DCIT 4(1)(2), MUMBAI V. AURIONPRO SOLUTIONS LTD, MUMBAI

ITA 5011/MUM/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0288 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2012-2013
• Appeal Filed On: 21-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL DESH
• Keywords: Transfer pricing; International transaction; Rule of consistency; Question of law

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI , .'#$ ,' ( BEFORE VIKAS AWASTHY, JUDICIAL MEMBER & SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER . 5011/ / 2017 (. . 2012-13 ) ITA NO.5011/MUM/2017A.Y.2012-13) THE DCIT-4(1)(2), ROOM NO.640, 6 TH FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 ...... , / APPELLANT VS. M/S.AURIONPRO SOLUTIONS LTD. 35 TH FLOOR, SUNSHINE TOWER, TULSI PINE ROAD, NEAR FLOWER MARKET, DADAR (W), MUMBAI 400 013 PAN;AAACV7297H ..... -./ RESPONDENT ASSESSEE BY : SHRI SATYAPRAKASH SINGH REVENUE BY : SHRI SUNIL DESHPANDE /. / DATE OF HEARING : 17/02/2021 012 /. / DATE OF PRONOUNCEMENT : 25/02/2021 / ORDER PER VIKAS AWASTHY,JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-55, MUMBAI ( IN SHORT THE CIT (A)) DATED 26/04/2017 FOR THE ASSESSMENT YEAR 2012-13. 2. THE REVENUE IN APPEAL HAS RAISED FOLLOWING GROU NDS: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO WORK OUT THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION IN THE 2 . 5011/ / 2017 (. . 2012-13 ) ITA NO.5011/MUM/2017A.Y.2012-13) APPELLANT'S CASE APPLYING LIBOR PLUS 2% ON MONTHLY CLOSING BALANCE OF ADVANCE TO SUBSIDIARIES.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT{A) ERRED IN REJECTING THE ACTION OF THE TPO IN WORKING OUT THE RATE OF BENCHMARKING @11.17% BASED ON THE MATERIAL ON RECORDS BY INVOKING YIELD METHOD.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN REJECTING THE VIEW OF THE TPO THAT LOANS ADVANCED B Y ASSESSEE TO AES ARE IN THE NATURE OF SHORT TERM WORKING CAPITAL REQUIREMENT AND HENCE IN TEREST RATE OF 1-2 YEARS BONDS IS APPLIED RELYING ON THE INFORMATION OBTAINED FROM CRISIL AND NOT BASED ON LIBOR PLUS.' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT BRINGING IN ANY COMPARABLE TRANSACTIONS AND DELETIN G THE ADJUSTMENT MADE BY TPO.' 5. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT THE TPO HAS WORKED OUT TH E INTEREST RATE ON YIELD METHOD AFTER ANALYZING THE RATE AT WHICH THE ASSESSEE WOULD HAVE EARNED IN ADVANCING LOAN OF ABOVE AMOUNT TO UNRELATED THIRD PARTIES WITH SIMILAR FINA NCIAL STRENGTH AS THAT OF ITS SUBSIDIARY.' 3. SHRI SATYAPRAKASH SINGH APPEARING ON BEHALF O F THE ASSESSEE SUBMITTED AT THE OUTSET THAT THE SOLITARY ISSUE IN THE APPEAL BY THE REVENUE IS THE DETERMINATION OF INTEREST RATE ON WORKING CAPITAL ADVANCED BY TH E ASSESSEE TO ITS OVERSEAS SUBSIDIARIES/ASSOCIATED ENTERPRISES (AES). THE CIT (A) AFTER PLACING RELIANCE ON THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESS MENT YEAR 2007-08 APPLIED LIBOR +2% ON MONTHLY CLOSING BALANCES OF ADVANCES TO SUBS IDIARIES. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE T RIBUNAL IN APPEAL BY THE ASSESSEE IN ITA NO.7872/MUM/2011 FOR ASSESSMENT YEAR 2007-08 DECIDED ON 12/04/2013 HELD THAT THE LOANS ADVANCED BY THE ASSESSEE TO AES IS A N INTERNATIONAL TRANSACTION AND SUBJECT TO ARMS LENGTH PRICE(ALP) AS PER TRANSFER PRICING (TP) REGULATIONS. THE TRIBUNAL FURTHER HELD THAT THE TRANSACTION WOULD B E AT THE ARMS LENGTH IF INTEREST LIBOR + 2% ON MONTHLY CLOSING BALANCES OF ADVANCES IS APPLIED. THE REVENUE FILED APPEAL BEFORE THE HON'BLE BOMBAY HIGH COURT AGAINST THE SAID ORDER OF TRIBUNAL IN INCOME TAX APPEAL NO.1869 OF 2014, THE HONBLE HIG H COURT DISMISSED THE APPEAL OF REVENUE VIDE ORDER DATED 09/06/2017. THUS, THE FIN DINGS OF TRIBUNAL IN ASSESSEES CASE HAVE BECOME FINAL. 3 . 5011/ / 2017 (. . 2012-13 ) ITA NO.5011/MUM/2017A.Y.2012-13) 4. SHRI SUNIL DESHPANDE REPRESENTING THE DEPARTME NT FAIRLY ADMITTED THAT THE ISSUE RAISED IN THE PRESENT APPEAL BY REVENUE WAS SUBJECT MATTER OF APPEAL BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT Y EAR 2007-08. 5. BOTH SIDES HEARD, ORDERS OF AUTHORITIES BELOW EX AMINED. THE REVENUE IS IN APPEAL AGAINST THE FINDINGS OF CIT(A) IN APPLYING L IBOR + 2% INTEREST RATE ON THE MONTHLY CLOSING BALANCE OF ADVANCES TO SUBSIDIARIES DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. 6. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF COMPU TER SOFTWARE DEVELOPMENT AND WEB DESIGNING. DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE ADVANCED LOANS TO ITS OVERSEAS AES. T HE TPO BENCHMARKED THE TRANSACTION BY APPLYING THE RATE OF 11.17% ON SUCH ADVANCES AND MADE ADJUSTMENT OF RS.4,23,44,986/-. THE ASSESSING OFFICER VIDE OR DER DATED 24/02/2016 PASSED UNDER SECTION 143 (3) R.W.S. 144C(13) OF THE INCOM E TAX ACT, 1961 ( IN SHORT THE ACT), INTER ALIA, MADE ADDITION OF THE ADJUSTMENT PROPOSED BY TPO IN RESPECT OF LOANS ADVANCED BY THE ASSESSEE TO ITS AE. IN FIRST APPEL LATE PROCEEDINGS, THE CIT(A) FOLLOWED THE ORDER OF TRIBUNAL IN ASSESSEES OWN CA SE IN ITA NO.7872/MUM/2011(SUPRA) AND DIRECTED THE ASSESSING OFFICER TO WORK OUT THE ALP OF INTERNATIONAL TRANSACTION BY APPLYING LIBOR +2% ON MONTHLY CLOSING BALANCES TO ITS SUBSIDIARIES 7. BOTH SIDES ARE UNANIMOUS IN STATING THAT THE NAT URE OF TRANSACTION OF ADVANCING LOANS BY ASSESSEE TO ITS OVERSEAS AES IS IDENTICAL TO THE ONE AS IN ASSESSMENT YEAR 2007-08. THE CO-ORDINATE BENCH AF TER CONSIDERING THE ISSUE IN DETAIL HELD THAT ADVANCING OF LOANS TO AES IS AN IN TERNATIONAL TRANSACTION AND AS REGARDS DETERMINATION OF INTEREST RATE, THE TRIBUN AL HELD THAT LIBOR +2% ON MONTHLY CLOSING BALANCES OF ADVANCES BE APPLIED FOR TRANSA CTION TO BE AT ARMS LENGTH. FOR THE SAKE OF COMPLETENESS THE RELEVANT EXTRACT OF TH E ORDER OF TRIBUNAL IN ITA NO.7872/MUM/2011(SUPRA) IS REPRODUCED HEREIN BELOW: 4 . 5011/ / 2017 (. . 2012-13 ) ITA NO.5011/MUM/2017A.Y.2012-13) 8.13 THOUGH IN PRINCIPLE WE DO CONCUR WITH THE VIE W OF DRP ON THIS ISSUE, HOWEVER, SINCE THE ISSUE OF LIBOR HAS BEEN CONSIDERED AND DECIDED BY T HE TRIBUNAL IN VARIOUS CASES AS RELIED UPON BY THE ASSESSEE (SUPRA); THEREFORE, TO MAINTAI N THE RULE OF CONSISTENCY, WE FOLLOW THE DECISION OF THE COORDINATE BENCHES OF THIS TRIBUNAL , AND ACCEPT LIBOR FOR BENCHMARKING INTEREST ON INTEREST FREE LOANS TO AES. SINCE THE L IBOR IS A RATE APPLICABLE IN THE TRANSACTIONS BETWEEN THE BANKS AND FURTHER THE LOANS ADVANCED BY THE BANK TO CLIENTS ARE SECURE BY SECURITY AND GUARANTEE; THEREFORE, A LOAN WHICH HAS BEEN ADVANCED WITHOUT ANY SECURITY OR GUARANTEE AS IN THE CASE OF THE ASSESSEE HAS TO BE BENCHMARK BY TAKING THE ARMS LENGTH INTEREST RATE AS LIBOR PLUS. THOUGH THE TPO TOOK AL P AS LIBOR + 3%; HOWEVER, IN OUR VIEW, THE APPROPRIATE RATE WOULD BE LIBOR PLUS 2%. WE ACC ORDINGLY, DIRECT THE AO/TPO TO DETERMINE THE ARMS LENGTH INTEREST BY CONSIDERING THE LIBOR PLUS 2% ON THE MONTHLY CLOSING BALANCE OF ADVANCES DURING THE FINANCIAL YE AR RELEVANT TO THE AY UNDER CONSIDERATION. 8. WE FIND THAT THE AFOREMENTIONED ORDER OF THE TRI BUNAL WAS CHALLENGED BY THE REVENUE BEFORE THE HON'BLE BOMBAY HIGH COURT IN INC OME TAX APPEAL NO. 1869 OF 2014(SUPRA). THE SUBSTANTIAL QUESTION OF LAW FOR C ONSIDERATION BEFORE THE HONBLE HIGH COURT WAS : WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE HONBLE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO DETERMINE THE ARMS LENGTH INTEREST BY CONSIDERING THE LIBOR (LONDON INTER BANK OPERATIVE RATE) PLUS 2% ON THE MONTHLY CLOSING BALANCES OF THE ADVANCES? THE HONBLE HIGH COURT UPHELD THE FINDINGS OF THE T RIBUNAL ON THIS ISSUE AND DISMISSED THE APPEAL OF REVENUE. SINCE THE ISSUE H AS NOW BEEN SETTLED BY THE HONBLE JURISDICTIONAL HIGH COURT IN FAVOUR OF THE ASSESSEE, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A), HENCE, THE SAME IS UPHELD, ERG O, THE APPEAL OF REVENUE IS DISMISSED SANS MERIT. 9. IN THE RESULT, APPEAL BY REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY , THE 25 TH DAY OF FEBRUARY, 2021. SD/- SD/- (S.RIFAUR RAHMAN) (VIKAS A WASTHY) ' / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 4/ DATED 25/02/2021 5 . 5011/ / 2017 (. . 2012-13 ) ITA NO.5011/MUM/2017A.Y.2012-13) VM , SR. PS (O/S) -.562. COPY OF THE ORDER FORWARDED TO : 1. , / THE APPELLANT , 2. -. / THE RESPONDENT. 3. 7. ( ) / THE CIT(A)- 4. 7. CIT 5. 89-. , . . . , / DR, ITAT, MUMBAI 6. 9:;#< / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI