('ECW) WAS SANCTIONED BY SCB SINGAPORE (LENDER) TO APRPL (BORROWER). THE SCB, INDIA BRANCH WAS THE ARRANGER AND SECURITY AGENT IN THIS TRANSACTION. THE PURPOSE OF THE ECB IS TO FINANCE THE ONGOING CA PITAL EXPENDITURE OF APRPL. THE TENURE OF THE LOAN WAS FOR A PERIOD OF 5 YEARS WITH AN AVERAGE MATURITY PERIOD OF MINIMUM 3 YEARS. THE INTEREST COST OF LOAN WAS 6 MONTHS LONDON INTER BANK OFFERED RATE (LIBOR) + 180 BPS. AS PER THE TERMS OF THE LOAN AGREEMENT, APRPL WAS L IABLE TO BEAR THE WITHHOLDING TAX ON INTEREST PAYMENTS TO SCB SINGAPO RE. THE ASSIGNMENT CLAUSE IN THE LOAN AGREEMENT MENTION S THAT THE LENDER AND THE SECURITY AGENT HAS THE RIGHT TO TRANSFER/ASSIGN THEIR RIGHTS AND OBLIGATIONS UNDER THE LOAN AGREEMENT. 4.1. THE PRINCIPAL SUM AND INTEREST WAS DEPOSITED I N THE BANK ACCOUNT OF ACB, SINGAPORE MAINTAINED IN ACB, NEW YORK BRANCH OF ACB, UK. THE RELEVANT REGULATORY CERTIFICATE FROM THE CHARTERED ACCOUNTANT WHILE REMITTING THE PAYMENTS T O ACB, SINGAPORE IN VIEW OF CIRCULAR NO.759 DATED 18/11/1997 WAS CLAIMED TO HAVE BEEN RE LIED UPON. IT HAS BEEN STATED THAT IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 11(2) OF THE INDIA SINGAPORE DOUBLE TAXATION AVOIDANCE AGREEMENT ('TAX TREATY'), APRPL WAS DEDUC TING AND DEPOSITING TAX DEDUCTED AT SOURCE ('TDS') AT AN EFFECTIVE TAX RATE OF 11.68% ( AFTER TAX GROSS UP UNDER SECTION 195A OF THE ACT) WHILE REMITTING THE INTEREST PAYMENTS TO SCB S INGAPORE IN FINANCIAL YEAR 2005-06. THE TDS ON INTEREST PAYMENTS TO SCB SINGAPORE WAS DEPOSITED IN NAGPUR AND THE CORRESPONDING TDS RETURNS WERE ALSO BEEN FILED IN NAGPUR. THEREAFTER IT HAS BEEN SUBMITTED THAT APRPL WAS AMALGAMATED WITH THE ASSESSEE AND POST THE AMALGAMA TION, THE ASSESSEE SOUGHT TO RENEGOTIATE THE ECB WITH SCB SINGAPORE. WITH EFFECT FROM 23 DECEMBER 2005, THE ECB WAS ASSIGNED FROM SCB SINGAPORE TO SCB (MAURITIUS) LIMI TED, A COMPANY INCORPORATED UNDER THE LAWS OF MAURITIUS AND CARRYING ON BONAFIDE BANKING BUSINESS. THE TERMS AND CONDITIONS OF THE PAGE 5 OF 6 I.T.A .NO.-447 TO 449/DEL/2011 BALLARPUR INDUSTRIES LTD. VS ITO LOAN AGREEMENT WITH SCB (MAURITIUS) LIMITED IN VIEW OF THE LETTER ISSUED BY SCB (MAURITIUS) LIMITED WERE STATED TO BE AS UNDER:- A FACILITY OF USD 10 MILLION BY WAY OF ECB WAS SA NCTIONED. THE PURPOSE OF THE ECB IS TO FINANCE THE ONGOING CAPITAL EXPENDITURE OF THE COMPANY. THE TENURE OF THE LOAN WAS FOR A PERIOD OF 5 YEAR S WITH AN AVERAGE MATURITY PERIOD OF MINIMUM 3 YEARS THE INTEREST COST OF LOAN WAS 6 MONTHS LIBOR + 14 0BPS. AS PER THE TERMS OF THE LOAN AGREEMENT, APRPL WOU LD BE LIABLE TO BEAR THE WITHHOLDING TAX (IF ANY) ON INTEREST PAYMENTS TO SC B (MAURITIUS) LIMITED. OTHER TERMS AND CONDITIONS REMAINED THE SAME FURTHER, AT THE TIME OF FILING THE ECB - 2 RETURN W ITH THE RESERVE BANK OF INDIA ('RBI'), AN INTIMATION WAS DULY FILED WITH THE RBI, VIDE LETTER DATED 3 JANUARY 2006, THAT THE ECB HAS BEEN TRANSFERRED FROM SCB (S INGAPORE) TO SCB (MAURITIUS) LIMITED. 4.2. IT HAS BEEN STATED THAT WHILE REMITTING THE IN TEREST PAYMENTS TO SCB (MAURITIUS) LIMITED IN THE FINANCIAL YEARS 2005-06, 2006-07 AND 2007-08 , THE ASSESSEE DID NOT WITHHOLD TAX BY RELYING ON THE PROVISIONS OF ARTICLE 11(3) OF THE I NDIA MAURITIUS TAX TREATY WHICH PROVIDE THAT WHERE THE INTEREST INCOME IS DERIVED AND BENEFICIAL LY OWNED BY A BANK (WHICH IS A RESIDENT OF MAURITIUS) CARRYING ON A BONAFIDE BANKING BUSINESS, SUCH INTEREST INCOME IS EXEMPT FROM TAX IN INDIA. BALLARPUR INDUSTRIES LTD (B-LLT) ALSO A COMP ANY INCORPORATED IN INDIA, ENGAGED IN MANUFACTURING AND EXPORT OF PAPER FOR THE PAYMENT O F INTERESTS AND PRINCIPAL AMOUNT TO STANDARD CHARTERED BANK, MAURITIUS, THE ASSESSEE DI D NOT DEDUCTED AT SOURCE RELYING UPON THE CERTIFICATE OF THEIR CHARTERED ACCOUNTANT CERTIFICA TE. THE STATED REASON IN SUPPORT OF THE CERTIFICATE WAS STATED TO BE ARTICLE 11 OF DTAA BET WEEN INDIA AND MAURITIUS. THE AO APART FROM OTHER REASONS WAS OF THE VIEW THAT THERE WAS NO TRA NSACTION OF THE ASSESSEE WITH STANDARD CHARTERED BANK, MAURITIUS AS THE SAID BANK ACCORDIN G TO THE AO WAS NEITHER RECIPIENT OF THE BENEFICIAL OWNER OF THE INTEREST. IT WAS HELD THAT THE INTEREST IS TAXABLE AS PER THE PROVISIONS OF SECTION 115A(1)(A)(II) OF THE ACT IN THE CASE OF TH E PAYEE. THE ASSESSEE WAS DEEMED TO HAVE BEEN ASSESSEE IN DEFAULT AS PER THE PROVISIONS OF S ECTION 201(1) OF THE ACT WITH REGARD, TAX WAS NOT DEDUCTED. INTEREST UNDER SECTION 201(1A) WAS AL SO CHARGED RAISING A TOTAL DEMAND OF RS.7,57,32,656. THE ASSESSEE CHALLENGED THE ORDER B EFORE THE CIT(A) BOTH ON MERITS AS WELL AS ON JURISDICTION AND THE LIMITATION GROUNDS. HOWEVE R, THE LD. CIT(A) WHILE DECIDING THE APPEAL ON PAGE 6 OF 6 I.T.A .NO.-447 TO 449/DEL/2011 BALLARPUR INDUSTRIES LTD. VS ITO MERITS AND FAILED TO ADDRESS THE JURISDICTIONAL ISS UE AND ON THE LIMITATION ISSUE, HE FAILED TO GIVE ANY FINDING. ON A CONSIDERATION OF THE ARGUMENTS O F THE PARTIES BEFORE THE BENCH AND ON A CONSIDERATION OF THE ORDERS OF THE TAX AUTHORITIES, WE FIND THAT THE IMPUGNED ORDER CANNOT BE UPHELD. AS PER SETTLED LEGAL PRECEDENTS THE LD. CI T(A) OUGHT TO HAVE FIRST DECIDED THE JURISDICTIONAL ISSUE AND ONLY THEREAFTER SHOULD HAV E PROCEEDED TO DECIDE THE ISSUE ON MERITS IF SO WARRANTED IN LAW. IT IS ONLY WHEN THE JURISDICT ION OF THE AO IS HELD TO BE ESTABLISHED THAT THE CIT(A) WAS REQUIRED TO DECIDE THE ISSUE ON MERITS. WITHOUT HAVING ADDRESSED THE JURISDICTIONAL ISSUE THE DECISION ON MERITS HAS TO BE SET ASIDE BA CK TO THE CIT(A) WITH A DIRECTION TO DECIDE THE ISSUES DENOVO AFTER GIVING THE ASSESSEE A REASONABL E OPPORTUNITY OF BEING HEARD. 5. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE A LLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 10 TH OF MARCH 2017. SD/- SD/- (S.V.MEHROTRA) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMB ER *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI