The Dy. Commissioner of Income Tax, Circle-2(1)(1), Vadodara V. M/s. Rubamin Pvt. Ltd., Vadodara

ITA 564/AHD/2022

AI Insights

The case involves the Department of Income Tax appealing against the decision of the CIT(A) which had deleted the additions made by the Assessing Officer regarding the profits of Rubamin FZC, UAE. The main legal issue was whether the profits of Rubamin FZC, treated as a shell entity, should be taxed in India. The ITAT referenced previous decisions in similar cases involving the same assessee, where it was held that the profits earned by Rubamin FZC from transactions outside India should not be attributed to the Indian parent company. The Tribunal dismissed the Department's appeal, aligning with its earlier rulings and the CIT(A)'s decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125625 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-06-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 18-12-2022
• Other Referred Cases: IT(SS)A No. 20,21,22/Ahd/2018 & ITA No. 1291/Ahd/2018
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 64; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . N o s . 5 64 & 5 6 5 / Ah d/2 0 2 2 ( As s e s s me nt Y ea rs : 20 15 - 1 6 & 20 1 6 - 1 7) DC I T C ri c l e- 2( 1 )( 1 ) , B ar od a V s. M /s . R ub a m i n P v t. Ltd . 2 n d F l oo r , S yn er g y H o us e , Su bh a n p ur a R o ad , S u bh an p ur a, V a d o da r a- 39 00 2 3 [ P AN N o. A A AC R 8 7 5 8H ] (Appellant) .. (Respondent) Appellant by : Ms. Amrin Pathan, A.R. Respondent by: Shri Sanjeev Jain, CIT D.R. D a t e of H ea r i ng 08.06.2023 D a t e of P r o no u n ce me nt 09.06.2023 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: Both the appeals are filed by the Department against the order passed by the Ld. Commissioner of Income Tax (Appeals)-12, (in short “Ld. CIT(A)”) Ahmedabad, in Appeal No. CIT(A)/Ahmedabad- 12/10140/2017-18 & CIT(A)/Ahmedabad-12/10133/2018-19 vide order dated 19.19.2022 passed for Assessment Years 2015-16 & 2016-17. 2. The Department has taken the following grounds of appeal in ITA No. 564/Ahd/2022(A.Y. 2015-16):- “1. Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT is justified in deleting the addition of Rs. 73,24,47,597/- made by way of taxing the entire profit of Rubamin FZC situated in UAE in the hands of the assessee by treating ITA Nos. 564&565/Ahd/2022 DCIT vs. M/s.Rubamin Pvt. Ltd. Asst.Year –2015-16 & 2016-17 - 2 - Rubamin FZC as a colourable device/shell entity created solely for the purpose of shifting of its profits out of India? 4. The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.” 3. The Department has taken the following grounds of appeal in ITA No. 565/Ahd/2022(A.Y. 2016-17):- “1. Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT is justified in deleting the addition of Rs.40,91,89,643/- made by way of taxing the entire profit of Rubamin FZC situated in UAE in the hands of the assessee by treating Rubamin FZC as a colourable device/shell entity created soley for the purpose of shifting of its profits out of India?” 4. The brief facts of the case are that the assessee is a limited company and engaged in the business of manufacturing of various grades of Zinc Oxide and Zinc based chemicals, and manufacturing of Moly based chemicals. The assessee held 90% shares of a company based in UAE namely M/s. Rubamin FZC (RFZC) which was incorporated in the year 2004-05. Likewise, RFZC, UAE has two wholly own subsidiaries in Democratic Republic of Congo (DRC) namely Rubamin SPRL and Rubaco SPRL. RFZC, UAE is a trading company whereas the companies located in Congo namely Rubamin SPRL and Rubaco SPRL are engaged in the business of manufacturing cobalt concentrates from cobalt ore and copper concentrate. During the course of assessment, the ITA Nos. 564&565/Ahd/2022 DCIT vs. M/s.Rubamin Pvt. Ltd. Asst.Year –2015-16 & 2016-17 - 3 - Assessing Officer observed that during the search action on the assessee’s premises, incriminating documents have been found which indicate that Rubamin FZC, UAE is a façade created to shift profits out of India. The Assessing Officer further observed that details of the aforesaid transactions have been given in detail in the assessment order for A.Y. 2014-15. Accordingly, the assessee was requested to show cause why addition on the same issue not be made in current year i.e. A.Y. 2015-16 as well, by treating the entire profits of M/s. Rubamin FZC, UAE as income in the hands of the assessee. Accordingly, following the order for the earlier assessment year, the Assessing Officer held that RFZC, UAE is a paper company carrying out no activity except for recording purchase and sales of the transactions on papers. Thus, the Assessing Officer treated the entire profit of RFZC, UAE amounting to Rs. 73,24,47,597/- for the year under consideration, as profit belonging to the assessee and added the same to the total income of the assessee. 5. In appeal, Ld. CIT(Appeals) allowed the appeal of the assessee and deleted the additions on the ground that Hon’ble ITAT, Ahmedabad in assessee’s own case for A.Y. 2009-10 to 2014-15, on this issue has allowed the appeal of the assessee and therefore, the Assessing Officer was directed to delete the addition of Rs. 73,24,47,597/- made in the assessment order. While allowing the appeal of the assessee, Ld. CIT(Appeals) observed as follows:- “4.6 Respectfully following the judgement of the Hon’ble ITAT Ahmedabad in the appellant’s own case for AY 2009-10 to 2014-15 ITA Nos. 564&565/Ahd/2022 DCIT vs. M/s.Rubamin Pvt. Ltd. Asst.Year –2015-16 & 2016-17 - 4 - on this issue, the AO is directed to delete the addition of Rs. 73,24,47,597/- made u/s 143(3) of the Act for A.Y. 2015-16 by way of taxing the entire profit of Rubamin FZC situated in UAE in the hands of the appellant by treating Rubamin FZC as a colourable device/shell entity created solely for the purpose of shifting of its profit out of India. Grounds of appeal 1 & 2 are allowed.” 6. The Department is in appeal before us against the aforesaid relief afforded by the Ld. CIT(Appeals). The Ld. D.R. relied upon the observations made by the Assessing Officer in the assessment order. In response, the Counsel for the assessee submitted that the case of the assessee is squarely covered in favour of the assessee by the decision of Hon’ble ITAT in assessee’s own case for A.Y. 2011-12 to 2013-14 & 2014-15. Copy of the order of ITAT has been placed before us for ready reference. 7. We have heard the rival contentions and perused the material on record. We observe that this issue has been decided in favour of the assessee by ITAT, Ahmedabad in IT(SS)A No. 20,21,22/Ahd/2018 & ITA No. 1291/Ahd/2018 for A.Ys. 2011-12 to 2013-14 & 2014-15, wherein the ITAT has made the following observations while allowing the appeal of the assessee:- “63. The third aspect/question arises whether the profit shown by the RFZC belongs to the assessee. Admittedly the profit earn by RFZC was predominantly on account of the import from the DRC which was sold to one party based in China. Thus the transaction was ITA Nos. 564&565/Ahd/2022 DCIT vs. M/s.Rubamin Pvt. Ltd. Asst.Year –2015-16 & 2016-17 - 5 - among the parties based outside India. Accordingly, we are of the view that such profit cannot be attributed to the assessee merely on the reasoning that the assessee is the holding company as well as it was getting the benefit by way of dividend. The substance of the transaction shows that the profit was either belonging to the DRC or RFZC. Even the existence of RFZC is denied then such profit has to be attributed to the DRC. There was no doubt raised by the Revenue on the existence of the DRC which implies that the companies are DRC were properly functioning. Therefore the profit attributable to DRC for the reasons as discussed above cannot be clubbed with the assessee on the reasoning that the assessee has diverted the profit by using the colourable device. In either situation whether the profit belongs to RFZC or the DRC, the position of the assessee cannot be altered. In other words the assessee company can earn from either of subsidiary companies in the form of dividend only which is also a reality that the assessee has taken a dividend. In a situation of holding the profit of RFZC attributable to the DRC companies, the assessee would have taken the dividend which would have been subject to tax its hands in the same manner as the dividend from RFZC is taxable. Accordingly we hold that position of the assessee in either case cannot be detrimental to it. 64. As we have decided the issue that profit attributable to RFZC belongs to DRC companies, then the question of the colourable device used by the assessee for diverting its profit does not arise. ITA Nos. 564&565/Ahd/2022 DCIT vs. M/s.Rubamin Pvt. Ltd. Asst.Year –2015-16 & 2016-17 - 6 - 65. We are also conscious to the fact that the profit attributable to RFZC with respect to the transactions carried out by it with the company based in China namely Trafigura Beheer BV belongs to DRC companies. Likewise, the profit attributable to RFZC with respect to the transactions carried out by it with the assessee company has already been subject to transfer pricing provisions. Therefore, no inference can be drawn that the profit of the assessee company got diverted. Hence the ground of appeal of the assessee is allowed. 66. The next issue raised by the assessee in ground No. 8 and 9 is that the learned DRP erred in confirming the order of the AO by not allowing the deduction of the loss of ₹ 1,50,87623/- for the reason that it was not crystallized in the year under consideration.” 8. Since ITAT Ahmedabad in assessee’s own case for the previous assessment years has decided the issue in favour of the assessee on identical set of facts, respectfully following the same, we are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in allowing the appeal of the assessee on this issue, so as to called for any interference. 9. Accordingly, the appeal of the Department is dismissed. 10. Since identical facts and issue for consideration is involved for both the years under consideration i.e. A.Y. 2015-16 and A.Y. 2016-17, ITA Nos. 564&565/Ahd/2022 DCIT vs. M/s.Rubamin Pvt. Ltd. Asst.Year –2015-16 & 2016-17 - 7 - we are hereby dismissing the appeal of the Department for A.Y. 2016-17 as well. 11. In the combined result, the appeals of the Department are dismissed for both the Assessment Years 2015-16 and 2016-17. This Order pronounced in Open Court on 09/06/2023 Sd/- Sd/- (ANIL CHATURVEDI) (SIDDHARTHA NAUTIYAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 09/06/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 08.06.2023 2. Date on which the typed draft is placed before the Dictating Member 08.06.2023 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S 09.06.2023 5. Date on which the fair order is placed before the Dictating Member for pronouncement .06.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S 09.06.2023 7. Date on which the file goes to the Bench Clerk 09.06.2023 8. Date on which the file goes to the Head Clerk.......................................... 9. The date on which the file goes to the Assistant Registrar for signature on the order.......................... 10. Date of Despatch of the Order..........................................