HACIENDA PROJECTS PVT. LTD., NEW DELHI V. ACIT, CENTRAL CIRCLE- 6, NEW DELHI

ITA 7029/DEL/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 2630 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2021
• 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: SURENDER PAL
• Keywords: Transfer pricing; International transaction
• Section: 201; 144C; 13; 22; 153C

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO. 7028/DEL/2017 [A.Y 2012-13] ITA NO. 7029/DEL/2017 [A.Y 2013-14] ITA NO. 7030/DEL/2017 [A.Y 2014-15] HACIENDA PROJECTS PVT LTD VS. THE ASSTT. C.I.T C 23, GREATER KAILASH, CENTRAL CIRCLE - 6 PART 1, NEW DELHI NEW DELHI PAN: AACCH 3475 M [APPELLANT] [RESPONDENT] ASSESSEE BY : SHRI SANJIV SAPRA, FCA REVENUE BY : SHRI SURENDER PAL, C IT-DR DATE OF HEARING : 22.02.2021 DATE OF PRONOUNCEMENT : 22.02.2021 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THE ABOVE THREE SEPARATE APPEALS ARE PREFERRED BY T HE ASSESSEE AGAINST THE ASSESSMENT ORDER DATED 23.10.2017 FRAME D U/S 144C R.W.S 153C OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFER RED TO AS 'THE ACT' FOR SHORT] PERTAINING TO A.YS 2012-13, 2013-14 AND 2014-15. 2 2. SINCE COMMON ISSUE IS INVOLVED IN ALL THE ABOVE THREE APPEALS, THEY ARE TAKEN UP TOGETHER AND ARE DISPOSED OF BY T HIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. THE SOLITARY DISPUTE IN THE ABOVE THREE APPEALS IS IN RESPECT OF TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSING O FFICER OUT OF INTEREST PAID BY THE ASSESSEE TO ITS ASSOCIATED ENT ERPRISE [AE] M/S TWILZON LIMITED ON FULLY AND COMPULSORILY CONVERTIB LE DEBENTURES [FCCDS] ISSUED BY THE ASSESSEE TO SUCH AE. THE FCC DS WERE ISSUED ON 26.07.2011 I.E. IN F.Y. 2011-12 RELEVANT TO A.Y 201 2-13 AND NO FCCDS WERE ISSUED IN A.Y 2013-14 AND 2014-15. THEREFORE, A.Y 2012-13 IS TAKEN AS THE LEAD YEAR. 4. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSE SSEE STATED THAT THE ENTIRE QUARREL HAS BEEN DECIDED BY THE TRIBUNAL IN A GROUP COMPANY, NAMELY, GRANITE GATE PROPERTIES LTD FOR A. YS 2009-10, 2010- 11 AND 2011-12. THE LD. COUNSEL FOR THE ASSESSEE S UPPLIED COPY OF THE ORDER OF THE TRIBUNAL. 3 5. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT D URING THE PREVIOUS YEAR 2011-12, THE APPELLANT COMPANY PAID INTEREST O F RS. 3,17,54,311/- ON FCCDS AVAILED FROM TWILZON LTD AS PER INVESTMENT AGREEMENT. IN TERMS OF THIS AGREEMENT, THE APPELLANT WAS REQUIRED TO PAY INTEREST @ 17.25%. DURING THE TRANSFER PRICING ASSESSMENT PRO CEEDINGS, IT WAS EXPLAINED THAT FCCDS ISSUED TO AE ARE RUPEE DENOMIN ATED AND INTEREST PAYMENTS ARE ALSO PAID IN INDIAN RUPEES, THEREFORE, LIBOR IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AND HENCE SB I PLR RATE + 300 BASIS POINTS HAS BEEN TAKEN AND THE SAME IS AT ARM S LENGTH. IT WAS EXPLAINED THAT 300 BASIS POINTS HAVE BEEN TAKEN TO COVER RISK, COST OF FUNDS AND ADMINISTRATIVE COSTS WHICH ALL DEPEND UPO N THE CREDIT RATING OF THE ISSUER OF THE CCDS. 6. THE REPLY OF THE ASSESSEE DID NOT FIND ANY FAVOU R WITH THE TPO WHO MADE THE FOLLOWING OBSERVATIONS WHILE DISMISSIN G THE CONTENTION OF THE ASSESSEE: A) THE ASSESSEE HAS NOT GIVEN ANY DOCUMENTARY EVIDE NCE IN SUPPORT OF ITS CREDIT RATING. B) ASSESSOR'S VARIOUS PROJECTS ARE IN PROGRESS WHIC H GIVES 4 A GOOD CREDIBILITY TO THE ASSESSEE AND THAT IS WHY, ASSESSEE IS GETTING FUNDS FROM ITS AE. C) WITH REGARD TO RISKS WHICH FORM BASIS FOR PROVI DING SPREAD ON PLR ALSO MINIMIZES AS ASSESSEE IS RECEIVI NG INVESTMENTS IN OWN CURRENCY & PAYING IN RUPEE ONLY. THEREFORE, EXCHANGE RISK BECOMES INEFFECTIVE. D) RISK TO COST OF FUNDS ALSO MINIMIZES BECAUSE AS SESSEE IS PAYING TAKING SBI PLR AS ARMS LENGTH INTEREST R ATE BECAUSE NO ONE WOULD LEND AT LESS THAN THIS RATE. E) AND FOR ADMINISTERING THE COSTS ASSESSEE HAS NO T EXPLAINED AND JUSTIFIED THAT IT HAS INCURRED TINY E XTRA COST OR MADE ANY EXTRAORDINARY EFFORT. F) THE MAIN THING TO BE NOTED IS THAT AE IS MAKING SUCH HUGE INVESTMENT IN ASSESSEES BUSINESS AND UNDERTAKING BIG RISK, WHICH AGAIN SUBSTANTIATES THA T THE ASSESSEE HAS VERY GOOD CREDIBILITY. 7. THE AFOREMENTIONED OBSERVATIONS OF THE TPO WERE ALSO HEAVILY RELIED UPON BY THE LD. DR DURING THE COURSE OF HIS SUBMISSIONS. ON THE BASIS OF THE AFOREMENTIONED OBSERVATIONS, 300 BASIS POINTS OVER AND 5 ABOVE BASE RATE PLR WAS DISALLOWED AND DIFFERENTIAL INTEREST AMOUNT WAS ADDED IN THE CAPTIONED A.YS AND THE SAME CAN BE UNDERSTOOD FROM THE FOLLOWING CHART: S. NO. ASSESSMENT YEAR INTEREST RATE AS PER AMOUNT OF INTEREST PAYABLE RATE OF INTEREST DIFFERENT IAL RATE OF AMOUNT OF INTEREST DIFFERENTIAL AMOUNT OF 1 2 3 2012 - 13 FCCDS OF RS.269,500,000 AS ISSUED DURING THE YEAR ON 26.07.2011 TOTAL 2013- 14 FCCDS OF RS.269,500,000 AS ISSUED DURING AY 2012-13 TOTAL 2014- 15 FCCDS OF RS.269,500,000 AS 17.25% 31,754,611.00 14.25% 3.00% 26,232,069.96 5,522,541.04 31,754,611.00 26,232,069.96 5,522,541.04 17.25% 46,488,750.00 14.25% 3.00% 38,4C3,753.00 8,085,000.00 46,488,750.00 38,403,750.00 8,085,000.00 17.25% 46,488,750.00 14.25% 3.00% 38,403,750.00 8,085,000.00 TOTAL 46,488,750.00 38,403,750.00 8,085,000.00 8. THE ASSESSEE RAISED OBJECTIONS BEFORE THE DRP BU T THE SAME WERE DISMISSED. 9. AS MENTIONED ELSEWHERE, ON SIMILAR CIRCUMSTANCES , IN GROUP COMPANY, NAMELY, GRANITE GATE PROPERTIES LTD, THE T RIBUNAL IN ITA NO. 7025/DEL/2017 FOR A.Y 2012-13 HAS CONSIDERED SIMILA R QUARREL WHERE 6 FCCDS WERE ISSUED TO SAME AE AND THERE ALSO SBI PLR RATE + 300 BASIS POINTS WERE TAKEN INTO CONSIDERATION FOR PAYMENT OF INTEREST. THE RELEVANT FINDINGS IN ITA NO. 7025/DEL/2017 READ AS UNDER: 13. ON A CAREFUL PERUSAL OF THE RECORD MORE PARTIC ULARLY THE ORDER RELIED UPON BY THE ASSESSEE, WE FIND THAT VIDE PARA 27, A COORDINATE BENCH OF THIS TRIBUNAL HAS RECORDED ITS FINDING TO THE FOLLOWING EFFECT: '27. ON MERIT ALSO, THE AO/TPO MADE THE ADDITION ON ACCOUNT OF DIFFERENTIAL RATE OF INTEREST ON FCCDS. THE ASSESSE E 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. THEREFORE, THE SBI PLR PLUS 300 BASIS POINTS OVER I T WAS REASONABLE AND ON THE ARM'S LENGTH, PARTICULARLY WH EN THE SAME WAS PERMISSIBLE UNDER FOREIGN EXCHANGE CONTROL REGULATI ONS. THE AO/TPO, HOWEVER, RESTRICTED THE INTEREST RATE TO 12 .25%. THE VARIANCE IN THE RATE OF INTEREST AS PER TPO/AO TO B E ADJUSTED AND ADDED WAS 3.75% WHICH WAS WITHIN THE PERMISSIBLE RA NGE OF 5% AS PERMITTED BY SECOND PROVISO TO SECTION 92C(2) OF TH E 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 PERCEN TAGE WAS AT 5%. IN THE PRESENT CASE, SINCE THE DIFFERENCE IS LE SS THAN 5%, THEREFORE, NO ADDITION ON ACCOUNT OF ARM'S LENGTH P RICE COULD HAVE 7 BEEN MADE BY THE AO/TPO. AS SUCH ON MERIT ALSO, NO ADDITION COULD HAVE BEEN MADE. ' 14. THEREFORE, IN VIEW OF THE ABOVE FINDING OF A CO ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE IMM EDIATELY PRECEDING YEARS, WE ARE OF THE CONSIDERED OPINION T HAT 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 C HANGE OF CIRCUMSTANCES IS PLEADED BEFORE US. WE, THEREFORE, WHILE RESPECTFULLY FOLLOWING THE ABOVE DECISION, REACH A CONCLUSION THAT IT IS REASONABLE ON FACTS AND ALSO PERMISSIBLE UNDER L AW TO INCLUDE 300 POINTS BASIS WHILE CALCULATING THE INTEREST RATE. F URTHER, IN VIEW OF THE FACT THAT THE VARIANCE DOES NOT EXCEED 5% FOR T HE FCCDS ISSUED DURING THE FYS 2008-09 AND 3% FOR THE FCCDS ISSUED SUBSEQUENTLY INTERFERENCE BY THE LD. TPO WIT H THE VALUE OF THE INTERNATIONAL TRANSACTION. THE ADDITION, THEREF ORE, CANNOT BE SUSTAINED AND SHALL BE DIRECTED TO BE DELETED. WE A CCORDINGLY DIRECT THE LEARNED AO/TPO TO DELETE THE SAME. 10. SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL IN ITA N O. 7026/DEL/2017 AND 7027/DEL/2017. THE RELEVANT FINDINGS READ AS U NDER: 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE G IVEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELO W. WE HAVE ALSO PERUSED THE ORDERS OF THE CO-ORDINATE BENCH RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE. THE UNDISPUTED FACT IS TH AT THE FCCDS 8 WERE ISSUED DURING FY 2008-09, 2009-10 AND 2011-12, WHICH MEANS THAT NO FRESH FCCDS WERE ISSUED DURING THE YEAR UND ER CONSIDERATION. THE YEAR WISE DETAILS OF INTEREST RA TE, INTEREST AMOUNT PAYABLE AND INTEREST RATE AND AMOUNT RESTRIC TED BY THE TPO CAN BE UNDERSTOOD FROM THE FOLLOWING CHART: AMOUNT OF DIFFERENTIAL AMOUNT OF DIFFERENTIAL AMOUN T INTEREST RATE INTEREST RATE OF INTEREST RATE OF INTEREST OF INTEREST AS PER S NO TYPE OF FCCD'S AS PER PAYABLE ON AS PER TPO TO PAYABLE AT ITPO TO BE: 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 LENGTH 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 INCOME 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. 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 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-ORD INATE BENCH IN ITA NO. 7022/DEL/2017 AND OTHERS HAD CONSIDERED THI S ISSUE AND HELD AS UNDER: 9 '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. THEREFORE, THE SBI PLR PLUS 300 BASIS POINTS OVER I T WAS REASONABLE AND ON THE ARM'S LENGTH, PARTICULARLY WH EN THE SAME WAS PERMISSIBLE UNDER FOREIGN EXCHANGE CONTROL REGULATI ONS. THE AO/TPO, HOWEVER, RESTRICTED THE INTEREST RATE TO 12 .25%. THE VARIANCE IN THE RATE OF INTEREST AS PER TPO/AO TO B E ADJUSTED AND ADDED WAS 3.75% WHICH WAS WITHIN THE PERMISSIBLE RA NGE OF 5% AS PERMITTED BY SECOND PROVISO TO SECTION 92C(2) OF TH E 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 PERCEN TAGE WAS AT 5%. IN THE PRESENT CASE, SINCE THE DIFFERENCE IS LE SS THAN 5%, THEREFORE, NO ADDITION ON ACCOUNT OF ARM'S LENGTH P RICE COULD HAVE BEEN MADE ITA NOS. 7022 TO 7024/DEL/2017 GRANITE GA TE PROPERTIES PVT. LTD. 19 BY THE AO/TPO. AS SUCH ON M ERIT ALSO, NO ADDITION COULD HAVE BEEN MADE.' 13. SIMILARLY, IN ITA NO. 7025/DEL/2017, THE FINDIN GS GIVEN BY THE CO-ORDINATE BENCH READ AS UNDER; '14. THEREFORE, IN VIEW OF THE ABOVE FINDING OF A C OORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR T HE 10 IMMEDIATELY PRECEDING YEARS, WE ARE OF THE CONSIDER ED OPINION THAT THE ISSUE IS NO LONGER RES INTEGRA AND THIS BENCH IS REQUIRED TO FOLLOW THE SAME IN THE ABSENCE OF AN Y CHANGE OF CIRCUMSTANCES. NO CHANGE OF CIRCUMSTANCES IS PLE ADED BEFORE US. WE, THEREFORE, WHILE RESPECTFULLY FOLLOW ING THE ABOVE DECISION, REACH A CONCLUSION THAT IT IS REASO NABLE 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 EXCEED 5% FOR T HE FCCDS ISSUED DURING THE FYS 2008-09 AND 3% FOR THE FCCDS ISSUED SUBSEQUENTLY INTERFERENCE BY THE LD. TPO WIT H THE VALUE OF THE INTERNATIONAL TRANSACTION. THE ADDITIO N, THEREFORE, CANNOT BE SUSTAINED AND SHALL BE DIRECTE D TO BE DELETED. WE ACCORDINGLY DIRECT THE LEARNED AO/TPO T O DELETE THE SAME.' 14. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT TO OUR NOTICE, RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH, WE DIRECT THE ASSESSING OFFICER /TPO TO DELETE THE IMP UGNED ADJUSTMENTS. 11. AS NO NEW DISTINGUISHING DECISION HAS BEEN BROU GHT TO OUR NOTICE, RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH IN GROUP CASE [SUPRA], WE DIRECT THE ASSESSING OFFICER/TPO T O DELETE THE IMPUGNED ADJUSTMENTS. 11 14. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO S. 7028/DEL/2017, 7029/DEL/2017 AND 7030/DEL/2017 ARE ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT IN THE PR ESENCE OF BOTH THE REPRESENTATIVES ON 22.02.2021. SD/- SD/- [ SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22 ND FEBRUARY, 2021 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 12 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.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER