DLF INFO PARK (PUNE) LTD., MUMBAI V. I.T.O. - 9(3)(2), MUMBAI

ITA 6660/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5499 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 21-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANISH KANOJIA LD
• Assessee Lawyers: VIJAY MEHTALD
• Keywords: Transfer pricing; Wholly owned subsidiary; Arm length price
• Section: 143(3)

Judgement Text

ITA NO.6660/MUM/2017 DLF INFOPARK (PUNE) LIMITED ASSESSMENT YEAR :2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE HONBLE SHRI SAKTIJIT DEY, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.6660/MUM/2017 ( / ASSESSMENT YEAR: 2013-14) DLF INFOPARK (PUNE) LIMITED AKRUTI TRADE CENTRE ROAD NO.7, MAROL MIDC ANDHERI (EAST) MUMBAI-400 093 / VS. INCOME TAX OFFICER - 9(3)(2) ROOM NO. 419, 4 TH FLOOR AAYKAR BHAWAN M.K.ROAD MUMBAI 400 020 ./ ./PAN/GIR NO. AAJCA-1753-C ( /APPELLANT ) : ( / RESPONDENT ) ASSESSEE BY : VIJAY MEHTA, LD. AR REVENUE BY : MANISH KANOJIA, LD. DR # $% / DATE OF HEARING : 16/01/2019 # $% / DATE OF PRONOUNCEMENT : 05/02/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2013-14 CONTEST FINAL ASSESSMENT ORDER DATED 28/09/2017 PASSED BY LD. INCOME TAX OFFICER-9(3)(2), MUMBAI [AO] U/S 143(3) READ WITH SECTION 144C(1) PURSUANT TO THE DIRECTIONS OF LD. DISPUTE RESOLUTION PANEL-1, MUMBAI [DRP] U/S 144C(5) DATED 24/08/2017. THOUGH, THE REVISED L OSS OF ITA NO.6660/MUM/2017 DLF INFOPARK (PUNE) LIMITED ASSESSMENT YEAR :2013-14 2 RS.2.15 LACS E-FILED BY THE ASSESSEE ON 31/03/2015 HAS BEEN ACCEPTED IN THE FINAL ASSESSMENT ORDER, HOWEVER, CAPITAL WORK-IN-PROGRESS [CWIP] REFLECTED BY THE ASSESSEE IN THE BALANCE SHEET HAS BEEN REVISED DUE TO CERTAIN TRANSFER PRICING ADJUSTMENT [TP] WHICH IS THE SOLE SUBJECT MATTER OF DISPUTE BEFORE US. 2.1 BRIEFLY STATED, THE ASSESSEE IS A RESIDENT CORPORATE ENTITY & WHOLLY OWNED SUBSIDIARY OF M/S DLF LIMITED. THE ASSESSEE WAS STATED TO BE ENGAGED IN THE BUSINESS OF CONSTRUCTION OF AN INFO-PARK AT HINJEWADI, PUNE WHICH WAS AT UNDER-CONSTRUCTION STAGE DURING IMPUGN ED AY. CERTAIN SPECIFIED DOMESTIC TRANSACTIONS AS COVERED U/S 40A(2)(B) WERE SUBJECT MATTER OF REFERENCE TO LD. DEPUTY COMMISSIONER OF INCOME TAX, TPO-1(2)(2), MUMBAI [TPO] ON 07/03/2016 FOR DETERMINATION OF ARM LENGTH PRICE [ALP]. THE ASSESSEE HAD NOT FILED ANY FORM 3CEB FOR THE IMPUGNED AY. IT TRANSPIRED THAT THE ASSESSEE RECEIV ED FUNDS FROM ONE OF ITS ASSOCIATED ENTERPRISES [AE] NAMELY DLF LTD. THE AGGREGATE OF SUCH LOANS AMOUNTED TO RS.11.09 CRORES, AGAINST WHICH TH E ASSESSEE HAD PAID INTEREST IN THE FOLLOWING MANNER: - I) 01/04/2012 TO 21/05/2012 16% II) 22/05/2012 TO 31/03/2013 12.5% 2.2 THE ASSESSEE DEFENDED ITS STAND VIDE SUBMISSION S DATED 13/10/2016 , INTER-ALIA, BY SUBMITTING THAT THE AVERAGE BORROWING COST OF SHORT-TERMS FUNDS RAISED BY THE LENDER I.E. HOLDING COMPANY WAS 12.94% AND THE LOANS WERE SECURED LOANS WHEREAS THE LOANS RECEIVED BY THE ASSESSEE WERE UNSECURED LOANS AND THEREFORE, RISK B EING MORE, THE RATE OF 16% PAID BY THE ASSESSEE WAS JUSTIFIED. THE ATTE NTION WAS DRAWN TO THE FACT THAT AVERAGE BANK RATE WAS 9.86% WHEREAS BENCHMARK PRIME ITA NO.6660/MUM/2017 DLF INFOPARK (PUNE) LIMITED ASSESSMENT YEAR :2013-14 3 LENDING RATE [BPLR] WAS 14.61% AND THEREFORE, THE DIFFERENCE BETWEEN THE TWO I.E. 4.75% COULD BE CONSIDERED AS PREMIUM F OR THE DIFFERENCE IN RISK. ADDING THE SAME TO AVERAGE BORROWING COST OF THE LENDER, THE EFFECTIVE RATE WOULD BE 17.69% AS AGAINST 16% PAID BY THE ASSESSEE AND THEREFORE, THE TRANSACTIONS WERE AT ARM LENGTH PRICE. IT WAS ALSO SUBMITTED THAT IN CASE THE ASSESSEE WISHED TO OBTAI N SIMILAR UNSECURED LOAN FROM THE BANK, THE RATE WOULD BE MUCH HIGHER T HAN 17.69% ON ACCOUNT OF ADDITIONAL RISK THAT THE BANK WOULD HAVE TO BEAR CONSIDERING THAT THE ASSESSEE COMPANY HAD NO CREDIT RATING AND ITS PROJECT WERE AT INITIAL STAGES OF CONSTRUCTION. ANOTHER PLEA RAISED WAS THE FACT THAT THE INTEREST EXPENDITURE WAS NOT CLAIMED AS DEDUCTION I N PROFIT & LOSS ACCOUNT BUT THE SAME WAS CAPITALIZED UNDER CWIP IN THE BALANCE SHEET . HOWEVER, NOT CONVINCED, LD. TPO , ADOPTING BPLR OF 14.61% AS THE BENCHMARKING RATE, PROPOSED TP ADJUSTMENT OF RS.23.13 LACS FOR THE PERIOD FROM 01/04/2012 TO 21/05/2012 IN ITS ORDER U /S 92CA(3) DATED 31/10/2016. INCORPORATING THE SAME, DRAFT ASSESSMEN T ORDER DATED 28/11/2016 WAS PASSED WHICH WAS SUBJECTED TO DIRECT IONS OF LD. DISPUTE RESOLUTION PANEL-I, MUMBAI [DRP]. 3. THE LD. DRP, AFTER CONSIDERING ASSESSEES SUBMIS SIONS, CONFIRMED THE STAND OF LD. TPO, AGAINST WHICH THE ASSESSEE IS UNDER APPEAL BEFORE US. 4. THE LD. AUTHORIZED REPRESENTATIVE [AR] FOR ASSES SEE, ON THE STRENGTH OF DOCUMENTS PLACED IN THE PAPER-BOOK, AGITATED THE STAND OF LOWER AUTHORITIES WHEREAS LD. DEPARTMENTAL REPRESEN TATIVE [DR] SUBMITTED THAT THE ESTIMATION OF RATE WAS FAIR AND REASONABLE. ITA NO.6660/MUM/2017 DLF INFOPARK (PUNE) LIMITED ASSESSMENT YEAR :2013-14 4 5. WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS AN D PERUSED RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE ASSESSEE H AS PAID INTEREST AT THE RATE OF 16% UP-TO 21/05/2012 AND THEREAFTER THE RAT E HAS BEEN REDUCED TO 12.5%. THE LD.AR HAS EXPLAINED THAT THE ASSESSEE S HOLDING COMPANY WAS INITIALLY HAVING 67% STAKE IN THE ASSES SEE COMPANY WHICH WAS ENHANCED TO 100% WITH EFFECT FROM 21/05/2012 AN D THEREFORE, THE CREDIT RISK GOT LOWERED. WE FIND STRENGTH IN THE SA ME. 6. PROCEEDING FURTHER, IT IS NOTED THAT THE ASSESSE ES SHARE CAPITAL WAS MERELY RS.5 LACS AND AT YEAR-END, IT HAD NEGATIVE R ESERVES OF RS.23.54 LACS COUPLED WITH THE FACT THAT THE ITS PROJECTS WE RE AT UNDER-CONSTRUCTION STAGES DURING IMPUGNED AY. THE ASSESSEE HAS NOT REF LECTED ANY INCOME IN THE PROFIT & LOSS ACCOUNT. UNDER SUCH A SCENARIO , THE ASSESSEE, IN OUR OPINION, SHALL CARRY MORE CREDIT RISK AND ANY LENDE R WOULD CHARGE HIGHER PREMIUM WHILE ADVANCING LOANS TO THE ASSESSEE. KEEP ING IN VIEW THE AFORESAID FACT, THE ADOPTION OF BPLR, ON THE FACTS OF THE CASE, WOULD NOT CONSTITUTE A REASONABLE BENCHMARK TO DETERMINE THE ARM LENGTH PRICE OF THE TRANSACTION. THE RATE OF 16% PAID BY THE ASSESS EE IS LESS THAN SUM OF AVERAGE BORROWING COST OF THE LENDER & PREMIUM S PREAD OF 4.75% AND THEREFORE, THE SAME, IN OUR OPINION, WAS QUITE REAS ONABLE. THEREFORE, BY DELETING THE IMPUGNED ADDITION, WE ALLOW THE APPEAL . 7. THE APPEAL STANDS ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH FEBRUARY, 2019. ITA NO.6660/MUM/2017 DLF INFOPARK (PUNE) LIMITED ASSESSMENT YEAR :2013-14 5 SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 05.02.2019 SR.PS, JAISY VARGHESE / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #$!' / THE RESPONDENT 3. %% ( ) / THE CIT(A) 4. %% / CIT CONCERNED 5. & '# ( , % ( , / DR, ITAT, MUMBAI 6. ' *+, / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.