Aithent Technologies Pvt. Ltd., New Delhi V. DCIT, CIRCLE- 2(1), New Delhi

ITA 6293/DEL/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9416 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2005-2006
• Appeal Filed On: 10-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary; Notional interest; Set aside
• Section: 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1, NEW DELHI BEFORE SH. H. S. SIDHU, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 6293/DEL/2017 : ASSTT. YEAR : 2005-06 AITHENT TECHNOLOGIES PVT. LTD., A-16/9, VASANT VIHAR, NEW DELHI-110057 VS DCIT, CIRCLE-2(1), NEW DELHI-110002 (APPELLANT) (RESPONDENT) PAN NO. AAACS2319H ASSESSEE BY : SH. ATUL NINAWAT, AR REVENUE BY : SH. SURENDER PAL, CIT DR. DATE OF HEAR ING: 1 4 . 1 2 .20 20 DATE OF PRONOUNCEMENT: 05 .01 .20 2 1 ORDER PER DR. B.R.R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 31.07.2017 PASSED BY THE AO U/S 254 /143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: 1. THE ORDER OF THE LEARNED ASSESSING OFFICER (LD . AO) IS BAD IN LAW AND ON THE FACTS AND CIRCUMSTANC ES OF THE CASE. 2. THE LD. TRANSFER PRICING OFFICER (LD. TPO)/ LD . ASSESSING OFFICER (LD. AO) HAVE ERRED ON FACTS AN D CIRCUMSTANCES OF THE CASE IN DETERMINING THE ARMS LENGTH PRICE OF THE APPELLANTS INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES IN RESP ECT OF INTEREST ON LOAN ADVANCED TO WHOLLY OWNED SUBSIDIARY THEREBY PROPOSING AN ENHANCEMENT OF RETURNED INCOME BY RS.1,47,99,068/-. ITA NO. 6293/DEL/2017 AITHENT TECHNOLOGIES PVT. LTD. 2 3. THE LD. TPO/AP/HOBLE DRP HAS ERRED IN LAWS AND FACTS OF THE CASE BY COMPUTING INTEREST AT US LIBOR FURTHER ENHANCED BY MORE THAN 236% FOR RISK PROFILE ETC. WHICH IS COMPLETELY UNREASONABLE AND AGAINST T HE ACCEPTED INDUSTRY NORMS. 3. REGARDING THE THIRD AND EFFECTIVE GROUND PERTAIN ING TO US LIBOR, THE LD. COUNSEL FOR THE ASSESSEE AT THE VER Y OUTSET STATED THAT THIS ISSUE IS SQUARELY COVERED IN ASSES SEES OWN CASE IN ITA NO. 6076/DEL/2016 VIDE ORDER DATED 06.12.2019 . 4. THE LD. CIT DR ALTHOUGH SUPPORTED THE ORDER OF T HE AO BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF TH E LD. COUNSEL FOR THE ASSESSEE. 5. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERU SED THE MATERIAL AVAILABLE ON RECORD. 6. THE ISSUE STANDS COVERED IN THE CASE OF THE ASSE SSEE IN ITA NO.257/DEL/2017 DATED 02.09.2019 FOR THE ASSESSMENT YEAR 2006-07, THE RELEVANT FINDINGS HAVE BEEN GIVEN IN P ARA 10 WHICH READ AS UNDER: 10. IN THE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE LIBOR WITH MARK UP CANNOT BE FOUND FAULT WITH, HAVING REGARD TO THE FACTS OF THE CASE OF THE ASSESSEE. HO WEVER, WE FIND THAT THE MARK UP OF 500 BASIS POINTS TO THE US LIBOR APPEARS TO BE UNJUSTIFIABLE. WE CONSEQUENTLY, ACCEP T THE ALTERNATE PLEA OF THE ASSESSEE AND FIND THAT THE BE NCH MARKING OF THE INTEREST ON LOAN AT US LIBOR PLUS 170 BASIS POINTS WOULD MEET THE ENDS OF JUSTICE, AND, ACCORDINGLY, DIRECT THE LD. TPO TO RE-COMPUTE THE NOTIONAL INTEREST AT US LIBOR PLUS 1 70 BASIS POINTS. GROUNDS OF APPEAL ARE, ACCORDINGLY, ALLOWED IN PART. 7. FURTHER, WE FIND THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS WAS A SUBJECT MATTER OF THE ASSESSEES APPEAL IN IT A NO. 6076/DEL/2016 DATED 06.12.2019 FOR THE ASSESSMENT Y EAR 2004- ITA NO. 6293/DEL/2017 AITHENT TECHNOLOGIES PVT. LTD. 3 05, THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 7 TO 12 WHICH READ AS UNDER: 7. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE S OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. AT THE VERY OUTSET, LD. AR FOR THE TAXPAYER CONT ENDED THAT THE ISSUE IN QUESTION IS DULY COVERED IN FAVOUR OF THE TAXPAYER IN ITS OWN CASE FOR AY 2006-07 DECIDED IN ITA NO.257/DEL/2 017 VIDE ORDER DATED 02.09.2019. IT IS FURTHER CONTENDED THA T WHEN GRANTING A LOAN TO WHOLLY OWNED SUBSIDIARY IS LESS RISKY AS COMPARED TO LOAN GRANTED BY BANK, TPO/DRP HAVE ERRE D IN MAKING THE MARK-UP OF 500 BASIS POINTS TO THE LIBOR AND RELIED UPON THE DECISION RENDERED BY THE HONBLE DELHI HIG H COURT IN THE CASE OF CIT VS. COTTON NATURALS (I)(P) LTD. (20 15) 55 TAXMANN.COM 523 (DELHI) AND THE DECISION RENDERED B Y HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. M/S. VA IBHAV GEMS LTD. (NOW KNOWN AS VAIBHAV GLOBAL LTD.) IN D.B. ITA NO.14/2015 ORDER DATED13.10.2017. 9. HONBLE DELHI HIGH COURT IN CIT VS. COTTON NATUR ALS (I)(P) LTD. (SUPRA) REJECTED THE MARK-UP TOWARDS THE TRANS LATION COST AND HAS ALSO REJECTED THE COMPARISON BY THE TPO WIT H BANKS AND ALSO HELD THAT RISK FACTOR ATTACHED TO THE LOAN GRANTED BY THE TAXPAYER TO ITS AE BY THE TPO IS ALSO NOT APPRO VED BY THE HONBLE HIGH COURT AND RETURNED THE FINDING IN FAVO UR OF THE TAXPAYER AS UNDER:- 32. ON THE QUESTION OF ADJUSTMENT MADE ON ACCOUNT OF THE TRANSACTION COST, WE DO NOT APPRECIATE THE REASONIN G GIVEN BY THE TPO AND FIND IT DIFFICULT TO ACCEPT. THE TRA NSACTION OR HEDGING COST IS BORNE AND PAID BY THE BORROWER. THE SE ARE UNDERTAKEN WHEN THEY TAKE LOANS IN US DOLLARS OR OT HER FOREIGN CURRENCIES BECAUSE THE BORROWER WANTS TO CO VER ANY LOSS ON ACCOUNT OF THE DEPRECIATION OF THE INDIAN R UPEE VIS- -VIS THE FOREIGN CURRENCY. THE ASSESSEE IN THE PRE SENT CASE IS NOT THE BORROWER, BUT THE LENDER. TRANSACTION CO ST IS NOT, THEREFORE, APPLICABLE IN THE CASE IN QUESTION, AS T HE LOAN HAD TO BE REPAID IN US DOLLARS. MARK UP TOWARDS THE TRA NSACTION COST IS EXORBITANT AND EVEN COMPARISON WITH BANKS I S UNSOUND AND UNINTELLIGIBLE. RISK FACTOR ADJUSTMENT IS ALSO ITA NO. 6293/DEL/2017 AITHENT TECHNOLOGIES PVT. LTD. 4 STRETCHED, FOR IT IGNORES THE CLOSE RELATIONSHIP BE TWEEN THE TWO AES AND THE FUNDS WERE THE SHAREHOLDER FUNDS, A ND NOT BORROWED MONEY. 10. SIMILARLY, HONBLE RAJASTHAN HIGH COURT IN CIT VS. M/S. VAIBHAV GEMS LTD. (SUPRA) ALSO DECIDED THE IDENTICA L ISSUE IN FAVOUR OF THE TAXPAYER BY HOLDING THAT THE TAXPAYER IS ENTITLED FOR THE BENEFIT OF AVERAGE LIBOR RATE EXISTING AT T HAT TIME WHICH WAS 0.79% AND ALSO REJECTED THE ADDITION OF AD HOC 2% APPLIED BY THE REVENUE BY RETURNING FOLLOWING FINDINGS:- 11. REGARDING ITA NO.149/2015 PREFERRED BY THE ASS ESSEE IN VIEW OF THE DELHI HIGH COURT JUDGMENT (PARA NO.1 4), THE INTERNATIONAL TRANSACTION IS REQUIRED TO BE ACCEPTE D, THEREFORE, TRIBUNAL HAS COMMITTED SERIOUS ERROR. TH E ASSESSEE WILL BE ENTITLED FOR THE BENEFIT OF AVERAG E LIBOR RATE EXISTING AT THAT TIME WHICH WAS 0.79% AND ADDI TION OF ADHOC 2% IS NOT PROPER. IN THAT VIEW OF THE MATTER, THE ADDITION OF 2% INTEREST IN THE INCOME IS REQUIRED T O BE QUASHED AND SET ASIDE. 11. COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2006-07 (SUPRA) DECIDED THE IDENTICAL ISSUE IN F AVOUR OF THE TAXPAYER BY RETURNING FOLLOWING FINDINGS:- 9. IN SO FAR AS THE FACTS ARE CONCERNED, THERE IS NO DISPUTE THAT THE ASSESSEE ADVANCED THE INTEREST FREE LOAN T O ITS WHOLLY OWNED SUBSIDIARY. IN THE FIRST ROUND OF LITI GATION, THE LD. TPO RECKONED THE NOTIONAL INTEREST AS PER PLR A ND WAS CONFIRMED BY THE LD. DRP, IN THE SECOND ROUND OF LI TIGATION, THE LD. TPO BENCH MARKED THE INTEREST ON LOAN AT SB I PLR PLUS 300 BASIS POINTS, WHEREAS, LD. DRP, WHILE FOLL OWING THEIR OWN FINDING FOR THE AY 2002-03 MADE IT US LIBOR PLU S 500 BASIS POINTS. IT IS NOT THE CASE OF THE ASSESSEE TH AT THE FACTS INVOLVED IN THE MATTER ARE DIFFERENT FROM THOSE INV OLVED FOR THE AY 2002-03. IT IS NOT THE CASE OF THE ASSESSEE THAT THE FINDINGS OF THE LD. DRP FOR THE AY 2002-03 ARE IN A NY WAY DISTURBED IN ANY SUBSEQUENT PROCEEDINGS. 10. IN THE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE LIBOR WITH MARK UP CANNOT BE FOUND FAULT W ITH, HAVING REGARD TO THE FACTS OF THE CASE OF THE ASSES SEE. HOWEVER, WE FIND THAT THE MARK UP OF 500 BASIS POIN TS TO THE US LIBOR APPEARS TO BE UNJUSTIFIABLE. WE CONSEQ UENTLY, ITA NO. 6293/DEL/2017 AITHENT TECHNOLOGIES PVT. LTD. 5 ACCEPT THE ALTERNATE PLEA OF THE ASSESSEE AND FIND THAT THE BENCH MARKING OF THE INTEREST ON LOAN AT US LIBOR P LUS 170 BASIS POINTS WOULD MEET THE ENDS OF JUSTICE, AND, ACCORDINGLY, DIRECT THE LD. TPO TO RE-COMPUTE THE N OTIONAL INTEREST AT US LIBOR PLUS 170 BASIS POINTS, GROUNDS OF APPEAL ARE, ACCORDINGLY, ALLOWED IN PART. 12 . IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CAS E DISCUSSED IN THE PRECEDING PARAS AND FOLLOWING THE AFORESAID DECISION RENDERED BY HONBLE HIGH COURTS DISCUSSED IN PRECED ING PARAS AND BY THE COORDINATE BENCH OF THE TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT TRANSFER PRICING ADJUSTMENT QU A THE TRANSACTION OF ADVANCING LOAN BY THE TAXPAYER TO IT S AE IS TO BE DETERMINED AT US LIBOR PLUS 170 BASIS POINTS. CONSE QUENTLY, THE TPO IS DIRECTED TO RE-COMPUTE THE INTEREST AT U S LIBOR PLUS 170 BASIS POINTS TO BENCHMARK THE INTERNATIONAL TRA NSACTIONS QUA INTEREST ON LOAN BY THE TAXPAYER TO ITS AE. CON SEQUENTLY, THE APPEAL FILED BY THE TAXPAYER IS ALLOWED . 8. HENCE, OWING TO THE HISTORY OF THE CASE, STARE DECISIS INVOKED. 9. WE DIRECT THAT TRANSFER PRICING ADJUSTMENT QUA T HE TRANSACTION OF ADVANCING LOAN BY THE TAXPAYER TO ITS AE IS TO BE D ETERMINED AT US LIBOR PLUS 170 BASIS POINTS. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/01/2021. SD/- SD/- (H. S. SIDHU) (DR. B . R. R. KUMAR) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED: 05/01/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR