DCIT 4(1)(1), MUMBAI V. CHANDAN STEEL P. LTD, MUMBAI

ITA 462/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3238 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 20-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RISHABH S HAH
• Keywords: Transfer pricing; Tax effect
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI M. BALAGANESH , ACCOUNTANT MEMBER ITA NO. 462 / MUM . /2017 ( ASSESSMENT YEAR : 20 11 12 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 4(1)(2), MUMBAI . APPELLANT V/S CHANDAN STEEL PVT. LTD. FLAT NO.504, SUKH SAGAR N.S. PATKAR MARG, OPERA HOUSE CHARNI ROAD, MUMBAI 400 007 PAN AAACC4713B . RESPONDENT ITA NO. 463 /MUM. /2017 ( ASSESSMENT YEAR : 20 12 13 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 4(1)(2), MUMBAI . APPELLANT V/S CHANDAN STEEL PVT. LTD. FLAT NO.504, SUKH SAGAR N.S. PATKAR MARG, OPERA HOUSE CHARNI ROAD, MUMBAI 400 007 PAN AAACC4713B . RESPONDENT REVENUE BY : SHRI NILU JAGGI ASSESSEE BY : SHRI RISHABH SHAH DATE OF HEARING 18 . 02 .201 9 DATE OF ORDER 27.02.2019 2 CHANDAN STEEL PVT. LTD. O R D E R PER SAKTIJIT DEY, J.M. THESE APPEA L S HA VE BEEN FILED BY THE REVENUE CHALLENGING THE ORDER DATED 30 TH SEPTEMBER 2016 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) 55, MUMBAI, PERTAINING TO THE ASSESSMENT YEAR 2011 12 AND 2012 13. 2 . THE COMMON GRIEVANCE OF THE REVENUE IN BOTH THE APPEALS IS AGAINST THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) IN DIRECTING THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE MADE ON ACCOUNT OF NON CHARGING OF INTEREST ON LOANS AND ADVANCES TO THE A SSOCIATED ENTERPRISE (AE). 3 . B RIEF FACTS WHICH ARE MORE OR LESS COMMON IN BOTH THE APPEALS ARE, THE ASSESSEE , AN INDIAN COMPANY , IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING IN FERROUS AND NON FERROUS METALS. FOR THE ASSESSMENT YEAR 2011 12, THE ASSESSEE FILED ITS RETURN OF INCOME ON 31 ST AUGUST 2011, DECLARING TOTAL INCOME OF ` 10,93,61,685, UNDER THE NORMAL PROVISIONS AND BOOK PROFIT OF ` 21,60,60,381, UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ). SIMILARLY, FOR THE ASSESSMENT YEAR 2012 13, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30 TH NOVEMBER 2012, DECLARING TOTAL INCOME OF ` 21,23,15,632, UNDER THE NORMAL PROVISIONS. DU RING THE ASSESSMENT PROCEEDINGS FOR 3 CHANDAN STEEL PVT. LTD. THE IMPUGNED ASSESSMENT YEARS, THE ASSESSING OFFICER WHILE EXAMINING THE AUDITED BALANCE SHEET NOTICED THAT IN ASSESSMENT YEAR 2011 12, THE ASSESSEE HAS SHOWN LOANS AND ADVANCES TO THE SUBSIDIARY AT ` 11,45,96,227. SIMILARLY, IN THE ASSESSMENT YEAR 2012 13, IT HAS ADVANCED LOANS AND ADVANCES TO THE SUBSIDIARY AMOU NTING TO ` 10,82,24,647. HE, THEREFORE, CALLED UPON THE ASSESSEE TO E XPLAIN WHY ARM'S LENGTH PRICE OF THE INTEREST ON THE LOANS AND ADVANCES TO THE SUBSIDIARY/AE SHOULD NOT BE COMPUTED. THOUGH, THE ASSESSEE MADE SUBMISSIONS EXPLAINING THE REASON WHY NO ADJ USTMENT ON ACCOUNT OF ARM'S LEN GTH PRICE OF INTEREST CHARGED ON LOANS AND ADVANCES TO THE AE SHOULD BE MADE, HOWEVER, THE ASSESSING OFFICER DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. HE OBSERVED , THE LO ANS AND ADVANCES GIVEN TO THE AE IS NOT AT ARM'S LENGTH PRICE , SINCE , NO THIRD PARTY WOULD HAVE ADVANCED SUCH LOANS WITHOUT CHARGING SUCH INTEREST. THE ASSESSING OFFICER OBSERVED THAT IN THE GIVEN SITUATION, THE ARM'S LENGTH PRICE OF THE INTEREST CHARGEABLE ON THE LOANS AND ADVANCES HAS TO BE DETE RMINED FOLLOWING THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD. HE OBSERVED , CONSIDERING THE RISK FACTOR AND CREDIT RATING OF CORPORATE BONDS ISSUED BY THE COMPANIES IN INDIA AND LOOKING A T THE FINANCIAL HEALTH OF THE AE, THE CREDIT RATING OF THE LOANS ADVANCED BY THE ASSESSEE WOULD BE SOMEWHERE WITHIN THE RANGE OF BB AND D. HE OBSERVED , AS PER INFORMATION SUPPLIED BY CRIS L L, YIELD FROM 4 CHANDAN STEEL PVT. LTD. BBB GRADE CORPORATE BOND WAS 14.35% FOR FIVE YEARS PERIOD. APPLYING THE AFORESAID YARDS TICK AND FOLLOWING TRANSFER PRICING OFFICERS DECISION ON IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 10 AND 2010 11, THE ASSESSING OFFICER OBSERVED THAT THE RATE OF INTEREST WHICH IS CHARGEABLE BY THE ASSESSEE ON THE LOANS A ND ADVA NCES TO THE AE. CAN BE TAKEN AT 17.22%. APPLYING THE AFORESAID INTEREST RATE THE ASSESSING OFFICER DETERMINED THE ARM'S LENGTH PRICE OF THE INTEREST CHARGEABLE IN ASSESSMENT YEAR 2011 12 AT ` 1,11,63,090 AND IN ASSESSMENT YEAR 2012 13 AT ` 1,16,17,610. ACCO RDINGLY, THE AFORESAID AMOUNTS WERE ADDED TO THE INCOME OF THE ASSESSEE WHILE COMPLETING THE ASSESSMENTS FOR THE IMPUGNED ASSESSMENT YEARS. BEING AGGRIEVED WITH THE AFORESAID ADDITIONS , ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4 . THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND TAKING NOTE OF THE FACT THAT SIMILAR ISSUE ARISING IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 10 AND 2010 11, WAS DECIDED IN FAVOUR OF THE ASSESSEE BY HIS PREDECESSOR IN OFFICE , DIRECTED THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE AS PER LIBOR ON THE OUTSTANDING. 5 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELYING UPON THE GROUNDS 5 CHANDAN STEEL PVT. LTD. RAISED AND THE OBSERVATIONS OF THE ASSESSING OFFICER SUBMITTED THAT LOOK ING AT THE CREDIT RATING OF THE AE , THE ASSESSING OFFICER HAS APPLIED THE RATE OF INTEREST AT 17.22% WHICH IS REASONABLE AND AT ARM'S LENGTH. 6 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , SINCE THE LOANS AD VANCED BY THE ASSESSEE TO THE AE IS A FOREIGN CURRENCY LOAN , DOMESTIC RATE OF INTEREST APPLICABLE TO CO RPORATE BONDS CANNOT BE APPLIED. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , IDENTICAL ISSUE ARISING IN ASSESSEES OWN CASE FOR THE ASSE SSMENT YEAR 2009 10 AND 2010 11 WAS DECIDED BY THE LEARNED COMMISSIONER (APPEALS) HOLDING THAT INTEREST SHOULD BE CHARGED AS PER LIBOR RATE ON THE OUTSTANDING BALANCE. HE SUBMITTED , THE APPEALS FILED BY THE DEPARTMENT AGAINST THE AFORESAID ORDERS OF LEARNE D COMMISSIONER (APPEALS) WERE DISMISSED BY THE TRIBUNAL DUE TO LOW TAX EFFECT. THAT BEING THE CASE, HE SUBMITTED , THE DECISION OF LEARNED COMMISSIONER (APPEALS) SHOULD BE UPHELD. 7 . HAVING CONSIDERED RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT DOMESTIC RATE OF INTEREST APPLICABLE TO CORPORATE BONDS WILL NOT APPLY TO FOREIGN CURRENCY LOAN AD VANCED BY THE ASSESSEE TO THE AE IN A FOREIGN COUNTRY. IT IS NOW A WELL SETTLED PROPOSITION OF LAW THAT IN CASE OF A FOREIGN CURRENCY LOAN TO THE A ES IN OVERSEAS COUNTRIES, THE INTEREST HAS TO BE CHARGED BY APPLYING LIBOR RATE. THEREFORE, WE 6 CHANDAN STEEL PVT. LTD. AGREE WITH THE LEARNED COMMISSIONER (APPEALS) THAT ARM'S LENGTH PRICE OF THE INTEREST CHARGEABLE BY THE ASSESSE E ON THE LOAN ADVANCED TO THE AE HAS TO BE COMPUTED BY APPLYING LIBOR RATE PREVAILING DURING THE RELEVANT PERIOD. IT IS OBSERVED , THE ASSESSING OFFICER HAS APPLIED THE INTEREST RATE OF 17.22% SIMPLY FOLLOWING THE DECISION OF THE TRANSFER PRICING OFFICER IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 10 AND 2010 11. HOWEVER, WHILE DECIDING ASSESSEES APPEAL S IN ASSESSMENT YEAR 2009 10 AND 2010 11, LEARNED COMMISSIONER (APPEALS) HAS DIRECTED THE ASSESSING OFFICER TO COMPUTE INTEREST CHARGEABL E BY THE ASSESSEE ON LOANS TO AE BY APPLYING LIBOR RATE. IT HAS ALSO BEEN SUBMITTED BEFORE US THAT REVENUES APPEAL AGAINST THE AFORESAID DECISION OF THE LEARNED COMMISSIONER (APPEALS) HAVE BEEN DISMISSED BY THE TRIBUNAL DUE TO LOW TAX EFFECT. 8 . BE THAT AS IT MAY, SINCE THE LEARNED COMMISSIONER (APPEALS)S DIRECTION TO THE ASSESSING OFFICER FOR RESTRICTING THE DISALLOWANCE ON ACCOUNT O F INTEREST ON LOANS AND ADVANCED TO THE AE APPLYING LIBOR RATE IS IN CONSONANCE WITH SETTLED PRINCIPLE OF LAW, WE FIND NO REASON TO INTERFERE WITH SUCH DECISION OF THE LEARNED COMMISSIONER (APP EALS). ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DETERMINE THE ARM'S LENGTH PRICE OF INTEREST CHARGEABLE ON THE LOANS ADVANCED TO THE A ES BY APPLYING LIBOR RATE AS MAY BE PREVAILING DURING THE RELEVANT PERIOD. WITH THE AFORESAID OBSERVATIONS, THE GRO UNDS RAISED ARE 7 CHANDAN STEEL PVT. LTD. DISMISSED IN BOTH THE ASSESSMENT YEARS UNDER APPEAL. 9 . IN THE RESULT, APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.02.2019 SD/ - M. BALAGANESH ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 27.02.2019 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (SR. PRIVATE SECRETARY) ITAT, MUMBAI