FUCHS LUBRICANTS (INDIA) P.LTD, MUMBAI V. ADDL CIT CIR 6(2), MUMBAI

ITA 603/MUM/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93226 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 29-01-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Valuation report

Judgement Text

K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, M UMBAI BEFORE SHRI A.D. JAIN, JM AND SHRI N.K. BILLAIYA, A M .. , . . , ./ I.T.A. NO. 219/MUM/2015 ( / ASSESSMENT YEAR : 2010-11 DY. COMMISSIONER OF INCOME TAX- CIR. 6(3)(1), ROOM NO. 522, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / VS. M/S FUCHS LUBRICANTS (I) PVT. LTD., SARJAN PLAZA, 2 ND FLOOR, 100, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400 018. ./ PAN : AABCBO983D ( ! / APPELLANT ) .. ( '# ! / RESPONDENT ) ./ I.T.A. NO. 603/MUM/2015 ( / ASSESSMENT YEAR : 2010-11 M/S FUCHS LUBRICANTS (I) PVT. LTD., SARJAN PLAZA, 2 ND FLOOR, 100, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400 018. / VS. DY. COMMISSIONER OF INCOME TAX- CIR. 6(3)(1), ROOM NO. 522, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AABCBO983D ( ! / APPELLANT ) .. ( '# ! / RESPONDENT ) A SSESSEE BY SHRI NIRAJ SHETH REVENUE BY : SHRI N.K. CHAND $ % & ' ( ) / DATE OF HEARING : 13-07-2015 *+,- ' ( ) / DATE OF PRONOUNCEMENT : 13-07-2015 [ ITA 219/M/15 & ITA 603/M/15 2 . / O R D E R PER A.D. JAIN, J.M . : .. , ITA NO. 219/MUM/2015 FOR A.Y. 2010-11 IS FILED BY T HE DEPARTMENT AND ITA NO. 603/MUM/2015 IS FILED BY THE ASSESSEE F OR THE SAME YEAR. 2. THE ASSESSEE, M/S FUCHS LUBRICANTS (INDIA) PVT. LTD., ('FUCHS INDIA') IS A WHOLLY OWNED SUBSIDIARY OF FUCHS PETROLUB AG, GE RMANY. DURING THE FINANCIAL YEAR 2009-10, FUCHS INDIA ISSUED 50,00,00 0 SHARES TO FUCHS PETROLUB SE ('FUCHS AG') AT THE RATE OF RS 10/- EA CH AT A PREMIUM OF RS 10/- EACH. FUCHS INDIA HAD OBTAINED A VALUATION REPORT F ROM A CHARTERED ACCOUNTANT FIRM SUNDARAM SESHAN & ASSOCIATES, W HICH CONSIDERED THE CCI GUIDELINES ACCEPTED BY THE RESERVE BANK OF INDI A ('RBI'). THE VALUATION AS PER THESE GUIDELINES WAS RS. 201- PER SHARE. (PARA 6.1 OF TPO'S ORDER PAGE 2). THE TPO COMPUTED THE ARM'S LENGTH PRICE OF SUCH SHA RES AT RS. 68.10 PER SHARE, AS PER THE DCF METHOD. BASED THEREON, ON THE DIFFERENTIAL OF RS. 48.10 PER SHARE, THE TPO PROPOSED AN ADJUSTMENT OF RS. 23 .79 CRORES, BEING THE SHORTFALL IN THE VALUE OF EQUITY SHARES. (PARA 8.5 OF TPO'S ORDER PAGE 12). FURTHER, THE TPO TREATED THE ALLEGED SHORTFALL OF R S. 23.79 CRORES, ARISING 'ON ACCOUNT OF THE VALUE OF EQUITY SHARES, AS AN ADVANC E FACILITY BY THE ASSESSEE TO ITS AE. THE TPO COMPUTED INTEREST ON THE ALLEGED ADVANCE FACILITY CONSIDERING THE SBI'S PRIME LENDING RATE ('PLR') OF 11.75% AS RATE OF INTEREST RECEIVABLE ON THE ALLEGED ADVANCE FACILITY, THEREBY MAKING AN ADJUSTMENT OF RS. 2.07 CR. (PARA 8.6 OF TPO'S ORDER PAGE L3). THU S, THE TOTAL ADJUSTMENT VALUE IS RS. 25.86 CR. THE DRP CONFIRMED THE ADJUST MENT MADE BY TPO ARISING ON ACCOUNT OF THE VALUE OF EQUITY SHARES OF RS. 23.79 CR. (PARA 4.11.5 OF THE DRP'S DIRECTIONS PAGE 20). FURTHER, THE DRP DIRECTED TO DELETE THE SECONDARY ADJUSTMENT ON ACCOUNT OF INTEREST ON SHOR TFALL ON ISSUE OF SHARES OF RS. 2.06 CR. THE ASSESSEE HAS FILED ITS APPEAL IN I TA NO. 603/MUM/15 TAKING GROUND NOS. 1 TO 4 AGAINST THE ADJUSTMENT OF RS. 23 .79 CRORES, UPHELD BY THE ITA 219/M/15 & ITA 603/M/15 3 DRP. THE DEPARTMENT, IN ITS APPEAL NO. 219/MUM/15, IS AGAINST THE DELETION OF INTEREST ADJUSTMENT OF RS. 2.07 CRORES, DIRECTED TO BE DELETED BY THE DRP. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE, HAS CONTENDED THAT THE MATTER IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SE RVICES PVT. LTD. VS. ACIT (2014) 368 ITR 1 (BOM.) 4. THE LD. D.R., HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. SO FAR AS THE CONFIRMATION OF THE ADJUSTMENT OF RS. 23.79 CRORES IS CONCERNED, HOWEVER, THE DELETION OF THE INTEREST ADJUSTMENT OF RS. 2.07 CRORES , DIRECTED TO BE DELETED, IS UNDER CHALLENGE. 5. HAVING CONSIDERED THE RIVAL CONTENTIONS IN THE L IGHT OF THE MATERIAL PLACED ON RECORD, WE FIND THE MATTER, INDEED, TO BE COVERED IN FAVOUR OF THE ASSESEE BY THE DECISION OF THE HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES PVT. LTD. (SUPRA), WHEREI N, QUA THIS ISSUE, IT HAS BEEN HELD AS FOLLOWS:- FOR ALL THE ABOVE REASONS, WE FIND THAT IN THE PRE SENT FACTS ISSUE OF SHARES AT A PREMIUM BY THE PETITIONER TO ITS NON RESIDENT HOLDI NG COMPANY DOES NOT GIVE RISE TO ANY INCOME FROM AN ADMITTED INTERNATIONAL TRANSA CTION. THUS, NO OCCASION TO APPLY CHAPTER X OF THE ACT CAN ARISE IN SUCH A CASE . 6. NO DECISION TO THE CONTRARY HAS BEEN BROUGHT TO OUR NOTICE. IT HAS RIGHTLY BEEN CONTENDED THAT THE VODAFONE INDIA SER VICES PVT. LTD. (SUPRA) DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT H AS BEEN ACCEPTED BY THE CBDT VIDE INSTRUCTION NO. 2/2003 DTD. 29-1-2015. TH US, IN KEEPING WITH THE DECISION OF VODAFONE INDIA SERVICES PVT. LTD. (SU PRA), INCOME ARISING FROM INTERNATIONAL TRANSACTION BETWEEN AES MUST SATISFY THE TEST OF INCOME UNDER THE I.T. ACT AND MUST FIND ITS HOME IN ONE OF THE A BOVE HEADS OF INCOME SPECIFIED UNDER THE ACT, WHICH IS ABSENT IN THE PRE SENT CASE. ITA 219/M/15 & ITA 603/M/15 4 7. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION O F THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES PVT. LTD. (SUPRA), AS ACCEPTED BY THE CBDT, THE GRIEVANCE OF THE ASESSEE IN THIS REGARD BY WAY OF GROUND NOS. 1 TO 4 IS ACCEPTED. 8. APROPOS THE DEPARTMENTS GRIEVANCE REGARDING THE SHORT FALL IN INTEREST ON THE SHORTFALL IN PREMIUM IN ISSUE OF SHARES, THE LD. COUNSEL FOR THE ASSESSEE HAS STATED THAT THIS ISSUE ALSO STANDS COV ERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF SHELL INDIA MARKETS (P.) LTD. VS. ACIT, 51 TAX MANN.COM 519 (BOMBAY). 9. THE LD. D.R., PER CONTRA, HAS CONTENDED THAT THE LD. DRP HAS ERRED IN NOT CONSIDERING THE ADDITION OF RS. 2,06,84,060/-, MADE BY THE TPO, THIS ADDITION REPRESENTING A SECONDARY ADJUSTMENT, BEING INTEREST ON THE AMOUNT ARRIVED AT TOWARDS THE ALP AS ADJUSTMENTS TOWARDS T HE TRANSACTION OF ISSUE OF EQUITY SHARES. IT HAS BEEN CONTENDED THAT THIS SECO NDARY ADJUSTMENT, EMANATING FROM THE FIRST ADJUSTMENT, HAS ERRONEOUSL Y NOT BEEN CONSIDERED BY THE LD. DRP, PARTICULARLY, SINCE THE PRIMARY ADJUST MENT, BEING THE SHORT FALL IN VALUE OF THE EQUITY SHARES, HAS BEEN UPHELD. 10. HERE, IT IS SEEN, THAT IN SHELL INDIA NARKETS (P.) LTD. (SUPRA), THE HONBLE JURISDICTIONAL HIGH COURT WHILE DEALING THI S ISSUE, FOLLOWING VODAFONE INDIA SERVICES PVT. LTD. (SUPRA), HAS HELD AS FOLL OWS:- 12. AS HELD IN VODAFONE INDIA SERVICES (P.) LTD.S CASE (SUPRA) , THE JURISDICTION TO APPLY CHAPTER X OF THE ACT WOULD OC CASION ONLY WHEN INCOME ARISES OUT OF INTERNATIONAL TRANSACTION AND SUCH INCOME IS CHARGEABLE TO TAX UNDER THE ACT. THE ISSUES RAISED IN THE PRESENT PETITION ARE IDENTICAL TO THE ISSUES WHICH AROSE FOR CONSIDE RATION BEFORE THIS COURT IN VODAFONE INDIA SERVICES (P.) LTD.'S CASE (SUPRA) . THEREFORE, FOLLOWING THE AFORESAID DECISION WE SET ASIDE THE ORDER DATED 30 JANUARY 2013 OF THE TPO TO THE EXTENT IT HOLDS THAT ALP OF ISSUE OF EQUITY SHARES IS RS.183.44 PER SHARE AS AGAINST RS. 10/- PER SHARE A S DECLARED BY THE PETITIONER AND CONSEQUENT DEEMED INTEREST BROUGHT T O TAX ON THE AMOUNT NOT RECEIVED WHEN BENCHMARKED TO THE ALP. ACCORDING LY, WE SET ASIDE THE DRAFT ASSESSMENT ORDER DATED 30 MARCH 2013 TO T HE EXTENT IT SEEKS TO ITA 219/M/15 & ITA 603/M/15 5 BRING TO TAX THE ALP OF THE SHARE ISSUED BY THE PET ITIONER TO ITS NON- RESIDENT AES AND ALSO DEEMED INTEREST WHICH IS SOU GHT TO BE BROUGHT TO TAX ON THE GROUND OF NON RECEIPT OF THE CONSIDERATI ON EQUIVALENT TO THE ALP BY THE PETITIONER ON ISSUE OF EQUITY SHARES. I T IS FURTHER CLARIFIED THAT THE PETITIONERS OBJECTION BEFORE DRP FILED ON 25 A PRIL 2013 ON ALL ISSUES SAVE AND EXCEPT THE ISSUE COVERED BY THIS ORDER WOU LD BE CONSIDERED BY THE DRP ON ITS OWN MERITS. 11. IN ACCORDANCE WITH THE DECISION OF SHELL INDIA MAR KETS (P.) LTD. (SUPRA), THE GRIEVANCE RAISED BY THE DEPARTMENT IS FOUND TO BE WITHOUT MERIT AND IS REJECTED. 12. COMING TO GROUND NO. 5 RAISED BY THE ASSESSEE, IT HAS BEEN CONTENDED THAT THE A.O. ERRED IN NOT GRANTING THE CREDIT OF A DVANCE TAX PAID BY THE ASSESSEE AMOUNTING TO RS. 1,39,04,562/-. 13. THE MATTER REQUIRES VERIFICATION AS TO WHETHER AND TO WHAT EXTENT, THE ADVANCE TAX STANDS ALREADY PAID BY THE ASSESSEE. T HE A.O. IS DIRECTED TO CARRY OUT THE VERIFICATION AND TO GIVE CREDIT FOR T HE ADVANCE TAX ACTUALLY PAID BY THE ASSESSEE. 14. GROUND NO. 6 IS CONSEQUENTIAL IN NATURE, HENCE, NO ADJUDICATION IS REQUIRED. 15. IN THE RESULT, THE ASSESSEES APPEAL IN ITA NO. 603/MUM/2015 IS PARTLY ALLOWED AS INDICATED ABOVE, WHEREAS THE REVENUES A PPEAL IN ITA NO.219/MUM/2015 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JULY, 2015 . ' *+,- $ /0 1 2 + ' 3& SD/- SD/-- (N.K. BILLAIYA) (A.D. JAIN ) ACCOUNTANT MEMBER /J UDICIAL MEMBER / $ & MUMBAI ; 1 DATED 16.7.15 [ ITA 219/M/15 & ITA 603/M/15 6 %.../ R.K. R.K. R.K. R.K. , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. $ ?( () / THE CIT(A)- MUMBAI 4. $ ?( / CIT, MUMBAI 5. B%C 3 '(DE , ) DE- , / $ & / DR, ITAT, MUMBAI K BENCH 6. 3 F G & / GUARD FILE. ! ( / BY ORDER, # B( '( //TRUE COPY// )/(* + ( DY./ASSTT. REGISTRAR) , / $ & / ITAT, MUMBAI