Asstt. Commissioner of Income Tax-6, Kanpur V. M/s Super HouseLtd., Kanpur

ITA 630/LKW/2013

• Counselvise Citation: 63023714 RSA 2013
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 13-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SINGH VERMA
• Assessee Lawyers: P K KAPOOR
• Keywords: Transfer pricing; Earning of tax free income
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI SU DHANSHU SRIVASTAVA , JUDICIAL MEMBER ITA NO.630/LKW/2013 ASSESSMENT YEAR:2008 - 09 A.C.I.T. - 6, KANPUR. VS. M/S SUPER HOUSE LTD., 150 FT. ROAD, JAJMAU, KANPUR. PAN:AABCS9328K (APPELLANT) (RESPONDENT) APPELLANT BY SMT. NIDHI SINGH VERMA, D. R. RESPONDENT BY SHRI P. K. KAPOOR, C.A. DATE OF HEARING 01/09/2015 DATE OF PRONOUNCEMENT 30 /09/2015 O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER OF LD CIT(A) - I KANPUR, DATED 25/04/2013 FOR THE ASSESSMENT YEAR 2008 - 09. 2. GROUND NO. 1 IS AS UNDER: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE RELIEF OF RS.3,83,554/ - U/S. 14A ON FOREIGN SUBSIDIARIES IN VIEW OF THE FACT THAT ALL THESE COMPANIES ARE SUBSIDIARY OF THE ASSESSEE COMPANY AND AS PER SUB - SECTION (1A)(I)(A) OF SECTION 115 - O, THE DIVIDEND EARNED FROM ITS SUBSIDIARIES IS EXEMPT FROM TAX AND PROVISIO NS OF SECTION 14A ARE CLEARLY APPLICABLE ON THIS INVESTMENT ALSO. 3. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY LEARNED CIT(A) AS PER PARA 4.2.1 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 2 4.2.1 ON PERUSAL OF THE AFORESAID TABLE, IT IS SEEN THAT THERE I S CONSIDERABLE INVESTMENTS IN FOREIGN, SUBSIDIARIES. INCOME IN THE FORM OF DIVIDEND FROM THOSE FOREIGN COMPANIES IS NOT EXEMPT BUT IS FULLY TAXABLE IN INDIA. SIMILARLY, COMPANIES REGISTERED UNDER SECTION 25 OF THE INCOME TAX ACT, 1961, BEING NOT - PROFIT - MOT IVE COMPANIES, CANNOT DECLARE DIVIDEND; THUS THERE WOULD BE NO EXEMPT INCOME IN THE FORM OF DIVIDEND FROM THESE COMPANIES. ON TRANSFER/LIQUIDATION, THE PROCEEDS FROM THESE COMPANIES WOULD ATTRACT CAPITAL GAINS; THUS, IT CANNOT BE SAID THAT INCOME FROM THE AFORESAID INVESTMENTS WOULD BE EXEMPT FROM THIS VIEW OF THE MATTER, THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 WOULD NOT APPLY TO THE AFORESAID INVESTMENTS. HOWEVER, FOR OTHER INVESTMENTS AMOUNTING TO RS.2,76,92,000, PROVISIONS OF SECTION 14 A READ WITH RULE 8D WOULD BE CLEARLY APPLICABLE UNDER RULE 8D, THE AO DOES NOT HAVE TO DEMONSTRATE AS TO HOW THE BORROWED FUNDS HAVE BEEN USED TO MAKE SUCH INVESTMENTS. AS LONG AS THERE IS A MIXED FUND FLOW, APPLICATION OF RULE 8D IS MANDATORY AND THE CALC ULATIONS HAVE TO BE MADE IN ACCORDANCE WITH THE SAID RULE. ON RE - COMPUTATION, THE DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, COMES OUT TO RS . 8,98,035 / - , WHICH IS CONFIRMED. THE APPELLANT GETS A RELIEF OF RS. 3 , 83 , 554 / - . 5. FROM THE ABOVE PARA FROM THE ORDER OF LEARNED CIT(A), IT IS SEEN THAT HE HAS ALLOWED RELIEF OF RS.3,83,554/ - IN RESPECT OF INVESTMENT IN FOREIGN SUBSIDIARIES AND COMPANIES REGISTERED U/S 25 OF THE INCOME TAX ACT, 1961. HE HAS GIVEN A CLEAR FINDING THAT INCOME IN THE FORM OF DIVIDEND FROM THESE FOREIGN COMPANIES IS NOT EXEMPT BUT IS FULLY TAXABLE IN INDIA. THIS FINDING OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE REVENUE. WE ALSO FIND THAT AS PER SECTION 10(34), ONLY INCOME BY WAY OF DIVIDEND REFERRED TO IN SE CTION 115 - O IS EXEMPT. AS PER SECTION 115 O, DIVIDEND DISTRIBUTION TAX IS PAYABLE BY DOMESTIC COMPANY. THIS IS NOT A CASE OF THE REVENUE THAT THE SUBSIDIARIES COMPANIES IN QUESTION ARE DOMESTIC COMPANIES. HENCE, ON THIS ASPECT , WE DO NOT FIND ANY INFIRM ITY IN THE ORDER OF CIT(A). REGARDING THE INVESTMENT IN THOSE COMPANIES WHICH WERE REGISTERED U/S 25 OF THE COMPANIES ACT, A CLEAR FINDING HAS BEEN GIVEN BY LEARNED CIT(A) THAT THESE COMPANIES BEING NOT PROFIT MOTIVE COMPANIES, CANNOT DECLARED DIVIDEND AN D THUS THE INVESTMENT IN THESE COMPANIES IS NOT FOR EARNING EXEMPT INCOME IN THE FORM OF DIVIDEND. LEARNED D.R. OF THE REVENUE COULD NOT POINT OU T ANY MISTAKE IN THIS FINDING OF CIT(A) AND THEREFORE, ON THIS ISSUE ALSO, WE DO NOT FIND ANY REASON TO INTERF ERE IN THE ORDER OF CIT(A). THIS GROUND IS REJECTED. 3 6. GROUND NO. 2 IS AS UNDER: 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE RELIEF OF RS.1,27,09,564/ - ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT WITHOUT APPRECIATING THE FULL FACTS OF THE CASE AND FINDINGS OF T.P.O. 7. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER AS WELL AS THE ORDER OF TPO WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO SUBMITTED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL DECISION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007 - 08 IN I.T.A. NO.127/LKW/12 DATED 11/06/2015. HE SUBMITTED COPY OF THIS TRIBUNAL ORDER AND D RAWN OUR ATTENTION TO PARA 6 OF THE TRIBUNAL ORDER. HE ALSO POINTED OUT THAT THE ORDER OF TPO IS AVAILABLE ON PAGES 99 TO 107 OF THE PAPER BOOK. HE ALSO SUBMITTED THAT THE ASSESSING OFFICER AND TPO COMPUTED THE PROFIT OF THE ASSESSEE COMPANY AFTER EXCLU DING EXPORT INCENTIVE WHEREAS THE PROFIT OF THE COMPARABLE COMPAN IES W ERE COMPUTED WITHOUT EXCLUDING EXPORT INCENTIVE. HE DRAWN OUR ATTENTION TO PAGE NO. 15 OF THE ORDER OF CIT(A) AND POINTED OUT THAT IN PARA 5.4 OF HIS ORDER, IT IS NOTED BY LEARNED CIT(A ) THAT PLI OF THE SEGMENTAL PERFORMANCE AFTER INCLUDING EXPORT ENTITLEMENTS WAS 10.7% IN THE CASE OF MIRZA INTERNATIONAL AND 4.56% IN THE CASE OF SUPER TANNERY LIMITED AND AVERAGE OF THESE COMES TO 7.63% AS AGAINST 7.48% PLI OF THE ASSESSEE COMPANY AFTER I NCLUDING EXPORT ENTITLEMENT WHEREAS THE TPO WORKED OUT THE PLI OF THE ASSESSEE COMPANY A T 0.6% AFTER EXCLUDING EXPORT INCENTIVE ENTITLEMENT BUT THIS IS NOT PROPER BECAUSE EITHER THE EXPORT INCENTIVE ENTITLEMENT SHOULD BE EXCLUDED FROM THE COMPARABLE ALSO O R THE SAME SHOULD NOT BE EXCLUDED FROM THE PLI OF THE ASSESSEE COMPANY. HE ALSO SUBMITTED THAT IN PARA 5.2.2 OF HIS ORDER, THE CIT(A) HAS CONSIDERED THE REVISED SEGMENTAL PLI IN CASE OF MIRZA INTERNATIONAL LIMITED AFTER EXCLUDING EXPORT INCENTIVE ENTITLEM ENT AND THE SAME WAS WORKED OUT AT ( - )0.01% FOR SHOE DIVISION AND ( - ) 16.3% FOR TANNERY DIVISION. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE ORDER OF THE TPO IS AVAILABLE ON PAGES 99 TO 207 OF THE PAPER BOOK. AS PER THE SAME, WE FIND T HAT ON PAGE NO. 7 OF HIS ORDER, THE TPO HAS REPRODUCED THE REVISED WORKING OF PLI SUBMITTED BY THE ASSESSEE AS PER WHICH THE OP/TC HAS BEEN WORKED OUT BY 4 THE ASSESSEE AT 8.6 7 %. BELOW THIS TABLE, IT IS OBSERVED THAT THE ASSESSEE HAS TAKEN EXPORT INCENTIVE ENTITLEMENT AS PART OF EXPORT INCOME. THIS WAS THE OBJECTION OF THE TPO THAT THE EXPORT INCENTIVE ENTITLEMENT MAY BE DERIVED FROM EXPORT SALES BUT THEY ARE NOT PART OF OPERATING INCOME. AFTER MAKING THIS OBSERVATION, THE TPO WORKED OUT THE OP/TC AT 0.60% AFTER EXCLUDING THE EXPORT INCENTIVE ENTITLEMENT OF RS.2202.89L AC . LEARNED D.R. OF THE REVENUE COULD NOT POINT OUT ANY MISTAKE IN THE WORKING AS PER THE ORDER OF CIT(A) AS PER WHICH HE HAS COMPARED THE OP/TC AFTER IN CLUDING EXPORT INCENTIVE ENTITLEMENT A ND ALSO AFTER EXCLUDING EXPORT INCENTIVE ENTITLEMENT AND ON BOTH THESE BASIS, THE PLI OF THE ASSESSEE COMPANY IS WITH IN (+) ( - )5% RANGE OF PLI OF COMPARABLE COMPAN IES . HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE ALSO. ACCORDI NGLY, GROUND NO. 2 IS ALSO REJECTED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SU DHANSHU SRIVASTAVA ) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30 /09/2015 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR