HUNTSMAN INTERNATIONAL (INDIA) P.LTD, MUMBAI V. ASST CIT 10(1)(1), MUMBAI

ITA 520/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2802 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 25-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AJIT PAL SINGH DAIA
• Keywords: Depreciation; Transfer pricing; International transaction; Earning of tax free income; Wholly owned subsidiary; Commercial expediency; TDS; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO. 520 / MUM . /2018 ( ASSESSMENT YEAR : 20 13 14 ) HUNTSMAN INTERNATIONAL INDIA PVT. LTD. LIGHT HALL, B WING, SAKI VIHAR ROAD ANDHERI (EAST), MUMBAI 400 072 PAN AAACH9149J . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 10(1)(1), MUMBAI . RESPONDENT REVENUE BY : SHRI FARROKH IRANI ASSESSEE BY : SHRI AJIT PAL SINGH DAIA DATE OF HEARING 14.08.2019 DATE OF ORDER 30.08.2019 O R D E R PER SAKTIJIT DEY. J.M. CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST FINAL ASSESSMENT ORDER DATED 28 TH NOVEMBER 2017, PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 2013 14 IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL 1, WEST ZONE, MUMBAI, (FOR SHORT THE DRP ). 2 HUNTSMAN INTERNATIONAL INDIA PVT. LTD. 2 . IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF THE CORPORATE AND MANAGEMENT SERVICE CHARGES PAID T O THE ASSOCIATED ENTERPRISES (A E) AMOUNTING TO ` 8,40,30,164. 3 . THE ASSESSEE, AN INDIAN COMPANY , IS A WHOLLY OWNED SUBSIDIARY OF HUNTSMAN INTERNATIONAL LLC. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTION S WITH ITS OVERSEAS AE, INCLUDING PAYMENT MADE TOWARDS AVAILING OF CORPORATE AND MANAGEMENT SER VICES. IN THE COURSE OF PROCEEDINGS BEFORE HIM, THE TRANSFER PRICING OFFICER NOT ONLY CALLED FOR VARIOUS INFORMATION AND DETAILS, BUT ALSO DIRECTED THE ASSESSEE TO JUSTIFY THE ARM'S LENGTH NATURE OF PAYMENT MADE TOWARDS CORPORATE AND MANAGE MENT SERVICES PR OVIDED BY THE A E. FURTHER, THE TRANSFER PRICING OFFICER CALLED UPON THE ASSESSE E TO ESTABLISH THROUGH EVIDENCE THE NATURE OF SERVICE AVAILED AND THE NECESSITY AND COMMERCIAL EXPEDIENCY OF AVAILING SUCH SERVICES. AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE AND EVIDENCES FURNISHED, THE TRANSFER PRICING OFFICER WAS OF THE VIEW THAT THE ASSESSEE WAS UNABLE TO ESTABLISH THE NECESSITY OF AVAILING SERVICES AND THE BENEFIT DERIVE D QUA THE PAYMENT MADE TO THE A E. THUS, ULTIMATELY, THE TRANSFER PRICING OFFICER HELD THAT THE PAYMENT MADE BY THE ASSESSEE TOWARDS CORPORATE AND MANAGEMENT SERVICES IS NOT AT ARM'S LENGTH AND ACCORDINGLY PROPOSED ADJUSTMENT OF ` 15,95,41,317. THE ADJUSTMENT PROPOSED BY THE TRANSFER PRICING OFFICER WAS ADDED 3 HUNTSMAN INTERNATIONAL INDIA PVT. LTD. BACK IN THE DRAFT ASSESSMEN T ORDER. AGAINST THE DRAFT ASSESSMENT ORDER SO PASSED, THE ASSESSEE RAISED OBJECTIONS BEFORE LEARNED DRP. 4 . LEARNED DRP, AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, GRANTED PARTIAL RELIEF TO THE ASSESSEE WHICH RESULTED IN REDUCTION OF TRANSFER P RICING ADJUSTMENT TO ` 15,67,79,125. 5 . SHRI FA R RO KH IRANI , THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR , WHEREIN , THE TRIBUNAL HAS RESTORED THE ISSUE TO LEARNED DRP FOR DE NOVO ADJUDICATION. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 011 12 AND 2011 13. THUS, HE SUBMITTED , THE ISSUE MAY BE RESTORED BACK TO LEARNED DRP FOR FRESH ADJUDICATION. 6 . THE LEARNED DEPARTMENTAL REP RESENTATIVE ALSO AGREED THAT THE ISSUE HAS TO BE RESTORED BACK TO LEARNED DRP AS WAS DONE BY THE TRIBUNAL IN PRECEDING ASSESSMENT YEAR S . 7 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN, THE ALLOWABILITY OF ASSESSEES CLAIM OF PAYMENT OF CORPORATE AND MANAGEMENT SERVICE CHARGES TO TH E AE IS A RECURRING DISPUTE BETWEEN THE PARTIES SINCE THE ASSESSMENT YEAR 2009 10. THE TRIBUNAL WHILE DECIDING THE ISSUE IN THE PRECEDING 4 HUNTSMAN INTERNATIONAL INDIA PVT. LTD. ASSESSMENT YEAR S HAS CONSISTENTLY RESTORE D THE ISSUE TO THE FILE OF LEARNED DRP FOR F RESH ADJUDICATION. IN FACT , WHILE DECIDING THE ISSUE IN THE IMPUGNED ASSESSMENT YEAR, LEARNED DRP HAS HEAVILY RELIED UPON THEIR DECISION FOR THE ASSESSMENT YEAR 2011 12. AS COULD BE SEEN, WHILE DECIDING THE ISSUE IN THE ASSESSMENT YEAR 2012 13, THE TRIBUNAL IN ITA NO.1099/MUM./2017, DATED 12 TH SEPTEMBER 2018, FOLLOWING ITS EARLIER ORDER IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2011 12, HAS RESTORED THE ISSUE TO LEARNED DRP. IN VIEW OF THE AFORESAID, FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR S , WE RESTORE THE ISSUE TO LEARNED DRP FOR ADJUDICATING AFRESH IN TERMS WITH THE DIRECTIONS OF THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEARS. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 8 . GROUND NO.2, IS NOT PRESSED DUE TO SMALLNESS OF THE AMOUNT INVOLVED. ACCORDINGLY, THIS GROUND IS DISMISSED AS NOT PRESSED. 9 . IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF DEPRECIATION ON CERTAIN INTANGIBLE ASSETS, SUCH AS , MATERIAL SUPPLY CO NTRACTS, DISTRIBUTION NETWORK AND BRAND USAGE. AS COULD BE SEEN FROM THE FACTS ON RECORD , NOTICING THAT SIMILAR CLAIM OF DEPRECIATION MADE BY THE ASSESSEE IN THE PRECEDING YEARS WERE DISALLOWED , THE ASSESSING OFFICER PROCEEDED TO DISALLOW ASSESSEES CLAIM OF DEPRECIATION ON THE INTANGIBLES. 5 HUNTSMAN INTERNATIONAL INDIA PVT. LTD. 10 . LEARNED DRP ALSO FOLLOWING ITS OWN ORDER IN THE PRECEDING ASSESSMENT YEAR SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 11 . THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN PRECEDING ASSESSMENT YEAR S , THE TRIBUNAL HAS ALLOWED ASSESSEES CLAIM OF DEPRECIATION ON INTANGIBLES. IN THIS CONTEXT, HE DREW OUR ATTENTION TO RELEVANT ORDERS OF THE TRIBUNAL. THUS, HE SUBMITTED , D EPRECIATION CLAIMED BY THE ASSESSEE HAS TO BE ALLOWED. 12 . THE LEARNED DEPARTMENTAL REPRESENTATIVE , THOUGH , AGREED THAT IN THE PRECEDING ASSESSMENT YEAR S THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, HOWEVER, HE RELIED UPON THE OBSERVATIONS OF THE ASS ESSING OFFICER AND LEARNED DRP. 13 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS EVIDENT , THE DISPUTE RELATING TO ASSESSEES CLAIM OF DEPRECIATION ON CERTAIN INTANGIBLE ASSETS, SUCH AS , MATERIAL SUPPLY CONTRACT , DISTRIBUTION NETWORK AND BRAND USAGE IS CONTINUING FROM THE PRECEDING ASSESSMENT YEARS. HOWEVER, WHILE DECIDING THE ISSUE, THE TRIBUNAL HAS CONSISTENTLY ALLOWED ASSESSEES CLAIM OF DEPRECIATION. IN THE LATEST ORDER PASSED FOR THE ASSESSMENT YEAR 2012 13 I N ITA 6 HUNTSMAN INTERNATIONAL INDIA PVT. LTD. NO.1099/MUM./2017, DATED 12 TH SEPTEMBER 2018, THE TRIBUNAL FOLLOWING ITS EARLIER ORDERS IN ASSESSEES OWN CASE HAS ALLOWED DEPRECIATION CLAIMED ON INTANGIBLE S . THEREFORE, FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR S , WE ALLOW ASSESSEES CLAIM OF DEPRECIATION. THIS GROUND IS ALLOWED. 14 . IN GROUND NO.4, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A R/W RULE 8D. 15 . BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD EARNED EXEMPT INCOME BY WAY OF DIVIDEND AMOUNTING TO ` 6,84,475. WHEREAS, IT HAS DISALLOWED AN AMOUNT OF ` 2 LAKH UNDER SECTION 14A OF THE ACT. BEING OF THE VIEW THAT THE DISALLOWANCE MADE BY THE ASSES SEE IS NOT IN ACCORDANCE WITH RULE 8D, THE ASSESSING OFFICER PROCEEDED TO COMPUTE DISALLOWANCE AT ` 21,69,706, UNDER RULE 8D. AFTER ADJUSTING THE DISALLOWANCE OF ` 2 LAKH MADE BY THE ASSESSEE, HE MADE A NET DISALLOWANCE OF ` 19,69,706. THE AFORESAID DISALL OWANCE MADE BY THE ASSESSING OFFICER WAS ALSO SUSTAINED BY LEARNED DRP. 16 . THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , THE DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) AMOUNTING TO ` 5,35,131, CANNOT BE MADE AS THE ASSESSEE HAD SUFFICIEN T INTEREST FREE FUND AVAILABLE WITH IT. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE 7 HUNTSMAN INTERNATIONAL INDIA PVT. LTD. BALANCE SHEET OF THE ASSESSEE SHOWING AVAILABILITY OF SURPLUS FUND. AS REGARDS DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(III), THE LEARNED SR. COUNSEL S UBMITTED , THE TOTAL DISALLOWANCE CANNOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR. IN SUPPORT OF HIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON A NUMBER OF CASE LAWS. 17 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED DRP. 18 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THERE IS NO DISPUTE BETWEEN THE PARTIES WITH REGARD TO PRIMARY FACTS RELATING TO THE ISSUE. THE ASSESSEE HAS SUO MOTU DISALLOWED DIRECT EXPENDITURE OF ` 2 LAKH. WHEREAS, THE ASSESSING OFFICER HAS COMPUTED DISALLOWANCE UNDER RULE 8D AT ` 21,69,706. ON A PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, IT IS NOTICED THAT INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE BY WAY OF SHARE CAPITAL, RESERVE AND SURPLUS, FAR EXCEED S THE INVESTMENTS MADE IN EXEMPT INCOME YIELDING ASSET S . THEREFORE, AS PER THE SETTLED PRINCIPLE OF LAW , NO DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) CAN BE MADE. AS REGARDS DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(II I ), UNDISPUTEDLY, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED EXEMPT INCO ME 8 HUNTSMAN INTERNATIONAL INDIA PVT. LTD. OF ` 6,84,475. WHEREAS, IT HAS VOLUNTARILY DISALLOWED AN AMOUNT OF ` 2 LAKH. NOW, IT IS FAIRLY WELL SETTLED THAT THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D CANNOT EXCEED THE QUANTUM OF EXEMPT INCOME EARNED DURING THE YEAR. IN THIS CONTEXT, WE MAY RE FER TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN JOINT INVESTMENT PVT. LTD. V/S CIT, [2015] 372 ITR 694 (DEL.), CHEMINVEST LTD. V/S CIT, [2015] 378 ITR 33 (DEL.), DCIT V/S PHL FINIVEST PVT. LTD., ITA NO.2318/MUM./ 2017, DATED 31 ST AUGUST 2018, AND SA NGHAVI EXPORTS INTERNATIONAL PVT. LTD. V/S ACIT, ITA NO.3405/MUM./2015, DATED 10 TH JULY 2017. THUS, APPLYING THE RATIO LAID DOWN IN THE AFORESAID DECISION S , WE HOLD THAT THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D CANNOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR. THAT BEING THE CASE, THE ASSESSEE HAVING ALREADY DISALLOWED AN AMOUNT OF ` 2 LAKH, THE ADDITIONAL DISALLOWANCE UNDER SECTION 14A OF THE ACT IS RESTRICTED TO AN AMOUNT OF ` 4,84,475. THIS GROUND IS PARTLY ALLOWED. 19 . IN GROUND NO.5, THE ASSESSEE HAS RAISED THE ISSUE OF SHORT DEDUCTION OF TAX DEDUCTED AT SOURCE. 20 . HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE RECORD AND GRANT CREDIT OF TDS AS PER LAW. 9 HUNTSMAN INTERNATIONAL INDIA PVT. LTD. 21 . GROUND NO.6, BEING GENERAL I N NATURE IS NOT REQUIRED TO BE ADJUDICATE, HENCE, DISMISSED. 22 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 30.08.2019 SD/ - N.K. PRADHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 30.08.2019 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 ASSISTANT REGISTRAR ITAT, MUMBAI