M/s. G Corp Spaces Private Limited, Bangalore V. The Assistant Commissioner Of Income Tax, Circle- 3(1)(2), Bangalore

ITA 53/BANG/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7459 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-08-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 14-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Tax effect; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI , JUDICIAL MEMBER IT (TP) A NO. 53 /BANG/2020 ASSESSMENT YEAR: 2015 - 16 G CORP SPACES PVT. LTD., NO.21/19, CRAIG PARK LAYOUT, OFF M G ROAD, BENGALURU 560 001. PAN: AAECG 6624M VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(2), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : S HRI NAGESHWAR RAO, ADVOCATE RESPONDENT BY : SHRI KANNAN NARAYANAN, JT. CIT( DR)(ITAT), BENGALURU. DATE OF HEARING : 24 . 0 8 .202 1 DATE OF PRONOUNCEMENT : 2 4 .0 8 .202 1 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 29.11.2019 OF THE CIT(APPEALS)-3, BENGALURU FOR THE ASSESSMENT YEAR 2015-16 ON THE FOLLOWING GROUNDS OF APPEAL:- SR. NO. GROUNDS OF APPEAL TAX EFFECT RELATING TO EACH GROUND OF APPEAL (RS.) 1 THE CIT(A) ERRED IN CONFIRMING THE TRANSFER PRICING ADJUSTMENT OF RS.4,26,70,529/- ON ACCOUNT OF INTERE ST PAID ON NON- CONVERTIBLE DEBENTURES (NCDS) ISSUED BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISE RS.1,31,85,193/- (INCLUDING 3% EDUCATION CESS) IT(TP)A NO. 53/BANG/2020 PAGE 2 OF 6 2 THE CIT(A) ERRED IN CONFIRMING THE ARM'S LENGTH RAT E OF INTEREST OF 10.62% P.A. IN RESPECT OF NCDS ISSUE D BY THE APPELLANT 3 THE CIT(A) / ASSESSING OFFICER (AO) / TRANSFER PRICING OFFICER (TPO) FAILED TO APPRECIATE THAT THE CREDIT RATINGS OF THE COMPARAB LE BORROWERS ARE A RELEVANT FACTOR WHILE APPLYING COMPARABLE UNCONTROLLED PRICE (CUP) METHOD FOR DETERMINI NG THE ARM'S LENGTH PRICE (ALP) OF INTEREST ON NCDS PAID BY THE APPELLANT 4 THE CIT(A) / AO / TPO FAILE D TO APPRECIATE THAT THE INDUSTRY TO WHICH THE APPELLANT BELONGS IN A RELEVANT FACTOR IN COMPUTING THE ALP OF THE INTEREST PAID BY THE APPELLANT ON NCD S BY APPLYING CUP METHOD 5 THE CIT(A) / AO / TPO FAILED TO APPRECIATE THAT THE NCDS ISSUED BY THE APPELLANT HAD A MORATORIUM PERIOD OF 60 / 58 MONTHS WHEREIN THE APPELLANT WAS NOT REQUIRED TO PAY INTEREST ON THE NCDS AND THEREFORE THE EFFECTIVE RATE OF I NTEREST IN RESPECT OF THE NCDS WAS 11.61% P.A. 6 THE CIT(A) / AO / TPO FAILED TO APPRECIATE THAT AS PER THE SEARCHES CONDUCTED FOR COMPARABLE INTEREST RATES, THE RATE OF INTEREST OF 15% P.A. PA ID BY THE APPELLANT ON THE NCDS ISSUED BY IT WAS AT ARM'S LENGTH 7 WITHOUT PREJUDICE TO GROUND NOS.1 TO 6, THE APPEL LANT SUBMITS THAT THE TRANSFER PRICING ADJUSTMENT SHOULD BE MADE IN RESPECT OF INTEREST EXPENDITURE CLAIMED AS A DEDUCTION RS.42,85,515/- (INCLUDING 3% EDUCATION CESS) 2. THE FACTS OF THE CASE ARE THAT THE APPELLANT DU RING THE YEAR HAD AN INTERNATIONAL TRANSACTION EXCEEDING RS. 15 CRORES. THE MATTER WAS REFERRED BY THE AO TO THE TRANSFER PRICING OFFICER (TPO). TH E APPELLANT HAD ISSUED TWO TRANCHES OF NON-CONVERTIBLE DEBENTURES (NCDS) T O ITS ASSOCIATED ENTERPRISES (AE) AT AN INTEREST RATE OF 15% PER ANN UM. ACCORDINGLY THE IT(TP)A NO. 53/BANG/2020 PAGE 3 OF 6 RELEVANT TRANSACTIONS INCLUDING TRANSACTION RELATIN G TO INTEREST ACCRUED OF RS. 14,61,39,150/- WAS REPORTED BY THE APPELLANT IN FORM 3CEB. AS PER THE APPELLANT, IT HAD BENCHMARKED THE TRANSACTION USING 'ANY OTHER METHOD' UNDER RULE 10AB OF THE IT RULES ON THE BASIS SBI BA SE RATE (10%) PLUS 500 BASIS POINT. THE APPELLANT COULD NOT PROVIDE ANY RE ASONABLE BASIS FOR 500 BASIS POINT INCREASE ADOPTED BY IT. THE TPO ALSO NO TED THAT THE INTEREST RATE FOR DEBENTURES, REPAYMENT FOR WHICH WAS IN FOR EIGN CURRENCY WOULD BE GOVERNED BY THE DECISION OF HON'BLE DELHI HIGH COUR T IN THE CASE OF CIT V COTTON NATURALS(1) PVT LTD 9ITA NO 233/2014 AY 2007 -08 DT. 27.03.2015). SO THE TPO USED BLOOMBERG SWAP MANAGER TOOL TO HAVE CONVERTED RATE OF INTEREST AND THUS CONDUCTED A SEARCH FOR COMPARA BLE TRANSACTIONS ON BLOOMBERG DATA BASE AND PROPOSED THE INTEREST @ 10. 62% ON THE BASIS OF THE COMPARABLE SET. THE APPELLANT ARGUED THAT THE T PO HAD NOT CONSIDERED CREDIT RATING OF THE COMPARABLES VIS-A-VIS THAT OF THE APPELLANT. THE TPO DID NOT ACCEPT THIS ARGUMENT OF THE APPELLANT BY HOLDIN G THAT THE CREDIT RATING WAS JUST A SUBJECTIVE FIGURE WHICH WAS BASED ON THE IMAGE A COMPANY HOLDS IN THE EYES OF OTHER INDEPENDENT PLAYERS IN T HE MARKET. THE TPO NOTED THAT DIFFERENT RATING AGENCIES ASSIGNED DIFFE RENT CREDIT RATINGS TO SAME FINANCIAL INSTITUTIONS. THE TPO FURTHER NOTED THAT THE TRANSACTION OF THE APPELLANT WAS WITH ITS OWN AE, HAVING SAME PARENT A ND CONTROLLING ENTITY AND AS SUCH THERE WAS NO RISK OF DEFAULT OR NON-PAY MENT ASSOCIATED WITH THE LOAN BEING BORROWED BY THE ONE ENTITY FROM THE OTHER. THE TPO NOTED THAT VARIATION IN THE INTEREST RATE ACROSS DIFFEREN T CREDIT RATINGS WILL BE AUTOMATICALLY ACCOUNTED FOR IN THE FINAL SET BECAUS E AT THE END ONLY AN AVERAGE WAS ADOPTED. IN VIEW OF THE ABOVE THE AO HE LD THAT ARM LENGTH INTEREST RATE FOR THE CASE UNDER CONSIDERATION WAS 10.62% AS AGAINST 15% ADOPTED BY THE APPELLANT AND ACCORDINGLY PROPOSED A N ADJUSTMENT OF RS. 4,26,70,529/-. IT(TP)A NO. 53/BANG/2020 PAGE 4 OF 6 3. ON APPEAL, THE CIT(APPEALS) NOTED THAT THE ISSUE OF CREDIT RATING HAS DULY BEEN DEALT BY THE TPO WHILE PASSING HIS ORDER AND THE REASONING GIVEN BY THE TPO FOR NOT ACCEPTING THE CONTENTION O F THE APPELLANT CANNOT BE FAULTED WITH. THE CUP METHOD ADOPTED BY THE TPO AND THE USAGE OF BLOOMBERG DATABASE FOR FINDING THE SET OF COMPARABL ES WAS ALSO FOUND TO BE APPROPRIATE. RAISING FUNDS BY ISSUE OF DEBENTURE S ALSO DOES NOT HAVE ANY CORRELATION WITH THE NATURE OF THE INDUSTRY WHI CH IS RAISING THE FUNDS. ACCORDING TO THE CIT(A), THE ARGUMENT OF THE APPELL ANT ON THIS ISSUE IS VERY GENERIC AND UNSUBSTANTIATED. HE WAS OF THE VIEW THA T MORATORIUM PERIOD WOULD NOT MAKE ANY DIFFERENCE AS THE CORRESPONDING DATA OF THE COMPARABLES HAS ALSO NOT BE TAKEN INTO ACCOUNT AND THE AVERAGING IS ON THE BASIS OF DECLARED INTEREST RATE ONLY. THEREFOR E, THE CIT(APPEALS) UPHELD THE ACTION OF THE AO. 4. AT THE TIME OF HEARING, THE LD. AR APART FROM RA ISING THE CONTENTIONS TOUCHING UPON THE MERITS OF THE MATTER DEALT WITH B Y THE CIT(APPEALS), MAINLY EMPHASIZED THAT THE CIT(APPEALS) HAS PASSED THE IMPUGNED ORDER IN TOTAL NON-APPLICATION OF MIND TO THE ARGUMENTS M ADE BY THE LD. AR IN DETAIL AGAINST THE ORDER OF THE AO. IT WAS CONTEND ED BY HIM THAT THE ORDER OF AO IS VERY CRYPTIC AND ALSO THE FINDINGS ARE NON -SPEAKING WHICH CANNOT BE UPHELD BY SCRUTINY OF LAW. ACCORDING TO THE LD. AR, THE CIT(APPEALS) SHOULD HAVE CONSIDERED THE ENTIRE ARGUMENTS AND REC ORDS PLACED BEFORE HIM. IN VIEW OF THE ABOVE, HE SUBMITTED THAT THE O RDER OF CIT(APPEALS) HAS TO BE VACATED AND THE ISSUE REMITTED BACK TO HIS FI LE TO PASS A SPEAKING ORDER AFTER CONSIDERING THE ENTIRE ARGUMENTS AND MA TERIAL PLACED ON RECORD BY THE ASSESSEE. 5. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE CIT(APPEALS) HAS CONSIDERED THE ENTIRE ARGUMENTS OF LD. AR AND PASSE D THE IMPUGNED ORDER WHICH CANNOT BE SET ASIDE AND THE SAME HAS TO BE DE CIDED ON MERITS. IT(TP)A NO. 53/BANG/2020 PAGE 5 OF 6 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE FINDINGS OF THE CIT(APPEALS) ON THE IMPUGNED ISSUE WHICH IS RECORDED AT PARA 4.2 OF THE IMPUGNED ORDER WHICH HAS BEEN DISCUSSED ABOVE. THERE IS NO PROPER DISCU SSION OR INDEPENDENT FINDINGS BY THE CIT(A) BY PASSING A SPEAKING ORDER ON THE ISSUES RAISED BY THE ASSESSEE AND THE ORDER OF THE CIT(A) IS VERY CR YPTIC AND CAN BE CALLED AS AN ORDER PASSED WITHOUT PROPER APPLICATION OF MI ND. THEREFORE, WE ARE CONVINCED THAT THE MATTER HAS TO GO BACK TO THE CIT (APPEALS) FOR FRESH CONSIDERATION OF THE ENTIRE ARGUMENTS AND MATERIAL IN DETAIL BROUGHT ON RECORD BY THE PARTIES AND TO PASS A FRESH ORDER IN ACCORDANCE WITH LAW WITH REASONS AND INDEPENDENT FINDINGS. THEN ONLY, AFTER SUCH SPEAKING ORDER IS PASSED BY THE CIT(A), THE AO WILL BE IN A POSITION TO UNDERSTAND THE SAME AND PASS THE CONSEQUENTIAL ORDER. THEREFORE WE AGR EE WITH THE CONTENTION OF THE LD. AR AND THE IMPUGNED ORDER IS SET ASIDE A ND THE ISSUE IS REMITTED BACK TO THE FILE OF THE CIT(APPEALS) TO PASS A FRES H SPEAKING ORDER ON MERITS. SINCE WE HAVE REMITTED THE ISSUE TO THE FI LE OF CIT(APPEALS), WE REFRAIN FROM GOING INTO THE OTHER GROUNDS OF APPEAL AT THIS STAGE. 7. IN THE RESULT, THE APPEAL BY THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF AUGUST, 2021. SD/- SD/- ( BEEN A P ILLAI ) ( C HANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 24 TH AUGUST, 2021. / DESAI S MURTHY / IT(TP)A NO. 53/BANG/2020 PAGE 6 OF 6 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.