Redington India Ltd., CHENNAI V. DCIT, CHENNAI

ITA 535/CHNY/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8434 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 22-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 16-03-2015
• Court: TRIBUNAL
• Department Lawyers: ANURAG SAHAY
• Keywords: Transfer pricing; International transaction; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S.JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A.NO.959/MDS./2015 / ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-5(1), CHENNAI-34. VS. M/S. REDINGTON INDIA LTD., 95, MOUNT ROAD, SPL GUINDY HOUSE, GUINDY, CHENNAI 600 032. PAN AABCR0347P [PAN AABCR0347P ] ( / APPELLANT) ( /RESPONDENT) ./ I.T.A.NO.535/MDS./2015 / ASSESSMENT YEAR : 2010-11 M/S. REDINGTON INDIA LTD., 95, MOUNT ROAD, SPL GUINDY HOUSE, GUINDY, CHENNAI 600 032. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-5(1), CHENNAI-34. [PAN AABCR0347P ] ( / APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI VIKRAM VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : SHRI ANURAG SAHAY, CIT DR / DATE OF HEARING : 22 - 08 - 201 6 / DATE OF PRONOUNCEMENT : 23 - 09 - 2016 ITA NOS.959 & 535/MDS./15 :- 2 -: / O R D E R PER S.JAYARAMAN, ACCOUNTANT MEMBER THESE CROSS APPEALS ARE AGAINST THE ORDER OF TH E LD. ASSESSING OFFICER CONSEQUENT TO THE DIRECTIONS OF T HE DISPUTE RESOLUTION PANEL (DRP) ISSUED U/S. 144C(5) OF THE A CT DATED 24.12.2014 FOR ASSESSMENT YEAR 2010-11. FIRST, LET US TAKE UP REVENUES APPEAL IN ITA NO. 959/MDS./2015 AS UNDER : 2. THE FIRST ISSUE FOR OUR CONSIDERATION IS TH AT THE TPO MADE AN UPWARD ADJUSTMENT OF RS.8,53,54,900/- ON AC COUNT OF CORPORATE AND BANK GUARANTEE CHARGES ISSUED BY THE ASSESSEE COMPANY TO ITS AE. IN THIS REGARD, THE ASSESSEE CON TENDED BEFORE THE DRP THAT THIS ISSUE WAS CONSIDERED BY THE CO-ORDI NATE BENCH OF CHENNAI TRIBUNAL IN ITS OWN CASE IN ITA NO.513/MDS. /2014 IN AY 2009- 10. FOLLOWING THE DECISION OF DELHI TRIBUNAL IN THE CASE OF BHARTI AIRTEL LTD. VS. ACIT REPORTED IN 43 TAXMANN.COM 150, IT HE LD THAT SINCE THERE IS NO COST INVOLVED IN ACCEPTING THE CORPORATE GUAR ANTEE, IT WILL NOT CONSTITUTE AN INTERNATIONAL TRANSACTION. THE DRP DI RECTED THE AO/TPO TO FOLLOW THE ABOVE DECISION OF THE TRIBUNAL FOR TH IS ASSESSMENT YEAR ALSO. ITA NOS.959 & 535/MDS./15 :- 3 -: 2.1 THE NEXT ISSUE FOR CONSIDERATION IS THAT THE AS SESSEE IS EXPLOITING THE TRADE MARK REDINGTON FOR THE PURP OSE OF CARRYING ON ITS BUSINESS TOWARDS WHICH IT MADE PAYMENTS TO M /S.REDINGTON DISTRIBUTION PTE. LTD., SINGAPORE. THE TPO MADE A D OWNWARD ADJUSTMENT OF RS 1,93,29,120/- IN RESPECT OF TRADE MARK , LICENSE FEE PAID BY THE ASSESSEE TO THAT SINGAPORE COMPANY . T HE ASSESSEE PLEADED BEFORE THE DRP THAT THE TRIBUNAL IN ITS OWN CASE FOR ASSESSMENT YEAR 2009-10 HELD THAT IT IS AN ALLOWABL E EXPENDITURE FOR THE PURPOSE OF TAXATION AND WHAT IS COMMERCIAL EXPE DIENCY IS A MATTER TO BE DECIDED BY THE ASSESSEE ETC., THE DRP DIRECT ED THE AO TO FOLLOW THE ABOVE DECISION OF THE TRIBUNAL FOR THIS ASSESS MENT YEAR ALSO . AGGRIEVED AGAINST THE ABOVE DECISIONS , THE REVENUE IS IN APPEAL BEFORE US. 3 BEFORE US, THE LD.D.R PLEADED THAT THE HONBLE DRP HAVE GIVEN DIRECTION IN DELETING THE ADDITIONS MADE BY W AY OF ALP ADJUSTMENT MADE IN THE CASE OF TRADEMARK/LICENSE FE ES AND CORPORATE/BANK GUARANTEE STANDS AT NIL TO THE TP O BY FOLLOWING THE CHENNAI TRIBUNALS DECISION IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2009-10. FURTHER, THE LD.D.R SUBMITTED THAT TH E SAME ISSUE RAISED BY THE REVENUE PERTAINING TO ASSESSMENT YEAR 2009-10 IN ASSESSEE'S OWN CASE IS PENDING BEFORE THE JURISCIT IONAL HIGH COURT. HENCE, LD.D.R PLEADED THAT THE DECISION OF CHENNAI TRIBUNAL IS NOT ITA NOS.959 & 535/MDS./15 :- 4 -: FINAL. PER CONTRA, THE LD.A.R RELIED ON THE DECISIO NS OF THE TRIBUNAL OF THE EARLIER YEARS. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IT IS NOT THE CASE OF THE LD. DR THAT THE I MPUGNED TRIBUNAL DECISIONS ARE STAYED BY THE HONBLE HIGH COURT. SIN CE THE DRP HAS FOLLOWED THE DECISIONS OF TRIBUNAL IN ITA NO.1743/M DS./2011 DATED 26.06.15 FOR ASSESSMENT YEAR 2007-08 & IN ITA NO.2 21/MDS./2013 DATED 07.08.2015 FOR ASSESSMENT YEAR 2009-10 IN ASS ESSEE'S OWN CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE DRP ON THE ABOVE ISSUES AND ACCORDINGLY, THE GROUNDS RAISED BY REVEN UE ARE DISMISSED. NOW, LET US TAKE UP ASSESSEES APPEAL ITA NO.535/MD S./2015 AS UNDER: 5. THE MAIN ISSUE FOR CONSIDERATION IS DISALLOWANC E OF RS 4,09,23,978/- U/S.14A OF THE ACT R.W RULE-8D CLAUS ES (I) (II) & (III) . 5.1 THE LD. ASSESSING OFFICER FOUND THAT THE ASSES SEES INVESTMENT AS ON 01.04.2010 WAS RS.5 LAKHS AND AS ON 31.03.2011, IT WAS RS.2,05,00,000/-. THE AO DISALLOWED RS 4,09,23, 978/- U/S.14A READ WITH RULE-8D(2) (I), (II) & (III) BY PLACING R ELIANCE ON THE DECISION OF SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE OF C HEMINVEST LTD., VS. ITO REPORTED IN (2009) 121 ITD 318(DELHI)(SB) AND C BDTS CIRCULAR NO.5 DT 11.2.2004 . ITA NOS.959 & 535/MDS./15 :- 5 -: 5.2 BEFORE THE DRP, THE ASSESSEE CONTENDED THAT SI NCE NO EXEMPT INCOME IS EARNED , DISALLOWANCE U/S.14A WOUL D NOT ARISE. THE DRP, AFTER CONSIDERING THE DECISION OF CHEMINVEST L TD., VS. ITO (SUPRA), FOUND, INTER ALIA, THAT FOR THE PURPOSE O F DISALLOWANCE OF EXPENDITURE U/S.14A R.W.RULES 8D WHAT IS TO BE SEE N THAT THE AMOUNT OF INVESTMENTS MADE AND THE EFFORTS TAKEN BY THE AS SESSEE IN THE SAID PROCESS. THEREFORE, THE AMOUNT OF DISALLOWANCE IS T O BE WORKED OUT PROPORTIONATE TO THE INVESTMENTS MADE AND THE EXPEN SES (EITHER DIRECT OR INDIRECT) INVOLVED IN THE PROCESS, EVEN IF THERE ARE NO SUCH EXEMPT INCOME EARNED DURING THE YEAR. FOR THE PURPOSE OF MAKING INVESTMENTS ETC., THE SAME MANAGEMENT, MANPOWER, MA CHINERY AND INFRASTRUCTURAL FACILITIES OF THE ASSESSEE ARE BEIN G USED. HENCE, THERE IS AN ELEMENT OF EXPENDITURE INVOLVED IN THE PROCESS. THIS EXPENDITURE MAY NOT BE DIRECT. THEREFORE, THERE IS A NEED TO ID ENTIFY AND APPORTION A REASONABLE AMOUNT OF EXPENSES AS ATTRIBUTABLE FOR EARNING THE EXEMPTED INCOME. FOR THIS PURPOSE, THE DRP PLACED R ELIANCE IN THE CASE OF DCIT VS.SREI INTERNATIONAL FINANCE LTD. REP ORTED IN [2006] 10 SOT 722(DELHI)(TIB.) AND MAREZBAN BHARUCHA V.ACIT R EPORTED IN (2007) 12 SOT 133(MUM.)(TRIB.). FURTHER, THE DRP OB SERVED THAT LD. ASSESSING OFFICER HAS CORRECTLY NOTED IN THE ASSESS MENT ORDER THAT THERE WAS SOME ELEMENT OF EXPENSES INCURRED BY THE ASSESSEE IN ITA NOS.959 & 535/MDS./15 :- 6 -: RELATION TO THE INVESTMENTS AND EARNING THE EXEMPT INCOME, WHICH NEEDS TO BE QUANTIFIED AND DISALLOWED U/S.14A OF TH E ACT AND AO HAS RIGHTLY QUANTIFIED THE SAID EXPENSES AT RS. 4,09,23,978/- BY USING THE RULE 8D AND HENCE THE DRP HELD THAT SUCH ACTION IS JUSTIFIED AND CONFIRMED SUCH DISALLOWANCE. 6. THE LD.A.R MAINLY PLEADED THAT THE ENTIRE INVEST MENT IS MADE IN ITS SUBSIDIARY COMPANIES, SUCH INVESTMENTS HAD BEEN MADE BY THE ASSESSEE TO PROMOTE THEIR BUSINESS THROUGH SUBS IDIARY COMPANIES, THEY WERE ON ACCOUNT OF BUSINESS EXPEDIENCY AND EA RNING DIVIDEND THEREFROM IS PURELY INCIDENTAL . THEREFORE , THE IN VESTMENT MADE BY IT IN ITS SUBSIDIARY IS NOT TO BE RECKONED FOR DISALL OWANCE U/S 14A R W RULE 8D, RELIED ON THE DECISION REPORTED IN EIH AS SOCIATED HOTELS LTD VS CIT IN 2013- TIOL-796-ITAT-MAD FOR AY 2008-09 DT 17.7.2013 , FURNISHED A COPY SCHEDULE 6 OF ITS BALANCE SHEET FR OM ITS ANNUAL REPORT AND ALSO RELIED ON THE FOLLOWING CASE LAWS. A) ALLIANCE INFRASTRUCTURE PROJECT P LTD. V. DCIT IN ITA NOS.220 & 1043/BANG./2013 DATED 12.09.2014 B) ACIT VS. M.BASKARAN, REPORTED IN 28 TAXMAN.COM 138 C) REO AGRO LTD. V. DCIT LIN 144 ITR 141(KOL). PER CONTRA, THE LD. D. R RELIED ON THE DECISION OF THE DRP. ITA NOS.959 & 535/MDS./15 :- 7 -: 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS NOT T AKEN THE PLEA THAT THE IMPUGNED INVESTMENT IS MADE IN ITS SUBSIDIARY A ND HENCE IT WOULD NOT FALL UNDER SECTION 14A R. W RULE 8D , AS PER TH E RATIO REPORTED IN EIH ASSOCIATED HOTELS LTD VS CIT IN 2013- TIOL-796- ITAT-MAD FOR AY 2008-09 DT 17.7.2013, BEFORE THE LOWER AUTHORITIES. THUS, THE FACTUAL MATRIX STAND UNVERIFIED. IN THE FACTS AND CIRCUMST ANCES, THIS ISSUE IS REMITTED BACK TO THE AO FOR DUE VERIFICATION AND AP PLICATION. IF THE ASSESSEE SATISFIES THE A O WITH RELEVANT MATERIAL T HAT THE IMPUGNED ISSUE FALLS WITHIN THE RATIO LAID IN THE CASE OF E IH ASSOCIATED HOTELS LTD VS CIT IN 2013- TIOL-796-ITAT-MAD FOR AY 2008-09 DT 17.7.2013, THE AO SHALL APPLY IT ACCORDINGLY . 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED AND THE ASSESSEES APPEAL IS TREATED AS ALLOWED F OR STATISTICAL PURPOSE ORDER PRONOUNCED ON 23.09.2016, AT CHENNAI. SD/ - SD/ - (N.R.S. GANESA N) / JUDICIAL MEMBER ( S.JAYARAMAN ) ! ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 23.09.2016 K S SUNDARAM %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 3. ' +',- / CIT(A) 5. )./' 0 / DR 2. / RESPONDENT 4. ' + / CIT 6. /1'2 / GF