AIR WORKS INDIA ENGINEERING P.LTD, MUMBAI V. CIT (A) -55 , MUMBAI

ITA 643/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3789 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 06-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL DESH
• Assessee Lawyers: SHREYAS SHAH
• Keywords: Transfer pricing; International transaction; Commercial expediency
• Section: 201; 13; 154

Judgement Text

ITA NOS. 642 AND 643/MUM/2019 ASSESSMENT YEARS: 2012 - 13 AND 2013 - 14 PAGE 1 OF 3 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI K BENCH, MUMBAI [CORAM: PRAMOD KUMAR (VICE PRESIDENT) , AND SAKTIJIT DEY (JUDICIAL MEMBER)] ITA NO S. 642 AND 643/MUM/2019 ASSESSMENT YEAR S : 2012 - 13 AND 2013 - 14 AIR WO RKS INDIA ENGINEERING LTD . APPELLANT GATE NO. 8, OLD AIRPORT , NEAR KALINA MILITARY CAM P SANTACRUZ (EAST), MUMBAI 400 029 [PAN: AABCA1069P] VS DEPUTY C OMMISSIONER OF INCOME TAX CIRCLE 9( 1)(1), MUM BAI RESPONDENT APPEARANCES BY SHREYAS SHAH FOR THE APPELLANT SUNI L DESHPANDE FOR T H E RE SPONDE NT DATE OF CONCLUDING THE HEARING : 0 8 / 07 /2 021 DATE OF PRONOUNCEMENT OF ORDER : 05 /10/2 021 O R D E R PER PRAMOD KUMAR, VP : 1. THESE TWO APPEALS TO THE SAME ASSESSEE, INVOLVE A COMMON ISSUE AND WERE HEARD TOGETHE R . AS A MATT ER OF CONV ENIENCE , THER EFORE, BOTH OF THESE APPEALS ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 2. BY WAY OF THESE APPEALS, THE ASSESSEE HAS CALLED INTO QUESTION CORRECTNESS OF TWO SEPARATE, BUT MATER IALLY SIMILAR ORDERS OF EVEN DATE I.E. 30 TH NOVEMBER 2018, IN THE MATTER OF ASSESSMENT UNDER SECTION 143( 3) OF THE INCOM E TAX A C T, 1961, FOR THE ASSESSMENT YEARS 2012 - 13 AND 2013 - 14. GRIEVANCES RAISED IN THESE APPEALS, WHICH ARE COMMON FOR BOTH OF THESE ASSESSMENT YEARS, ARE AS FOLLOWS: WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN PROVIDING PARTIAL RELIEF FROM THE ORIGINAL TRANSFER PRICING ADJUSTMENT OF RS. 93,45,305 AS PRESCRIBED IN THE ORDER UNDER SECTION 92CA(3) RE AD WITH SECTIO N 154 OF THE INCOME TAX ACT, 1961? ON COMPARABLES: ITA NOS. 642 AND 643/MUM/2019 ASSESSMENT YEARS: 2012 - 13 AND 2013 - 14 PAGE 2 OF 3 WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD . CIT(A) HAS ERRED IN HOLDING THE INTEREST RATE SWAP OF 8,336% (ONLY THE FIXED COMPONENT (8.336%) WHILE IGNORING / SIDE - LINING THE FLOATING INTEREST RATE (LIBOR + 389BPS)) AS THE BENCHMARK FOR DETE RMINING THE INTEREST RATE FOR TRANSFER PRICING PURPOSES? WHETHER THE LD. CIT(A) HAS ERRED BY LOOKING AT THE CONCEPT OF ARMS - LENGTH AS TOOL TO DETERMINE TAXABLE INCOME, INSTEAD OF REAL INCOME ARISING TO THE APPELLANT FROM 'REALISTICALLY AVAILABLE OPTIONS AC CEPTABLE TO BOTH THE PARTIES'? WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DISREGARDING THE ARM'S LENGTH CHARACTER AND ECONOMIC SUBSTANCE OF THE INTERNATIONAL TRANSACTION? WHETHER THE COMPARABLE RELIED UPON BY THE LD. TPO AND THEREBY UPHELD BY THE LD. CIT(A) FALL WITHIN THE FACTORS PRESCRIBED FOR APPLICATION OF CUP METHOD AND FACTORS PRESCRIBED FOR ABIDING WITH COMPARABILITY ANALYSIS? ON EARLI ER YEAR'S ORDER PASSED BY LD. C I T ( A) WHETHER IN THE FACTS AND CIRCUMS TANCES OF THE CASE AND IN LAW, THE LD . CIT(A) HAS ERRED IN NOT APPRECIATING THE SUO MOTO ADJUSTMENT MADE BY THE APPELLANT TO THE EXTENT OF INTEREST RATE OF 4.03%, IN ORDER TO AVOID LITIGATION? WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED BY NOT TAKING INTO ACCOUNT THE EARLIER YEAR'S ORDER PASSED BY THE LD. CIT(A) IN FAVOUR OF THE APPELLANT THAT DETERMINED THE AIMS - LENGTH INTEREST RATE AT 3.99% FOR BOTH THE ASSESSMENT YEARS, VIZ. A.Y. 2010 - 11 AND A.Y. 2011 - 12? ON JU DICIAL PRECEDENTS WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN PROVIDING PARTIAL RELIEF (INSTEAD OF FULL RELIEF) BY NOT TAKING INTO ACCOUNT THE INTEREST RATE DETERMINED BY VARIOUS COURTS, INCLUDING THE JURISDIC TIONAL BOMBAY HIGH COURT IN THE CASE OF AURIONPRO SOLUTIONS LIMITED (ITA 1869/2014), WHEREIN THE HIGH COURT APPROVED THE INTEREST RATE OF LIBOR+200 BPS AS DETERMINED A T AR MS - LENGHT, IN THE CASE OF LOANS PROVIDED TO ASSOSICATED ENTERPRISE? 3. THE SHORT ISSUE REQUIRING OUR ADJUDICATION, AS LEARNED REPRESE NTATIVES REASONAB LY AGREE , IS AS TO AT WHAT RATE THE INTEREST - FREE L OANS GRANTED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE I N MAU RITIUS SHOULD BE BE NCHMARKED AS AT AN ARM S LENGTH. THIS ISSUE IS NO LONGER RES I NTEGRA . THE ISSUE IN THE APPEAL IS SQUARELY COVERED, IN FAVOUR OF THE ASSESSE E, BY A C OORDINATE BENCH DECISION DATED 7 TH JUNE 2019 IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2009 - 10 AND 201 0 - 11, WHEREIN THE COORDINATE BE NCH HAS, INTER AL IA, OBSERVED AS FOLLOWS: 10. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION AND PERUSED THE RECORDS. WE FIND THAT THE COMMERCIAL EXPEDIENCY ASPECT OF GRANTING INTEREST - FREE LOANS IS ALREADY AGAINST THE ASSESSEE BY A CATENA OF CASE LAWS IN THIS REGARD. THE LEARNED COUNSEL OF THE ASSES SEE SUBMISSION THAT, COMMERCIAL RATIONALITY SHOULD BE CONSIDERED IN DISTINCTION FROM COMMERCIAL EXPEDIENCY IS NOT AT ALL CONVINCING. IT IS EVIDENT FROM THE SUBMISSIONS OF THE LEARNED COUNSEL OF THE ASSESSEE HIMSELF THAT ITAT AS WELL AS HONOURABLE JURISDICT IONAL HIGH COURT IN SEVERAL CASE LAWS HAVE UPHELD THE APPLICABILITY OF INTEREST RATE OF LIBOR +200 BPS TO 300 BPS. IN THE PRESENT CASE THE LEARNED CIT - A HAS ADOPTED RATE OF INTEREST OF LABOUR +300 BPS FOR ASSESSMENT YEAR 2010 11 WHICH THE ASSESSEE ACCEPT S. IN OUR CONSIDERED OPINION ON THE FACTS AND CIRCUMSTANCES OF THE CASE FOLLOWING THE PRECEDENT S FROM ITAT AND HONOURABLE JUDICIAL HIGH COURT WE HOLD THAT ARM S - LENGTH INTEREST SHOULD BE COMPUTED AT THE RATE OF INTEREST OF LIBOR +300 BPS. THAT IS ITA NOS. 642 AND 643/MUM/2019 ASSESSMENT YEARS: 2012 - 13 AND 2013 - 14 PAGE 3 OF 3 THE RATE ADOPTED BY THE LEARNED CIT - A FOR ASSESSMENT YEAR 2010 - 11 IS ALSO DIRECTED TO BE ADOPTED FOR ASSESSMENT YEAR 2009 - 10. 4. IT IS IN DEED DISAPPOINT ING THAT EVEN AFTER TAKING NOTE OF THE ABOVE FIDNIN GS OF THE COORDINATE BENCH, THE AUTHORIOTIES BELOW HAVE JUSTIFIED A HIGHER ALP ON THE BASIS OF SOME NEW ARGUMENTS . G IVEN THE FIN DINGS OF THE COORDINATE BENCH - AS EXTRACTED ABOVE , T HE REFERENCE TO THE F IXED RATE OF INTEREST AND SWAP VARIABLE , WITH REFER ENCE T O THE LIB OR, AS HAS BEEN DONE BY THE AUTHORITIES BELOW TO GO B EYOND LIBOR PL US 300 BPS, IS IRRELEVANT . THERE IS NO POINT IN MAKING THESE EFFORT S TO CIRCUMVENT THE CONCLUSIONS ARRI VED AT BY THE COORDINATE BENCH, AND JUSTIFY ING THE SAME ON THE BAS IS OF A NEW SET OF ARGUMENTS. AS FOR THE FACETS NOT ARGUED NOR NOT CONSIDERED, EVEN IF ANY, AS IS LAID DOWN BY THE APEX COURT IN THE CASE OF AMBIKA PRASAD MISHRA V. STATE OF UP AIR 1980 SC 1762 : [1980] 3 S CC 719 (P. 1764 OF AIR 1980 SC) 'EVERY NEW DISCOVERY NOR ARGU MENTATIVE NOVELTY CANNOT UNDO OR COMPEL RECONSIDERATION OF A BINDIN G PRECEDENT A DECISION DOES NOT LOSE ITS AUTHORITY MERELY BECAUSE IT WAS BADLY ARGUED, INADEQUATELY CONSIDERED OR FALLACIOUSLY R EASONED....' SIMILARLY, IN THE CASE OF KESHO RAM & CO. V. UNI ON OF INDIA [1989] 3 SCC 151, IT WAS STATED BY THE SUPREME COURT TH US: 'THE BINDING EFFECT OF A DECISION OF THIS COURT (AS INDEED ANY SUPERIOR COURT) DOES NOT DEPEND UPON WHETHER A PARTICULAR ARG UMENT WAS CONSIDERED OR NOT, PROVIDED THE POINT WITH REFERENC E TO WHICH THE ARGUMENT IS ADVANCED SUBSEQUENTLY WAS ACTUALLY DECID ED IN THE EARLIER DECISION'. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. R E SPECTFULLY FOLLOWING THE SAME, WE DIRE CT THE ASSESSING OFFICER TO DELETE ANY ARM S LENGTH PRICE ADJUSTMENT BEYOND THE DIFF ERENCE , IF ANY, BETWEEN 4.01% INTEREST CHARGED BY T HE ASSESSEE AND LI BOR PL US 300 BPS. IF SUO MOTU ADJUSTME NT BY THE ASSESSEE, I.E. ADOPTING AN INTEREST RATE OF 4.01%, IS BELOW THIS RATE, O BVIOUSLY NO FURTHER ALP ADJUSTMENT IS CALLED FOR. WITH THESE SPECI FIC DIRECTIONS, THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR GIVING SUCH REL IEF AS MAY BE ADMISSIBLE IN THE TERMS INDICATED ABOVE. 5. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED , IN P RINCIPL E, AND IN THE TERMS INDICATED ABOVE. P RONOUNCE D IN THE OPEN CO URT TODAY ON THE 05 TH DAY OF OCTOBER, 2021 . SD / - SD/ - SAKTIJIT DEY PRAMOD KUMAR ( JUDICIAL MEMBER ) (V IC E PRESI DENT) MUMBAI, DATED THE 05 TH DAY OF OCTO BER , 20 21 CO PIES TO : (1) TH E AP PELLANT ( 2) THE RESP ONDENT (3) CIT ( 4) CIT(A) (5) D R (6) GUARD FILE BY ORDER TRUE COPY A S S IST ANT REGI STRAR / SR PS INCOME TAX APPELL ATE TRIBUNAL MUMBAI BE N CHE S, M UMBAI