DCIT, Bangalore V. M/s United Breweries (Holdings) Ltd., Bangalore

ITA 561/BANG/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4586 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 24-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Principle of natural justice
• Section: 143(3); 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER IT (TP) A NO. 561 / BANG/201 6 ASSESSMENT YEAR : 20 1 1 - 1 2 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7 (1) (1), BANGALORE. VS. M/S. UNITED BREWERIES (HOLDINGS) LTD., UB TOWER, LEVEL 12, UB CITY, 24 VITTAL MALLYA ROAD, BANGALORE 560 001. PAN: AAACU2307D APPELLANT RESPONDENT IT (TP) A NO. 720 /BANG/201 6 ASSESSMENT YEAR : 20 11 - 12 M/S. UNITED BREWERIES (HOLDINGS) LTD., UB TOWER, LEVEL 12, UB CITY, 24 VITTAL MALLYA ROAD, BANGALORE 560 001. PAN: AAACU2307D VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7 (1) (1), BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : NONE REVENUE BY : MS. NEERA MALHOTRA, CIT (DR) DATE OF HEARING : 1 3 .0 6 .2018 DATE OF PRONOUNCEMENT : 15 .0 6 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND R EVENUE AND THESE ARE DIRECTED AGAINST THE ASSESSMENT ORDER PASSED BY THE AO ON 28.01.2016 FOR ASSESSMENT YEAR 2011-12 U/S. 143(3) R.W.S. 144C OF IT ACT AS PER THE DIRECTIONS OF DRP. IT(TP)A NOS. 561 & 720/BANG/2016 PAGE 2 OF 6 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. AGAINST THE ORDER UNDER SECTION 143(3) R.W.S. 144C (13) DATED 28.1.16 1. THAT THE ORDER OF THE AUTHORITIES BELOW, THE DIR ECTIONS OF THE DISPUTE RESOLUTION PANEL(DRP) AND THE ORDER OF THE TRANSFER PRICING OFFICER (TPO) IN SO FAR AS IT IS AGAINST THE APPELLANT IS A GAINST THE LAW, FACTS, CIRCUMSTANCES, NATURAL JUSTICE, EQUITY, WITHOUT JUR ISDICTION, BAD IN LAW AND ALL OTHER KNOWN PRINCIPLES OF LAW. 2. THAT THE TOTAL INCOME COMPUTED AND THE TOTAL TAX COMPUTED IS HEREBY DISPUTED. 3. THAT THE COMMUNICATION / ORDER OF THE TPO IS WIT HOUT JURISDICTION, AGAINST THE LAW, FACTS, CIRCUMSTANCES, NATURAL JUST ICE, EQUITY AND ALL OTHER KNOWN PRINCIPLES OF LAW. 4. THAT THE FINDINGS, REASONS, CONCLUSIONS AND DIRE CTIONS OF DRP U/S 144C (5) ARE A BUNDLE OF CONTRADICTIONS AND CLEARLY UNSUSTAINABLE IN LAW REQUIRES TO BE REJECTED. CONSEQUENTLY THE ADDIT IONS BASED ON SUCH DIRECTIONS REQUIRES TO BE DELETED. 5. THAT THE AO ERRED IN NOT FOLLOWING THE DIRECTION S OF THE DRP, THUS THE ORDER REQUIRES TO BE CANCELLED. ISSUE OF TRANSFER PRICING 6. THE ORDER OF THE TPO, DIRECTIONS OF DRP AND THAT OF THE ASSESSING OFFICER (AO) IS IN CLEAR VIOLATION OF THE LAW ON TH IS ISSUE AND THE PRINCIPLES ENUNCIATED BY VARIOUS COURTS MORE PARTIC ULARLY ON THE ISSUE OF REFERENCE, SANCTION OF APPROVAL, RECORDING OF RE ASONS AND LACK OF SATISFACTION. 7. THAT NO COPY OF THE REASONS RECORDED FOR MAKING THE REFERENCE TO THE TPO HAS BEEN FURNISHED NOR COPY OF THE APPROVAL OBTAINED FOR MAKING THE REFERENCE HAS BEEN FURNISHED TO THE APPE LLANT. 8. THAT THE ORDER OF THE TPO IS WITHOUT JURISDICTIO N, AGAINST THE LAW, FACTS. CIRCUMSTANCES, NATURAL JUSTICE, EQUITY, BAD IN LAW AND ALL OTHER KNOWN PRINCIPLES OF LAW. 9. THE APPELLANT DENIES THE TAX LIABILITY ARISING O N THE COMPUTATION OF ARMS LENGTH PRICE FOR THE IMPUGNED ASSESSMENT YEAR. 10. THE SELECTION OF THE METHOD BY THE AO/TPO/DRP I S NOT AS PER LAW. 11. THE AO/TPO/DRP ERRED IN NOT SELECTING ANY COMPA RABLES AS IS REQUIRED UNDER THE INCOME TAX RULES. FURTHER, ALSO THE ORDERS DO NOT COMPLY WITH THE CASE LAWS ON THIS POINT. 12. THE AO/TPO/DRP ERRED IN NOT CARRYING OUT THE AD JUSTMENT AS REQUIRED UNDER LAW AS WELL AS ON FACTS. 13. THE AO/TPO/DRP ERRED IN NOT CARRYING OUT THE AD JUSTMENT SOUGHT BY THE ASSESSEE. 14. THE AO/TPO/DRP ERRED IN PASSING THE ORDER WITHO UT OBJECTIVELY CONSIDERING THE OBJECTIONS AND REPLIES FILED BY THE ASSESSEE. 15. THE AO/TPO/DRP ERRED IN MAKING ALP ADJUSTMENT A MOUNTING TO RS.5,36,89,090/- IN RESPECT OF THE COMMISSION / FEE ON FINANCIAL/CORPORATE GUARANTEE. FURTHER THE AO ERRED IN NOT ADHERING TO THE DIRECTIONS OF THE DRP. 16. THE AO/TPO/DRP ERRED IN MAKING ADJUSTMENT ON IN TEREST ON LOAN IT(TP)A NOS. 561 & 720/BANG/2016 PAGE 3 OF 6 AMOUNTING TO RS.3,03,05,559/- IN RESPECT OF LOAN GR ANTED TO ITS AES. OTHER ISSUES/ADDITIONS/DISALLOWANCES 17. THE LEARNED AO/DRP ERRED IN BRINGING TO TAX A S UM OF RS.194,54,87,410/- AS LONG TERM CAPITAL GAINS. 18. THE LEARNED AO/DRP ERRED IN HOLDING THAT THE CL AIM ON ACCOUNT OF TRANSFERABLE DEVELOPMENT RIGHTS (TDR) AMOUNTING TO RS.88,06,51,936/- IS NOT ALLOWABLE. 19. THE LEARNED AO/DRP ERRED IN HOLDING THAT THE CL AIM ON ACCOUNT OF ADDITIONAL EXPENDITURE INCURRED BY THE ASSESSEE AMOUNTING TO RS.38,69,26.500/- IS NOT ALLOWABLE. 20. THE LEARNED AO/DRP ERRED IN HOLDING THAT THE ME RE ENTERING INTO OF TRANSACTION .I.E., JOINT DEVELOPMENT AGREEMENT ( JDA) RESULTS IN A TAXABLE EVENT. 21. THE LEARNED AO/DRP FAILED TO NOTICE THAT THERE ARE NO COMPUTATION PROVISIONS TO TAX THE JDA ARRANGEMENT A ND CONSEQUENTLY NO TAX CAN BE LEVIED AS HELD BY THE HON'BLE SUPREME COURT IN CIT VS. B.C.SRINIVASASETTY (128 ITR 294). 22. THE LEARNED AO/DRP ERRED IN MAKING A DISALLOWAN CE U/S 14A R.W.R 8D AMOUNTING TO RS. 69,86,49,985/-. 23. THE LEARNED AO/DRP ERRED IN MAKING ADDITION WIT HOUT RECORDING ADEQUATE SATISFACTION AS IS REQUIRED U/S 14A(2). 24. THE LEARNED AO/DRP ERRED IN DISALLOWING INTERES T AMOUNTING TO RS.2 15,31,225/-. 25. THE LEARNED AO/DRP ERRED IN EFFECTING A DOUBLE DISALLOWANCE OF INTEREST OF RS. 2,15,31.225/- AS THE TPO HAD ALREAD Y MADE AN ADDITION OF RS.2,00,23 699/- ON THE SAME ISSUE IN HIS ALP AD JUSTMENT. 26. THE LEARNED AO/DRP ERRED IN BRINGING TO TAX A S UM OF RS.77,25,400/- AS NOTIONAL INCOME UNDER THE HEAD 'I NCOME FROM HOUSE PROPERTY'. FURTHER THE AO ERRED IN COMPUTING UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' AS AGAINST THE COMPUTATION UND ER THE HEAD 'INCOME FROM BUSINESS'. 27. WITHOUT PREJUDICE, THE LEARNED AO/DRP ERRED IN NOT GIVING THE 30% STANDARD DEDUCTION ON THE NOTIONAL INCOME OF RS .77,25,400/-. 28. THE LEARNED AO ERRED IN DISALLOWING LICENSE FEE S AMOUNTING TO RS.59,49,750/-. FURTHER THE AO ERRED IN NOT FOLLOWI NG THE DIRECTIONS OF THE DRP ON THE ISSUE. 29. THE LEARNED AO/DRP ERRED IN NOT GIVING CREDIT F OR TCS TO THE EXTENT OF RS.70,72,749/-. 30. THE LEARNED AO/DRP ERRED IN NOT PROVIDING ADEQU ATE AND SUFFICIENT OPPORTUNITY TO THE APPELLANT THUS VIOLAT ING THE PRINCIPLES OF NATURAL JUSTICE AND ON THIS GROUND ALONE THE ABOVE DISALLOWANCES REQUIRES TO BE DELETED. ISSUE OF INTEREST U/S 234B 31. THE APPELLANT DENIES THE LIABILITIES FOR INTERE ST U/S 234B & 234C OF THE ACT. NO OPPORTUNITY HAS BEEN GIVEN BEFORE LEVYI NG INTEREST U/S 234B & 234C OF THE ACT. THE APPELLANT FURTHER PRAYS THAT INTEREST IF ANY SHOULD BE LEVIED ONLY THE RETURNED INCOME. 32. WITHOUT PREJUDICE TO THE APPELLANT'S RIGHT OF S EEKING WAIVER BEFORE APPROPRIATE AUTHORITY, THE APPELLANT BEGS FOR CONSE QUENTIAL RELIEF IN IT(TP)A NOS. 561 & 720/BANG/2016 PAGE 4 OF 6 THE LEVY OF INTEREST UNDER SECTIONS 234B & 234C OF THE ACT. 33. THE APPELLANT DENIES LIABILITY FOR INTEREST U/S 234B ON THE ADJUSTMENT MADE U/S 92CA OF THE ACT AND RELIES ON T HE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V KWALITY BISCUITS LTD REPORTED IN 284 ITR 434. 34. FOR THE ABOVE AND OTHER GROUNDS AND REASONS WHI CH MAY BE SUBMITTED DURING THE COURSE OF HEARING OF THIS APPE AL, THE ASSESSEE REQUESTS THAT THE APPEAL BE ALLOWED AS PRAYED AND J USTICE BE RENDERED. 3. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER. 1. THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL A RE OPPOSED TO LAW AND FACTS OF THE CASE. 2. WHETHER LD DRP HAS ERRED IN GRANTING THE APPLICA TION OF 2.28% GUARANTEE FEE RATE ARBITRARILY WITHOUT APPRECIATING THE FACTS OF THE CASE. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ARGUED A T THE TIME OF HEARING, IT IS PRAYED THAT THE DIRECTIONS OF DISPUT E RESOLUTION PANEL IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE RE VERSED. 4. THE APPELLANT CRAVES LEAVES TO ADD, ALTER, AMEND AND /OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 4. THESE APPEALS WERE FIXED FOR HEARING ON SEVERAL DATES I.E. ON 15.06.2017, 21.09.2017, 21.12.2017, 21.03.2018 AND 13.06.2018. ON ALL THESE DATES EXCEPT ON 13.06.2018, MS. G.P. GIRIJA, CA, LD. AR O F ASSESSEE MADE REQUEST FOR ADJOURNMENT AND ON HER REQUEST, HEARING WAS ADJ OURNED BUT ON 13.06.2018, NONE APPEARED ON BEHALF OF THE ASSESSEE AND THERE I S NO REQUEST FOR ADJOURNMENT AND THEREFORE, WE INFER THAT THE ASSESS EE IS NOT INTERESTED IN PROSECUTING THE APPEAL AND HENCE, RESPECTFULLY FOLL OWING THE TRIBUNAL ORDER RENDERED IN THE CASE OF CIT VS. MULTIPLAN INDIA LTD . AS REPORTED IN 38 ITD 320 (DEL), WE DISMISS THE APPEAL OF THE ASSESSEE AS UNA DMITTED AND HEAR THE APPEAL OF THE REVENUE EX-PARTE QUA THE ASSESSEE. T HE LD. DR OF REVENUE SUPPORTED THE DRAFT ASSESSMENT ORDER. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF LD. DR OF REVENUE AND GONE THROUGH THE DRP DIRECTIONS. IN RESPECT OF ADOPTING THE RAT E OF 2.28% AS GUARANTEE FEE RATE, WE FIND THAT THIS ASPECT OF THE MATTER WAS DE CIDED BY DRP AS PER PARA 2.7 OF ITS DIRECTIONS WHICH IS REPRODUCED HEREINBELOW F OR THE SAKE OF READY REFERENCE. IT(TP)A NOS. 561 & 720/BANG/2016 PAGE 5 OF 6 2.7 ON THE OBJECTION REGARDING THE RATE OF GUARANTE E FEE APPLIED BY THE TPO AT 3% THE TAXPAYER'S OBJECTION DOES HAS SOM E MERIT AS THE TPO HAS NOT PROVIDED ANY RATIONAL BASIS FOR THE SAM E. THE RATE OF GUARANTEE FEE CAN HOWEVER BE WORKED OUT BY DETERMIN ING THE DIFFERENCE BETWEEN THE CREDIT RATING OF THE AE AND THE ASSESSEE. THE RECIPIENT OF THE BENEFIT OF THE GUARANTEE HAS TO BE RATED ON A STAND- ALONE BASIS FOR THE PURPOSE OF MAKING COMPARISONS W ITH THE CREDIT SPREAD OF AN UNCONTROLLED TRANSACTION IN ORDER TO A RRIVE AT THE VALUE OF THE BENEFIT. THE BENEFIT ON ACCOUNT OF THE GUARANTE E PROVIDED BY THE ASSESSEE IS EQUAL TO THE INTEREST COST SAVINGS WHIC H IN TURN IS DETERMINED BY COMPARING THE INTEREST COST OF UNGUAR ANTEED DEBT TO THAT FOR GUARANTEED DEBT. THE INTEREST COST OF UNGU ARANTEED DEBT CAN BE COMPUTED BY FINDING OUT THE STAND-ALONE CREDIT R ATING OF THE AES OF THE ASSESSEE AND THE PRICE OF THE LOAN A COMPANY OF EQUIVALENT CREDIT RATING WOULD HAVE FETCHED IN THE OPEN MARKET. IN TH E PRESENT CASE THE TPO HAS USED INFORMATION CALLED FROM CRISIL FOR DET ERMINING THE RATE OF INTEREST ON LOANS GIVEN BY ASSESSEE TO ITS AE. SO THE SAID DATA CAN ALSO BE USED TO DETERMINE THE OVERALL BENEFIT R ECEIVED BY THE ASSESSEE AND AE WHEN GUARANTEE IS GIVEN BY THE AE A ND SUCH BENEFIT CAN THEN BE EQUALLY DIVIDED BETWEEN THEM. WHILE THE ASSESSEE CAN BE RATED AS BBB ITS AE, WHICH HAS VERY WEAK FINANCIAL STANDING, CAN BE RATED ONLY AS B ON THE CRISIL SCALE. INTEREST RATE FOR BBB IS 10.37% (FOR 1-2 YR) AND THAT FOR B WOULD BE 1.2*1.2*10.37% =14.93% (FOR 1-2 YR) .THUS THERE IS A DIFFERENCE OF 4.56%, WHICH THE TOTAL BENEFITS ARISING TO THE GROUP ON ACCOUNT OF GIVING CORPORATE GUARANTEE. SO, OUT OF THIS 50% BENEFIT SHOULD HAVE BEEN RECEIVED BY TH E ASSESSEE I.E. @2.28%. SO THE RATE OF GUARANTEE FEE APPLIED BY THE TPO SHOULD HAVE BEEN 2.28%. THE TPO IS DIRECTED TO WORK OUT THE ADJ USTMENT ACCORDINGLY. FURTHER, THE ASSESSEE HAS SUBMITTED TH AT THE GUARANTEE GOT EXTINGUISHED ON 20.06.2010. THE TPO IS DIRECTED TO VERIFY THIS ON THE BASIS OF RELEVANT SUPPORTING DOCUMENTS TO BE PR ODUCED BY ASSESSEE, AND IF IT IS FOUND TO BE CORRECT THE ALP NEEDS TO BE DETERMINED FOR THE RELEVANT PERIOD OF GUARANTEE ONL Y. 6. FROM THE ABOVE PARA, WE FIND THAT THE TPO HAS AP PLIED THE GUARANTEE FEE RATE AT 3%. IT IS NOTED BY DRP IN THIS PARA THAT THE RE CIPIENT OF THE BENEFIT OF THE GUARANTEE HAS TO BE RATED ON A STAND-ALONE BASIS FO R THE PURPOSE OF MAKING COMPARISONS WITH THE CREDIT SPREAD OF AN UNCONTROLL ED TRANSACTION IN ORDER TO ARRIVE AT THE VALUE OF THE BENEFIT. IT IS ALSO NOT ED BY DRP THAT IN THE PRESENT CASE, THE TPO HAS USED INFORMATION CALLED FROM CRIS IL FOR DETERMINING THE RATE OF INTEREST ON LOANS GIVEN BY ASSESSEE TO ITS AE AN D DRP HELD THAT THEREFORE, THE SAID DATA CAN ALSO BE USED TO DETERMINE THE OVE RALL BENEFIT RECEIVED BY THE ASSESSEE AND AE WHEN GUARANTEE IS GIVEN BY THE AE A ND SUCH BENEFIT CAN THEN BE EQUALLY DIVIDED BETWEEN THEM. THEREAFTER, IT IS A FINDING OF DRP THAT IT(TP)A NOS. 561 & 720/BANG/2016 PAGE 6 OF 6 ASSESSEE CAN BE RATED AS BBB AND ITS AE, WHICH HAS VERY WEAK FINANCIAL STANDING, CAN BE RATED ONLY AS B ON THE CRISIL SCAL E. THEREAFTER, THE DRP HAS NOTED THAT INTEREST RATE FOR BBB IS 10.37% FOR 1-2 YEARS AND THAT FOR B WOULD BE 14.93% FOR 1-2 YEARS AND IT IS NOTED THAT THERE IS DIFFERENCE OF 4.56% WHICH IS THE TOTAL BENEFITS ARISING TO THE GROUP ON ACCOUNT OF GIVING CORPORATE GUARANTEE AND IT WAS HELD THAT OUT OF THIS, 50% BENEFIT SHOUL D HAVE BEEN RECEIVED BY THE ASSESSEE I.E. @ 2.28% AND ON THIS BASIS, THIS WAS D ECIDED THAT THE RATE OF GUARANTEE FEE APPLIED BY THE TPO SHOULD HAVE BEEN 2 .28%. CONSIDERING ALL THESE FACTS, WE FIND NO INFIRMITY IN THE DIRECTIONS OF DRP ON THIS ACCOUNT AND THEREFORE GROUNDS RAISED BY REVENUE ARE REJECTED. 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE AND ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEM BER BANGALORE, DATED, THE 15 TH JUNE, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.