GRANITE GATE PROPERTIES PVT. LTD., NEW DELHI V. ACIT, CENTRAL CIRCLE- 6, NEW DELHI

ITA 7026/DEL/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1144 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Appeal Filed On: 23-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I - 1 BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 702 6 /DEL/201 7 ITA NO. 7027 /DEL/201 7 [ A Y S : 20 1 3 - 1 4 & 2014 - 15] M/S GRANITE GATE PROPERTIES PVT LTD VS. THE A .C.I.T C 23, GREATER KAILASH, PART - 1 CENTRAL CIRCLE - 6 NEW DELHI NEW DELHI PAN NO : AADCR 6248 M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJIV SAPRA, FCA DEPARTMENT BY : SHRI SANJAY I BARA, CIT - DR DATE OF HEARING : 1 2 .03.2019 DATE OF PRONOUNCEMENT : 15 .03.2019 O RDER PER N. K. BILLAIYA, AM: - TH E ABOVE TWO APPEAL S BY THE ASSESSEE ARE PREFERRED AGAINST THE ORDER DATED 2 3 / 1 0 /201 7 FRAMED U/S 1 5 3 A R.W.S 144C OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] PERTAINING TO 2 A.Y S . 20 1 3 - 1 4 AND 2014 - 15 . SINCE T HE APPEAL S WERE HEARD TOGETHER AND INVOLVE COMMON GRIEVANCE, THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE COMMON GRIEVANCE IN BOTH THE APPEALS RELATES TO THE ADJUSTMENT ON ACCOUNT OF INTEREST PAYABLE/PAID BY THE ASSESSEE ON FULLY AND COMPULSORILY CONVERTIBLE DEBENTURES [FCCDS] AS ISSUED BY I T TO ITS ASSOCIATED ENTERPRISES [AES] . THE QUANTUM OF ADJUSTMENT IS SAME IN BOTH THE YEARS AMOUNTING TO RS. 10 , 70 ,37,882/ - . 3. THE LD. COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THAT THE ISSUES ARE IDENTICAL IN BOTH THE YEARS. ON SUCH CONCESSION, WE HEARD THE LD. COUNSEL FOR THE ASSESSEE ON THE FACTS OF ASSESSMENT YEAR 2013 - 14. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O OBSERVED THAT THE ASSESSEE HAS ISSUED FCCD AS PER THE FOLLOWING SCHEDULE: FINANCIAL YEAR DEBENTURES NAME OF THE AE COUPON R ATE 2008 - 09 131,45,520 FCCD DEBENTURES OF RS. 100/ - TWILZON CYPRUS LIMITED, ____________________ TWILZON CYPRUS LIMITED ___________________ TWILZON CYPRUS LIMITED 2009 - 10 112,79,394/ - FCCD OF RS. 100 EACH 2011 - 12 79,68,000/ - FCCD OF RS 100/ - EACH 3 5. SINCE AN INTERNATIONAL TRANSACTION WITH THE AE WAS INVOLVED, A REFERENCE WAS MADE U/S 92CA(1) OF THE ACT. THE ASSESSEE WAS ASKED TO EXPLAIN ITS INTERNATIONAL TRANSACTION AND WHETHER THE SAME IS AT ARMS LENGTH PRICE [ALP]. 6. IN ITS REPLY, THE ASSES SEE EXPLAINED THAT INTEREST @ 16%, 14.75% AND 17.75% HAS BEEN PAID, WHICH INCLUDES SBI PLR + 300 BASIS POINTS TO COVER THE RISK BECAUSE OF FUNDS AND ADMINISTRATIVE COST. THE ASSESSEE FURTHER STATED THAT SINCE THE FCCD S IS SUED TO AES ARE RUPEE DENOMINAT ED, AND INTEREST PAYMENTS ARE ALSO PAID IN INDIAN RUPEES, THEREFORE, LIBOR IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. 7. THE TPO WAS OF THE FIRM BELIEF THAT THE 300 BASIS POINTS OVER AND ABOVE THE BASE RATE PLR IS EXCESSIVE AND NEEDS TO BE DISALLOWED A ND ACCORDINGLY MADE THE ADJUSTMENT AS UNDER: PARTICULARS AMOUNT IN !NR INTEREST PAID AT 16% RS. 21.03,28.320.0.0 INTEREST ARMS LENGTH OF 12.25% RS. 16,10,32,620.00 ADJUSTMENT RS. 4,92,95,700.00 PARTICULARS AMOUNT IN INR INTEREST PAID AT 14.75% RS 1 6,63,71,062.00 INTEREST ARM'S LENGTH OF 11.75% RS. 13,25,32,879.90 ADJUSTMENT RS. 3.38,38,182.10 4 8. THE ASSESSEE RAISED OBJECTIONS BEFORE THE DRP , BUT WITHOUT ANY SUCCESS. 9. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT IDENTICAL ISSUES WERE CONSIDERED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA NO S . 7022 TO 7024/DEL/2017 FOR ASSESSMENT YEARS 2009 - 10 TO 2011 - 12. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TRIBUNAL HAS DECIDED THE QUARREL IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 10. PER CONTRA, THE LD. DR COULD NOT BRING ANY D ISTINGUISHING DECISION IN FAVOUR OF THE REVENUE. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW . WE HAVE ALSO PERUSED THE ORDERS OF THE CO - ORDINATE BENCH RELIED UPON BY THE LD. COUNS EL FOR THE ASSESSEE. THE UNDISPUTED FACT IS THAT THE FCCDS WERE ISSUED DURING FY 2008 - 09, 2009 - 10 AND 2011 - 12 , WHICH MEANS THAT NO FRESH FCCDS WERE ISSUED DURING THE YEAR UNDER CONSIDERATION. THE PARTICULARS AMOUNT IN INR INTEREST PAID AT I 7. 75% RS. 14,14,32,000.00 INTEREST ARMS LENGTH OF 14.75% RS. 11,75,28,000.00 ADJUSTMENT RS. 2,39,04,000.00 TOTAL ADJUSTMENT 10,70,37,882.10 5 YEAR WISE DETAIL S OF INTEREST RATE, INTEREST AMOUNT PAYAB LE AND INTEREST RATE AND AMOUNT RESTRICTED BY THE TPO CAN BE UNDERSTOOD FROM THE FOLLOWING CHART: INTEREST RATE AS PER ASSESSEE ON THE BASIS OF SBI PLR RATE PLUS 300 BASIS POINTS AMOUNT OF INTEREST RATE OF INTEREST RESTRICTED BY TPO TO BE AT ARM'S LENGT H BASED ON SBI PLR RATE DIFFERENTIAL RATE OF INTEREST AMOUNT OF INTEREST DIFFERENTIAL AMOUNT O F INTEREST AS PER S NO TYPE OF FCCD'S PAYABLE ON FCCD'S AS PER ASSESSEE AS PER TPO TO BE ADJUSTED/ADDED TO INCOME PAYABLE AT ARM'S LENGTH AS PER TPO ITPO TO BE : ADJUSTED/ADDED TO INCO ME 1. FCCD'S @ 16% AS ISSUED DURING FY 2008 - 09 (NOTE 1) 16.00% 210,328,320.00 12.25% 3.75% 161,032,620.00 49,295,700 2. 3 FCCD'S @ 14.75% AS ISSUED DURING FY 2009 - 10 14.75% 166,371,062.00 11.75% 3.00% 132,532,879.90 33,838,182 3. FCCD'S @ 17.75% AS ISSUED DURING FY 2011 - 12(NOTE 2) 17.75% 141,432,000.00 14.75% 3.00% 117,528,000.00 23,904,000 TOTAL 518,131,382.00 411,093,499.90 107,037,882. 12. ON THE BASIS OF THE AFORESAID FACTS, THE CO - ORDINATE B ENCH IN ITA NO. 7022/DEL/2017 AND OTHER S HAD CONSIDERED THIS ISSUE AND HELD AS UNDER: 27. ON MERIT ALSO, THE AO/TPO MADE THE ADDITION ON ACCOUNT OF DIFFERENTIAL RATE OF INTEREST ON FCCDS. THE ASSESSEE APPLIED THE INTEREST RATE ON THE BASIS OF SBI PLR RATE PLUS 300 BASIS POINTS FOR THE REASONS THAT THE FCCDS BEING UNSECURED AND HYBRID/QUASI EQUITY INSTRUMENT AS COMPARED TO PLAIN VANILLA LOAN INSTRUMENT. 6 THEREFORE, THE SBI PLR PLUS 300 BASIS POINTS OVER IT WAS REASONABLE AND ON THE ARMS LENGTH, PARTICULARLY WHEN THE SAME WAS PERMISSIBLE UNDER FOREIGN EXCHANGE CONTROL REGULATIONS. THE AO/TPO, HOWEVER, RESTRICTED THE INTEREST RATE TO 12.25%. THE VARIANCE IN THE RATE OF INTEREST AS PER TPO/AO TO BE ADJUSTED AND ADDED WAS 3.75% WHICH WAS WITHIN THE PERMISSIBLE R ANGE OF 5% AS PERMITTED BY SECOND PROVISO TO SECTION 92C(2) OF THE ACT. IT IS ALSO RELEVANT TO POINT OUT THAT THE PERCENTAGE OF 3% IN THE AFORESAID PROVISO HAS BEEN INSERTED BY THE FINANCE ACT, 2012 W.E.F. 01.04.2013 AND PRIOR TO THAT AMENDMENT, THIS PERCE NTAGE WAS AT 5%. IN THE PRESENT CASE, SINCE THE DIFFERENCE IS LESS THAN 5%, THEREFORE, NO ADDITION ON ACCOUNT OF ARMS LENGTH PRICE COULD HAVE BEEN MADE ITA NOS. 7022 TO 7024/DEL/2017 GRANITE GATE PROPERTIES PVT. LTD. 19 BY THE AO/TPO. AS SUCH ON MERIT ALS O, NO ADDITION COULD HAVE BEEN MADE. 13. SIMILARLY, IN ITA NO. 7025/DEL/2017, THE FINDINGS GIVEN BY THE CO - ORDINATE BENCH READ AS UNDER; 14. THEREFORE, IN VIEW OF THE ABOVE FINDING OF A COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE I MMEDIATELY PRECEDING YEARS, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE IS NO LONGER RES INTEGRA AND THIS BENCH IS REQUIRED TO FOLLOW THE SAME IN THE ABSENCE OF ANY CHANGE OF CIRCUMSTANCES. NO CHANGE OF CIRCUMSTANCES IS PLEADED BEFORE US. WE, THEREFORE , WHILE RESPECTFULLY FOLLOWING THE ABOVE DECISION, REACH A CONCLUSION THAT IT 7 IS REASONABLE ON FACTS AND ALSO PERMISSIBLE UNDER LAW TO INCLUDE 300 POINTS BASIS WHILE CALCULATING THE INTEREST RATE. FURTHER, IN VIEW OF THE FACT THAT THE VARIANCE DOES NOT EXC EED 5% FOR THE FCCDS ISSUED DURING THE FYS 2008 - 09 AND 3% FOR THE FCCDS ISSUED SUBSEQUENTLY INTERFERENCE BY THE LD. TPO WITH THE VALUE OF THE INTERNATIONAL TRANSACTION. THE ADDITION, THEREFORE, CANNOT BE SUSTAINED AND SHALL BE DIRECTED TO BE DELETED. WE AC CORDINGLY DIRECT THE LEARNED AO/TPO TO DELETE THE SAME . 14. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT TO OUR NOTICE, RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO - ORDINATE BENCH, WE DIRECT THE ASSESSING OFFICER /TPO TO DELETE THE IMPUGNED ADJUSTMENT S. 15 . I N THE RESULT THE APPEAL S OF THE ASSESSEE IN ITA NOS. 7026 & 7027/DEL/2017 ARE ALLOWED . THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 15 . 0 3 .201 9 . SD/ - SD/ - [ SANDEEP GOSAIN] [N.K. BILLAIYA] JUDICIAL ME MBER ACCOUNTANT MEMBER DATED: 15 TH MARCH , 201 9 VL/ 8 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSIST ANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER