Visteon Asia Holdings Inc., CHENNAI V. DCIT, CHENNAI

ITA 723/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8667 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 24-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR MILIND MADHUKAR BHUSARI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Reopening of assessment; Capital asset; Transfer pricing
• Section: 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO. 723/MDS/2016 ( )( / ASSESSMENT YEAR : 2007-08 M/S VISTEON ASIA HOLDINGS INC. ONE VILLAGE CENTRE DRIVE, VAN BUREN TOWNSHIP, MICHIGAN, USA 48111. C/O DELOITTEE HASKINS & SELLS LLP, 7 TH FLOOR, ASV N RAMANA TOWERS, NO.52, VENKATNARAYANA ROAD, T. NAGAR, CHENNAI - 600 017. PAN : AACCV 5647 H V. THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION II(1), NUNGAMBAKKAM, CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE -.+, / 0 / RESPONDENT BY : DR. MILIND MADHUKAR BHUSARI, CI T 1 / 2% / DATE OF HEARING : 07.06.2016 3') / 2% / DATE OF PRONOUNCEMENT : 24.08.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 16, CHEN NAI, DATED 28.01.2016 AND PERTAINS TO ASSESSMENT YEAR 2007-08. 2 I.T.A. NO.723/MDS/16 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS VALU ATION OF SHARES HELD IN VISTEON POWERTRAIN CONTROL SYSTEMS INDIA PV T. LTD. 3. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT FOR THE PURPOSE OF TRANSFER OF SHARE S HELD BY THE ASSESSEE IN VISTEON POWERTRAIN CONTROL SYSTEMS INDI A PVT. LTD., THE ASSESSEE VALUED THE SAME AT ` 10.32 PER SHARE. HOWEVER, THE ASSESSING OFFICER ESTIMATED THE VALUATION AT ` 36.31 PER SHARE. REFERRING TO THE ORDER OF THIS TRIBUNAL DATED 12.11 .2013 IN I.T.A. NO.17(MDS)/2012 IN M/S VIHI, LLC, THE LD.COUNSEL SU BMITTED THAT VIHI IS ALSO ONE OF THE CO-TRANSFERORS. IN THAT CA SE, THE TRIBUNAL ACCEPTED THE VALUATION MADE BY THE ASSESSEE AT ` 10.32 PER SHARE. THEREFORE, THE CIT(APPEALS) OUGHT TO HAVE FOLLOWED THE ORDER OF THIS TRIBUNAL IN VIHI, LLC (SUPRA). 4. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTE D THAT THE TRANSFER PRICING OFFICER BY ORDER DATED 29.10.2010 IN M/S VISTEON INTERNATIONAL HOLDINGS INC, HELD THAT THE ASSESSING OFFICER HIMSELF HAS TAKEN THE VALUE OF SHARE AS DETERMINED BY THE T PO IN THE CASE OF VISTEON POWERTRAIN CONTROL SYSTEMS INDIA PVT. LT D., WHILE COMPUTING THE LONG TERM CAPITAL GAINS. THEREFORE, ACCORDING TO THE 3 I.T.A. NO.723/MDS/16 LD. COUNSEL, THE CIT(APPEALS) OUGHT TO HAVE FOLLOWE D THE ORDER OF THIS TRIBUNAL IN I.T.A. NO.17/MDS/2012 DATED 12.11. 2013. 5. ON THE CONTRARY, DR. MILIND MADHUKAR BHUSARI, TH E LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASS ESSEE- COMPANY IS INCORPORATED IN USA. VISTEON POWERTRAIN CONTROL SYSTEMS INDIA PVT. LTD. IS A COMPANY INCORPORATED I N INDIA AND ENGAGED IN THE BUSINESS OF MANUFACTURING AUTO COMPO NENTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE-C OMPANY SOLD 7366765 EQUITY SHARES OF FACE VALUE OF ` 10/- TO VISTEON INTERNATIONAL HOLDINGS MAURITIUS LTD. AT ` 10.32 PER SHARE. ACCORDING TO THE LD. D.R., THE INDIAN COMPANY, NAMELY, VISTEON POWERTRAI N CONTROL SYSTEMS INDIA PVT. LTD. CHANGED THE SHAREHOLDING PA TTER BY LETTER DATED 26.04.2007. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT THE SHARES WERE VALUED AS PER THE CERT IFICATE OF INDEPENDENT CHARTERED ACCOUNTANT AS PER THE GUIDELI NES ISSUED BY CONTROLLER OF CAPITAL ISSUES. ACCORDING TO THE LD. D.R., SINCE THERE WAS TRANSACTION OF SALE OF SHARES BETWEEN THE ASSES SEE-COMPANY AND VISTEON INTERNATIONAL HOLDINGS MAURITIUS LTD., THE ASSESSING OFFICER FOUND THAT THE TRANSACTION HAS TO BE MADE O NLY AT ARM'S LENGTH PRICE. THE TRANSFER PRICING OFFICER, BY ADO PTING CASH 4 I.T.A. NO.723/MDS/16 DISCOUNT METHOD OF VALUATION, HAD DETERMINED THE VA LUE OF 7366765 SHARES OF VISTEON POWERTRAIN CONTROL SYSTEMS INDIA PVT. LTD. AT ` 81,15,78,422/-. IN OTHER WORDS, THE TRANSFER PRICI NG OFFICER DETERMINED THE VALUE OF SHARES BY FOLLOWING THE CAS H DISCOUNT METHOD AT ` 36.31 PER SHARE. ACCORDING TO THE LD. D.R., THE AV ERAGE VALUE OF SHARE, AS PER CHARTERED ACCOUNTANTS VALUA TION WAS ` 22.50 PER SHARE AS ON 31.03.2007. DESPITE THIS VALUATION , ACCORDING TO THE LD. D.R., THE ASSESSEE DISCLOSED THE SALE AT ` 10.32 PER SHARE. ACCORDING TO THE LD. D.R., THIS IS UNDERESTIMATION OF SALE CONSIDERATION. 6. ACCORDING TO THE LD. D.R., THE SALE OF SHARES BY THE ASSESSEE RESULTED IN CAPITAL GAIN, THEREFORE, THE A SSESSEE IS LIABLE TO PAY THE CAPITAL GAIN TAX. ACCORDINGLY, THE ASSESSI NG OFFICER HAS RIGHTLY LEVIED THE CAPITAL GAIN. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE- COMPANY INCORPORATED IN USA, WAS HOLDING 9% OF SHAR ES IN VISTEON POWERTRAIN CONTROL SYSTEMS INDIA PVT. LTD. THE AS SESSEE SOLD 73,66,765 EQUITY SHARES AT FACE VALUE OF ` 10/- TO M/S VISTEON INTERNATIONAL HOLDINGS MAURITIUS LTD. AT ` 10.32 PER SHARE. SINCE THE 5 I.T.A. NO.723/MDS/16 SHARES WERE SOLD TO THE SUBSIDIARY COMPANY OF THE A SSESSEE, THE ASSESSING OFFICER FOUND THAT THE TRANSACTION WAS BE TWEEN ASSOCIATE ENTERPRISES AND HENCE THE SALE PROCEEDS HAS TO BE D ETERMINED BY ASCERTAINING THE ARM'S LENGTH PRICE. THE ASSESSING OFFICER FOUND THAT THE AVERAGE VALUE OF SHARES WAS CONSIDERED AT ` 22.50 PER SHARE AS ON 31.03.2007 BY THE CHARTERED ACCOUNTANT. THE ASSESSEE, HOWEVER, CLAIMS THAT THE VALUATION WAS MA DE BY INDEPENDENT CHARTERED ACCOUNTANT IN ACCORDANCE WITH THE GUIDELINES ISSUED BY CONTROLLELR OF CAPITAL ISSUES AT ` 10.32 PER SHARE. THE MAIN CONTENTION OF THE ASSESSEE BEFORE THIS TRIBUNAL IS THAT THE ISSUE OF VALUATION OF SHARE OF VISTEON POW ERTRAIN CONTROL SYSTEMS INDIA PVT. LTD. WAS CONSIDERED BY THIS TRIB UNAL IN I.T.A. NO. 17/MDS/2012 DATED 12.11.2013. 8. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2007-08 IN VIHI, LLC IN I.T.A. NO.17/MDS/2012. IN THE CASE BEFORE THIS TRIBUNAL, THE ASSESSEE, VIHI TRANSFERRED THE SHARES OF VISTEON POWERTRAIN C ONTROL SYSTEMS INDIA PVT. LTD. TO M/S VISTEON INTERNATIONAL HOLDIN GS SINGAPORE PTE LTD. AND TO M/S VISTEON INTERNATIONAL HOLDINGS MAUR ITIUS LTD. FOR ` 10.32 PER SHARE. THE ASSESSEE HAS OBTAINED VALUATI ON CERTIFICATE 6 I.T.A. NO.723/MDS/16 FROM M/S DELLOITE HASKINS & SELLS, CHARTERED ACCOUN TANTS. HOWEVER, THE ASSESSING OFFICER DETERMINED THE ARM'S LENGTH PRICE OF THE VALUE OF SHARES AT ` 36.31 PER SHARE. THIS TRIBUNAL AFTER EXAMINING THE FACTS OF THE CASE, ULTIMATELY FOUND T HAT THE COMPUTATION OF ARM'S LENGTH PRICE SHALL BE MADE IN DCF METHOD. 9. IN FACT, THE ORDER OF THIS TRIBUNAL IN I.T.A. NO .17/MDS/2012 RELATES TO ASSESSMENT YEAR 2007-08. THE ISSUE UNDE R CONSIDERATION IS FOR ASSESSMENT YEAR 2013-14. THE CIT(APPEALS) F OUND THAT THE CAPITAL GAIN CANNOT BE DETERMINED ON THE BASIS OF S ALE PRICE ADMITTED BY THE ASSESSEE IN THE RETURN OF INCOME. THE VALUATION OF SHARE AT THE INITIAL STAGE WAS MADE ON NET ASSET VA LUE METHOD AND PROFIT EARNING CAPACITY VALUE METHOD. THE AVERAGE VALUE OF SHARES WAS ARRIVED AT ` 20.50 PER SHARE AS ON 31.03.2007, WHICH IS PROXIMATE TO THE DATE OF FIRST SALE, I.E. 27.03.200 7. HOWEVER, THE ASSESSEE CLAIMS THAT THE SALE WAS AT ` 10.32 PER SHARE. WHEN THE CHARTERED ACCOUNTANT FOUND THAT THE VALUE WAS ` 20.50 PER SHARE AS ON 31.03.2007, THE VALUATION ADOPTED BY THE ASSESSE E AT ` 10.32 PER SHARE IS NOT JUSTIFIED. IN FACT, THE CIT(APPEALS) FOUND THAT AT THE INITIAL STAGE, THE SHARE WAS VALUED AT NET ASSET VA LUE METHOD AND PROFIT EARNING CAPACITY VALUE METHOD. ULTIMATELY, THE SHARE WAS 7 I.T.A. NO.723/MDS/16 VALUED AT DCF METHOD. WHEN THE ASSESSING OFFICER V ALUED THE SHARES BY FOLLOWING DCF METHOD, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE CANNOT HAVE ANY GRIEVANCE AT ALL. 10. EVEN FOR ASSESSMENT YEAR 2007-08, THIS TRIBUNAL ACCEPTED THE VALUATION MADE BY THE ASSESSEE UNDER DCF METHOD . THE VALUATION MADE FOR ASSESSMENT YEAR 2007-08 IN RESPE CT OF VIHI CANNOT BE ADOPTED FOR THE ASSESSMENT YEAR 2013-14 W HEN THE ASSESSEE TRANSFERRED THE SAME. DUE TO TIME GAP, TH E FLUCTUATION IN THE MARKET RATE AND VALUE OF CAPITAL ASSET OF THE C OMPANY HAVE TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF VALU ING THE SHARES UNDER DCF METHOD. THEREFORE, THE VALUATION MADE FO R THE ASSESSMENT YEAR 2007-08 CANNOT BE THE SAME FOR ASSE SSMENT YEAR 2013-14. SINCE THE ASSESSING OFFICER HAS FOLLOWED DCF METHOD, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICE R. THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 11. THE ASSESSEE HAS ALSO RAISED AN ISSUE WITH REGA RD TO REOPENING OF ASSESSMENT. 8 I.T.A. NO.723/MDS/16 12. AS SEEN FROM THE GROUNDS OF APPEAL, THE GRIEVAN CE OF THE ASSESSEE APPEARS TO BE THAT NO ORIGINAL ASSESSMENT WAS MADE, THEREFORE, THE ASSESSMENT CANNOT BE REOPENED. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT EVEN THOUGH NO ORIGINAL ASSESSMENT WAS MADE, FOR THE PURPOSE OF ASSESSING THE TAXABLE INCOME, THE ASSESSING OFFICER CAN ALWAYS REOPEN THE ASSESSMENT UNDER SECTION 147 OF THE ACT. THEREFORE, MERELY BECAUSE NO ASSES SMENT WAS MADE ORIGINALLY THAT CANNOT BE A REASON TO FIND FAU LT WITH THE ASSESSING OFFICER FOR REOPENING THE ASSESSMENT. 13. THE NEXT GROUND OF APPEAL IS WITH REGARD TO LEV Y OF INTEREST UNDER SECTION 234A OF THE ACT. 14. WE HEARD LD.COUNSEL FOR THE ASSESSEE AND THE LD . DEPARTMENTAL REPRESENTATIVE. THE ONLY OBJECTION OF THE ASSESSEE APPEARS TO BE THAT THE RETURN OF INCOME WAS FILED W ITHIN THE TIME LIMIT PROVIDED UNDER SECTION 139(1) OF THE ACT, THEREFORE , THERE CANNOT BE ANY LEVY OF INTEREST UNDER SECTION 234A OF THE ACT. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 23 4A OF THE ACT. WHEN THE RETURN OF INCOME WAS FILED AFTER THE DUE D ATE PRESCRIBED UNDER SECTION 139(1) OR 139(4) OF THE ACT OR DUE DA TE PRESCRIBED IN THE NOTICE UNDER SECTION 142 OF THE ACT, A SIMPLE I NTEREST AT THE RATE 9 I.T.A. NO.723/MDS/16 OF ONE PER CENT IS LEVIED FOR EVERY MONTH OR PART O F THE MONTH COMPRISED IN THE PERIOD COMMENCING ON THE DATE IMME DIATELY FOLLOWING THE DUE DATE ON THE AMOUNT OF THE TAX ON THE TOTAL INCOME AS DETERMINED UNDER SUB-SECTION (1) OF SECTION 143 OF THE ACT AND WHERE A REGULAR ASSESSMENT IS MADE AND THE TOTAL IN COME DETERMINED UNDER REGULAR ASSESSMENT AS REDUCED BY T HE TAX PAID BY THE ASSESSEE EITHER AS ADVANCE TAX OR OTHERWISE. S INCE THE EXACT DATE OF FILING OF RETURN OF INCOME IS NOT AVAILABLE ON RECORD, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATT ER NEEDS TO BE RECONSIDERED BY THE ASSESSING OFFICER FOR ASCERTAIN ING THE EXACT DATE ON WHICH THE RETURN OF INCOME WAS FILED. ACCO RDINGLY, THE ISSUE OF LEVY OF INTEREST UNDER SECTION 234A OF THE ACT I S REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING O FFICER SHALL FIND OUT THE EXACT DATE OF FILING OF RETURN OF INCOME BY THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 10 I.T.A. NO.723/MDS/16 ORDER PRONOUNCED ON 24 TH AUGUST, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 24 TH AUGUST, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-16, CHENNAI 4. 1 92 /CIT (IT), CHENNAI 5. 7: -2 /DR 6. ( ; /GF.