DCIT CIR 6(1), MUMBAI V. ION EXCHANGE INDIA LTD, MUMBAI

ITA 6654/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3514 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 03-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 14A

Judgement Text

ITA NO. 6654 / MUM /201 4 ASSESSMEN T Y EAR: 20 10 - 11 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI K BENCH, MUMBAI [CORAM : PRAMOD KUMAR AM AND PAWAN SINGH JM] ITA NO. 6654 / MUM /201 4 AS SESSMENT Y EAR : 20 10 - 11 DY. COMMISSIONER OF INCOME TAX ........ .APPELLANT CIRCLE 6(1), MUMBAI. VS. ION EXCHA NGE INDIA LIMITED .......... . RESPONDENT ION HOUSE, DR. E . MOSES ROAD, MAHA L AXMI, MUMBAI. [PAN: A AACI 1726 L ] APPEARANCES BY: MALLIKARJUN UTTURE , FOR THE A PPELLANT P.R.V. RAGHAVAN , F OR THE RE SPONDENT DATE OF CONCLUDING THE HEARING : JANUARY 1 4 TH , 201 6 DATE OF PRONOUNCING THE ORDER : FEBRUARY 29 TH , 201 6 O R D E R PER PRAMOD KUMAR AM : BY WAY OF THIS APPEAL , THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 18 TH AUGUST, 2014 PASSED BY THE LD. CIT(A ) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER), FOR THE ASSESSMENT YEAR 20 10 - 11 . 2. IN THE FIRST AND SECOND GROUND OF APPEAL, WHICH WE WILL TAKE UP TOG ETHER, THE ASSESSING OFFICER HAS RAISED T HE FOLL OWING GRIEVANCES : - ITA NO. 6654 / MUM /201 4 ASSESSMEN T Y EAR: 20 10 - 11 PAGE 2 OF 6 1 . WHETHER THE L D. CIT(A) HAS ERRED IN HOLDING THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE RATE OF INTEREST FREE LOAN GIVEN TO AE/SUBSIDIARY SHOULD BE CHARGED USING LIBOR RATE INSTEAD OF AVERAGE YIELD ON CORPORATE BOND TAKEN BY THE TPO' 2 . WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN THE FACT AND IN LAW WHILE BENCHMARKING THE IMPUTED INTEREST ON INTEREST FREE LOANS BY RELYING UPON THE RBI'S CIRCULAR IN RESPECT OF EXTERNAL COMMERCIAL BORROWINGS, W HICH DOES NOT TAKE INTO ACCOUNT THE GEOGRAPHICAL PERSPECTIVE OF THE INTERNATIONAL TRANSACTIONS AND VIOLATES THE VERY SPIRIT OF TRANSFER PRICING PROVISIONS.' 3. LEARNED REPRESENTATIVES FAIRLY AGREE THAT SO FAR AS THIS ISSUE IS CONCERNED, THE MATTER IS NOW COVERED , IN FAVOUR OF THE ASSESSEE, BY TRIBUNAL S ORDER IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2008 - 09. W E HAVE NOTED THAT, VIDE ORDER DATED 1 0 TH FEBRUARY, 2014, THE TRIBUNAL HAS OBSERVED AS FOLLOWS : - 2.2 THE AFOREMENTIONED RATE OF 17.26% HAS BEEN COMPUTED BY TPO BASED ON LIBOR+ ADJUSTMENT FOR CREDIT RATING OF THE A.E, TRANSACTION AND FOR LOAN GIVEN WITHOUT SECURITY. THE ASSESSEE DISPUTED SUCH COMPUTATION ON THE BASIS THAT THE INTEREST RATE APPLIED BY THE TPO IS BASED ON HYPOTHETICAL ASSUMPTION OF CREDIT RATING OF THE AE AND ASSUMPTION COST OF TRANSACTION, PREMIUM OVER LIBOR TOWARDS RISK ETC. IT WAS PLEADED THAT CREDIT RATING ASSUMPTION BY THE TPO WAS PURELY BASED ON PROFIT OF THE AE FOR THE YEAR UNDER CONSIDERATION AS THE RATIO CONSIDERED BY PB IT TO INTEREST. CONSIDERING SUCH SUBMISSION OF THE ASSESSEE LD. CIT(A) HAS FOUND THAT THE STANDALONE FACTOR ADOPTED BY THE TPO FOR ARRIVING AT THE CREDIT RATING OF A COMPANY MAY NOT GIVE APPROPRIATE RESULT AS THE SAME DOES NOT CONSIDER ASSETS HELD AND FUTU RE PROSPECTS/BUSINESS AND CORRESPONDING RISK AND RETURN. SUCH CREDIT RATING ASSIGNMENT IS DONE BY THE EXPERTS TAKING INTO ACCOUNT A VARIOUS FACTORS AND NOT ALONE THE RATIO OF PBIT/INTEREST. ACCORDINGLY, LD. CIT(A) HAS HELD THAT CREDIT RATING ASSIGNED BY TP O ARE NOT ACCEPTABLE AND CONSEQUENTLY THE BENCH MARKING CONSIDERING THE CORRESPONDING YIELD OR INTEREST RATE FOR FIVE YEARS UNSECURED BOND WOULD NOT BE JUSTIFIABLE. ACCORDING TO LD. CIT(A) WHEN THE MONEY IS LENT THE INTEREST RATES APPLICABLE SHOULD LIBOR B ASED WHICH ALSO FIND SUPPORT FROM THE DECISIONS OF ITAT. IT WAS OBSERVED BY LD. CIT(A) THAT TPO IN HIS ORDER ALSO HAS CONSIDERED EVEN LIBOR RATE AND ARRIVING AT THE INTEREST RATE TO BE CHARGED AT LIBOR + 650 BASIS POINT + 300 BASIS POINTS (TRANSACTION COST ). LD. CIT(A) HAS FURTHER FOUND THAT IT WAS THE SUBMISSION OF THE ASSESSEE THAT LOAN GIVEN BY THE ASSESSEE TO ITS AE HAVE NO TRANSACTION COST AND IT WAS OBSERVED BY LD. CIT(A) THAT TPO DID NOT GIVE ANY COMPARABLE CIRCUMSTANCES TO ARRIVE AT 650 BASIS POINTS MORE THAN ON LIBOR AND FURTHER 300 BASIS POINTS ON ACCOUNT OF TRANSACTION COST. CONSIDERING ALL THESE FACTS LD. CIT(A) ARRIVED AT A FINDING THAT SUITABLE BENCHMARK IN THE CASE OF THE ASSESSEE WITH REGARD TO IMPUGNED TRANSACTION WILL BE THE RATE PRESCRIBED BY RBI FOR ECB. ACCORDINGLY, HE HAS GIVEN THE DIRECTION TO THE AO TO ADOPT LIBOR RATE AS PER RBI S MASTER CIRCULAR NO.02/2007 - 08 DATED 2/7/2007 ON EXTERNAL COMMERCIAL ITA NO. 6654 / MUM /201 4 ASSESSMEN T Y EAR: 20 10 - 11 PAGE 3 OF 6 BORROWINGS (ECB) PROVIDED THAT ALL IN COST CEILING FOR ECB WITH AVERAGE MATURITY PERIOD OF THREE YEARS AND UP TO 5 YEARS IS TO BE SIX MONTHS LIBOR + 150 BASIS POINTS AND FOR PERIOD MORE THAN FIVE YEARS THE RATE IS SIX MONTHS LIBOR +250 BASIS POINTS. ACCORDINGLY, LD. CIT(A) DIRECTED THE AO/TPO TO WORK OUT THE AMOUNT OF ADJUSTMENT TOWARDS THE I NTEREST CHARGEABLE ON LOANS GIVEN BY THE ASSESSEE TO ITS AES BY CONSIDERING RATE OF INTEREST PROVIDED IN THE AFOREMENTIONED CIRCULAR DEPENDING UPON THE TERM/PERIOD OF LOAN GIVEN BY THE ASSESSEE TO ITS AE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE WAS PARTLY ALLOWED. 2.3 THE DEPARTMENT IN ITS APPEAL IS AGITATING THE AFOREMENTIONED DIRECTION OF LD. CIT(A) AND ASSESSEE IN ITS APPEAL IS CONTENDING THAT THE DISALLOWANCE MADE BY THE ASSESSEE SHOULD ONLY BE MADE AND BALANCE DISALLOWANCE SHOULD BE DELETED. 2.4 WE HAVE HEARD BOTH PARTIES ON THIS ISSUE AND WE FOUND THAT LD. CIT(A) HAS RIGHTLY HELD THAT ACCORDING TO AFOREMENTIONED MASTER CIRCULAR ISSUED BY RBI THE ALP OF IMPUGNED INTERNATIONAL TRANSACTIONS SHOULD BE WORKED OUT. WE FOUND THAT SUCH VIEW TAKEN BY LD. CIT(A) HAS BEEN CONSISTENTLY FOLLOWED BY ITAT AS IS OBSERVED BY LD. CIT(A) IN HIS ORDER. THEREFORE, WE DECLINE TO INTERFERE IN SUCH DIRECTIONS ISSUED BY LD. CIT(A). ACCORDINGLY, THIS GROUND OF THE ASSESSEE S APPEAL AS WELL AS DEPARTMENTAL APPEALS ARE DISMISSED. 4. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN T HE VIEW SO TAKEN BY THE CO - ORDINATE BENCH IN ASSES S E E S OWN CASE. AS A MATTER OF FACT, THE L EARNED CIT(A) HAS GIVEN THE IMPUGNED RELIEF ONLY ON TH E BASIS, AND BY FOLLOWING, THE V IEWS SO EXPRESSED BY THE CO - ORDINATE BENCH . WE, THEREFORE , CONFIRM THE STAND OF THE L EARNED C IT(A) AND DECLINE TO INTERFERE IN THE MATTER. 5. GROUND NOS.1 & 2 ARE THUS DISMISSED. 6. IN GROUND NOS.3, 4 & 5, WHICH WE WILL TAKE UP TOGETHER, T HE ASSESSING O FFICER HAS RAISED THE FOLLOWING GRIEVANCES: - 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN GIVING DIRECTION TO A.O. TO FOLLOW THE DIRECTION OF THE HON'BLE ITAT TO RE - EXAMINE THE ISSUE OF SEC. 14A FOR THE A.Y. 200 8 - 09 BY WHICH ITAT SIMPLY RESTORED THE MATTER BACK TO A.O. WITHOUT ANY SPECIFIC DIRECTION THEREBY LD. CIT(A) ITA NO. 6654 / MUM /201 4 ASSESSMEN T Y EAR: 20 10 - 11 PAGE 4 OF 6 IGNORED THE FACT THAT HE IS EMPOWERED BY VIRTUE OF SEC. 251(L)(A) OF THE IT ACT, TO CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT BUT HAS NO POW ER TO SET ASIDE/RESTORE BACK THE ISSUE TO AO FOR FRESH ADJUDICATION.' 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN GIVING DIRECTION TO A.O. TO FOLLOW THE DIRECTION OF THE HON'BLE ITAT TO RE - EXAMINE THE ISSUE OF DISALLOWANCE OF INTEREST FREE ADVANCES GIVEN BY ASSESSEE TO IT'S SUBSIDIARY COMPANIES AND ADDITION ON ACCOUNT OF INTEREST EXPENDITURE ON INVESTMENT FOR THE A.Y. 2008 - 09 BY WHICH ITAT SIMPLY RESTORED THE MATTER BACK TO A.O. WITHOUT ANY SPECIFIC DIRECTION TH EREBY LD. CIT(A) IGNORED THE FACT THAT HE IS EMPOWERED BY VIRTUE OF SEC. 251(L)(A) OF THE IT ACT, TO CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT BUT HAS NOT POWER TO SET ASIDE/RESTORE BACK THE ISSUE TO AO FOR FRESH ADJUDICATION. 5. WHETHER ON THE FA CTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN GIVING DIRECTION TO A.O. TO FOLLOW THE DIRECTION OF THE HON'BLE ITAT TO RE - EXAMINE THE ISSUE OF DISALLOWANCE OF INTEREST ON ACCOUNT OF INTEREST ON BORROWED CAPITAL UTILIZED FOR CAPITAL WO RK IN PROGRESS FOR THE A.Y. 2008 - 09 BY WHICH ITAT SIMPLY RESTORED THE MATTER BACK TO A.O. WITHOUT ANY SPECIFIC DIRECTION THEREBY LD. CIT(A) IGNORED THE FACT THAT HE IS EMPOWERED BY VIRTUE OF SEC. 251(L)(A) OF THE IT ACT, TO CONFIRM, REDUCE, ENHANCE OR ANNU L THE ASSESSMENT BUT HAS NO POWER TO SET ASIDE/RESTORE BACK THE ISSUE TO ASSESSING OFFICER FOR FRESH ADJUDICATION. 7. AS A PLAIN READING OF T HE ABOVE GROUNDS OF APPEAL CLEARLY SHOWS, THE GRIEVANCE OF THE ASSESSING OFFICER IS NOT ON MERITS BUT ONLY ON THE QUESTION A S TO WHETHER THE L EARNED C IT(A) COULD HAVE AT ALL REMANDED THE MATTER TO THE FILE OF THE ASSESSING OFFICER, IN VIEW OF THE LIMITATIONS OF HIS POWERS UNDER SECTION 251(1). THERE I S NO DISPUTE THAT THE CORE ISSUE, ON MERITS, IS COVE R ED BY THE ORD ER OF THE CO - ORDINATE BENCH AND, FOLLOWING THE SAID JUDICIAL PRECEDENT, MATTER IS REQUI R ED TO BE REMITTED TO THE FILE OF THE ASSESSING OFFICER. 8. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. ITA NO. 6654 / MUM /201 4 ASSESSMEN T Y EAR: 20 10 - 11 PAGE 5 OF 6 9. THE PLEA IS WELL TAKEN. IT IS INDEED TRUE THAT POST FINANCE ACT 2001 AMENDMENT IN SECTION 251(1)(A) , IT IS NO LONGER OPEN TO THE L EARNED CIT(A) TO REMIT THE MATTER TO THE FILE OF T HE A SSESSING OFFICER FOR M AKING A FRESH ASSESSMENT IN ACCORDANCE WITH THE DIRECTIONS OF THE L EARNED CIT(A). HOWEVER, ON THE FACTS OF THE PRESENT CASE, THE ASSESSING OFFICER DOES NOT GET ANY ADVANTAGE FROM RAISING THIS ISSUE INASMUCH AS, EVEN IF WE VACATE THE ORDER OF THE L EARNED C IT(A) ON THIS POINT, AND TO PROCEED TO DECIDE THE MATTER ON OUR OWN, WE WILL COME TO THE SAME CONCLUSION. WE ARE BOUND BY THE CO - ORDINATE BENCH DECISION WHEREBY THE MATTER HAS BEEN REMITTED TO THE FILE OF THE AS SESSING OFFICER, AND, UNLIKE L EARNED CIT(A), WE ARE DENUDED OF THE POWERS TO REMIT THE MATTER TO THE ASSESSING OFFICER. IT IS, THEREFORE, WHOLLY ACADEMIC AS TO WHETHER THE L EARNED CIT (A) WAS IN ERROR, ON THIS POINT, OR NOT. THE CONCLUSIONS REMAIN THE SAME. WITH THESE OBSERVATIONS, CONCLUSIONS AR RIVED AT BY THE LEARNED CIT ( A ) REMAIN INTACT, EVEN THOUGH, ON AN ACADEMIC NOTE, THE LEARNED CIT ( A ) W A S IN ERROR IN REMITTING TH E MATTER TO THE FILE OF THE A SSESSING OFFICER. THE GRIEVANCE RAISED BY THE ASSESSING OFFICER IS THUS WHOLLY ACADEMIC . 10. GROUN D NOS . 3 4 & 5 ARE THUS ACADEMIC IN EFFECT, AND DISMISSED AS SUCH 11. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY 29 TH DAY OF FEBRUARY, 2016. SD/ - SD/ - PAWAN SINGH PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 29 TH DAY OF FEBRUARY , 2016 . PBN/* ITA NO. 6654 / MUM /201 4 ASSESSMEN T Y EAR: 20 10 - 11 PAGE 6 OF 6 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER DY./ ASSISTANT REGISTR AR INCOME TAX APPELLATE TRIBUNAL MUMBAI B ENCHES, MUMBAI