The DCIT, Circle-4, Baroda V. Rubamin Limited, Baroda

ITA 795/AHD/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9228 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 05-01-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 10-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Additional evidence
• Section: 92B; 80IB; 92

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, AHMEDABAD BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA NOS. 664/AHD/2012 / ASSESSMENT YEAR : 2006-07 RUBAMIN LTD., SYNERGY HOUSE, SUBHANPURA, BARODA-39007 PAN : AAACR 8758 H VS ITO, WARD 4(2), BARODA ./ ITA NOS. 665/AHD/2012 / ASSESSMENT YEAR : 2007-08 RUBAMIN LTD., SYNERGY HOUSE, SUBHANPURA, BARODA-39007 PAN : AAACR 8758 H VS ACIT, CIRCLE-4 BARODA ./ ITA NOS. 795/AHD/2012 / ASSESSMENT YEAR : 2007-08 DCIT, CIRCLE-4 BARODA VS RUBAMIN LTD., SYNERGY HOUSE, SUBHANPURA, BARODA-39007 PAN : AAACR 8758 H / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI MILIN MEHTA, AR REVENUE BY : SHRI RAKESH JHA, SR DR DATE OF HEARING : 0 5/01/2017 DATE OF PRONOUNCEMENT IN COURT : 17/02/2 017 / O R D E R PER R.P. TOLANI, JUDICIAL MEMBER:- IT IS A SET OF THREE APPEALS; ONE BY THE ASSESSEE F OR AY 2006-07 AND THE CROSS-APPEALS FOR AY 2007-08. 2. ONE COMMON GROUND RAISED IN ALL THESE APPEALS CH ALLENGES THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE A OS ACTION OF APPLYING ITA NOS. 664, 665 & 795/AHD/2012 ASSESSEE : RUBAMIN LTD AY : 2006-07 & 2007-08 2 ARMS LENGTH PRICE (IN SHORT ALP) @ LIBOR + ABOUT 2 % (ASSESSEES APPEAL IN AY 2006-07) AND REDUCING THE ALP ADJUSTMENT OF L IBOR+ ABOUT 0.75% (IN ASSESSEES AND DEPARTMENTS APPEAL IN AY 2007-0 8). 3. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) IN A Y 2007-08 ARE AS UNDER:- 4.1.2 THE ISSUE OF CHARGING OF INTEREST ON THE IN TEREST FREE LOAN GIVEN TO THE AE WAS ALSO INVOLVED IN THE APPELLANTS OWN CASE FO R AY 2006-07. IN THE APPEAL ORDER PASSED IN APPEAL NO.CAB/III-434/09-10 FOR AY 2006-07, IT HAS BEEN HELD THAT THE ACTION OF TPO IN MAKING UPWARD A DJUSTMENT ON ACCOUNT OF INTEREST FREE LOAN GIVEN BY THE APPELLANT TO ITS AE IS CORRECT. FOR THIS PURPOSE, RELIANCE HAS BEEN PLACED UPON THE DECISION OF ITAT, DELHI A BENCH IN ITA NO.3647/DELHI/2007 DATED 09.12.2011 IN THE C ASE OF AITHENT TECHNOLOGIES PVT LTD, IN WHICH THE BENCH HAD HELD T HAT THE DETERMINATION OF INTEREST TO BE CHARGED IN SUCH CASE IS TO BE MADE A S PER THE CUP METHOD. BUT, AT THE SAME TIME, THE ITAT HAS ALSO HELD THAT FOR A PPLYING THE CUP METHOD, ALP SHOULD BE RECOMPUTED ON THE BASIS OF COMPARABLE TRANSACTIONS INVOLVING FOREIGN CURRENCY LENDING BY UNRELATED PARTIES. IN T HE YEAR, THE AE DID NOT HAVE TRANSACTION IN FOREIGN CURRENCY LENDING WITH A NY UNRELATED PARTIES, HENCE, THE ACTION OF THE A.O. WAS UPHELD. IN THE OR DER FOR THE CURRENT YEAR, THE TPO HAD CHARGED INTEREST BY APPLYING US PRIME R ATES. ON BEING ASKED, THE APPELLANT HAD SUBMITTED THAT DURING THE PREVIOU S YEAR 2006-07, THE AE HAD OBTAINED LOAN FROM ABN AMRO BANK AT LIBOR + 0.7 5% INTEREST RATE. HENCE, FOLLOWING THE 'DECISION OF ITAT AS MENTIONED ABOVE, THE A.O. IS DIRECTED TO ADOPT THE RATE OF LIBOR + 0.75% AS THE INTEREST RATE TO BE CHARGED ON THE INTEREST FREE LOAN GIVEN TO THE AE A ND RECOMPUTE THE ADJUSTMENT TO BE MADE IN ALP TO BE MADE ACCORDINGLY . 4. THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT T HE DURING THE YEAR UNDER REVIEW HAD INVESTED ITS CAPITAL IN SETTING UP ITS SUBSIDIARIES IN VIEW TO STABILIZE THE SUPPLY OF THE RAW-MATERIAL (I.E. COBA LT CONCENTRATE). THE COMPANY DECIDED TO FUND THE SAID OPERATIONS BY SETT ING UP A COMPANY IN SHARJAH, UAE (RUBAMIN FZE) AND ITS SUBSIDIARY IN CO NGO (RUBECCO SPRL) PRIMARILY FOR THE REASON THAT THE SAID COMPANIES SH ALL COLLECTIVELY SOURCE THE MATERIAL FROM CONGO AND SUPPLY IT TO RUBAMIN, T HUS ASSURING THE SEAMLESS SUPPLY OF THE MATERIAL FOR THE COBALT BUSI NESS. THE ENTIRE TRANSFER PRICING STUDY HAD BEEN UNDERTAKEN KEEPING IN MIND T HE ABOVE BACKGROUND ITA NOS. 664, 665 & 795/AHD/2012 ASSESSEE : RUBAMIN LTD AY : 2006-07 & 2007-08 3 OF THE APPELLANT-COMPANY. THE APPELLANT HAD PURCHAS ED COBALT FROM ITS AE, HAD EXPORTED CONSUMABLES TO ITS AE, HAD INCURRED RE COVERABLE EXPENDITURE ON BEHALF OF ITS AE AND HAD ALSO ADVANCED A LOAN TO ITS AE. SINCE ALL THE TRANSACTIONS WERE INEXTRICABLY LINKED TO EACH OTHER AND ALSO .THERE WAS A POSSIBILITY THAT PRICING OF ONE TRANSACTION MIGHT A FFECT PRICING OF THE OTHER, THE APPELLANT RESORTED TO THE TNMM METHOD. 4.1 IN AY 2006-07, THE LD. CIT(A) CONFIRMED THE ALP ADJUSTMENT OF LIBOR +2% AND IN AY 2007-08, ON THE SIMILAR SET OF FACTS, REDUCED THE LIBOR TO 0.75% FOLLOWING THE ITAT JUDGMENT IN THE C ASE OF AITHENT TECHNOLOGIES PVT LTD IN ITA NO.3647/DELHI/2007 DATE D 09.12.2011. 4.2 LD. COUNSEL FOR THE ASSESSEE REQUESTED FOR THE ADMISSION OF ADDITIONAL EVIDENCES IN THE FORM OF LETTER GIVEN BY THE ASSESS EE TO THE DEPUTY GENERAL MANAGER, STATE BANK OF INDIA, INDUSTRIAL FINANCE BR ANCH, BARODA IN RESPECT OF REMITTANCE TO ASSESSEES UAES WHOLLY OWNED SUBS IDIARY M/S. RUBAMIN FZE TO DEMONSTRATE THAT THE FUNDS WERE ADVANCED BY THE ASSESSEE TO M/S. RUBAMIN FZE, UAE TO EXPLOIT AN OPPORTUNITY TO FULLE ST EXTENT TO GIVE ECONOMIES OF SCALE IN THE INTERNATIONAL OPERATIONS AND MAXIMIZE THE GAINS WITH PRIMARY OBJECTIVE OF ENSURING THE SUPPLY OF RA W-MATERIALS FOR THE ASSESSEES CORE AREA ACTIVITIES. THIS LETTER DATED 18.06.2004 WILL ALSO DEMONSTRATE THAT THE ASSESSEE-COMPANYS MAIN OBJECT IVE BEFORE THE ADVANCES WAS TO AUGMENT ITS OWN SUPPLY. 5. LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HA ND, CONTENDS THAT THIS LETTER, THOUGH DATED 18.06.2004, WAS NOT PRODU CED BEFORE ANY LOWER AUTHORITIES AND NO SUFFICIENT CAUSE HAS BEEN SHOWN TOWARDS CLAIM THAT THE ASSESSEE WAS PREVENTED BY ANY SUFFICIENT CAUSE IN N OT PRODUCING IT BEFORE THE AUTHORITIES BELOW. ITA NOS. 664, 665 & 795/AHD/2012 ASSESSEE : RUBAMIN LTD AY : 2006-07 & 2007-08 4 5.1 ALTERNATIVELY, IT IS CONTENDED THAT IN CASE THI S ADDITIONAL EVIDENCE IS ADMITTED, THEN THE MATTER MAY BE SET ASIDE AND REST ORED BACK TO THE FILE OF LD. TPO TO CONSIDER THE SAME. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE CORRESPONDENCE IN QUESTION IS WITH THE ASSESSEES B ANKER, I.E. STATE BANK OF INDIA, THROUGH WHICH THE REMITTANCE TO M/S. RUBAMIN FZE, UAE WAS MADE ALONGWITH RBI APPROVAL. THEREFORE, THE DOCUMENT AS SUMES A REGULATORY CHARACTER WHICH IS IN THE FILES OF THE SCHEDULE BAN K AND RBI. THE ASSESSEE CONTENDS THAT THE OTHER COPIOUS EVIDENCE DID NOT EA RLIER SATISFY THE TPO ABOUT THE BUSINESS EXIGENCIES OF ADVANCING THE LOAN S; HENCE THE ADDITIONAL EVIDENCE. A CATENA OF JUDGMENTS IS AVAILABLE BY NO W WHEREIN THE LIBOR+ AND VARYING DEGREE OF INCREMENTAL VALUE HAS BEEN AD OPTED, WHICH IS EVIDENT FROM THE FACT THAT LD. CIT(A) HAS ADOPTED A RATE OF LIBOR+ 2% IN AY 2006-07 AND 0.75% IN AY 2007-08. IN THE ENTIRETY OF FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO ADMIT THE ADDITIONAL EVIDENCE AND ACCED ING TO THE ALTERNATE REQUEST OF THE LD. DR TO REMIT THE ISSUE BACK TO TH E LD. TPO TO DECIDE THE SAME DE-NOVO IN VIEW OF ABOVE OBSERVATIONS, FOR WHICH THE ASSES SEE HAS NO OBJECTION. 7. THE OTHER ISSUES FOR AY 2006-07 CHALLENGING THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE PART DISALLOWANCE OF RS.3 LAKHS OUT OF RS.5 LAKHS MADE BY ASSESSING OFFICER IS NOT PRESSED AS THE SAM E WAS ACCORDINGLY REQUESTED BY THE ASSESSEE BEFORE THE LD. CIT(A) WHI CH IS EVIDENT FROM THE LD. CIT(A)S OBSERVATIONS AS UNDER :- 6.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE APPELLATE SUBMISSION, IN VIEW OF THE FACTS NARRATED BY THE AO AND THE REQUES T MADE BY THE APPELLANT, THE AO IS DIRECTED TO RESTRICT THIS DISALLOWANCE TO RS.3,00,000/-. THE APPELLANT GETS RELIEF ACCORDINGLY. ACCORDINGLY, THIS GROUND IS DISMISSED. ITA NOS. 664, 665 & 795/AHD/2012 ASSESSEE : RUBAMIN LTD AY : 2006-07 & 2007-08 5 8. IN THE RESULT, ASSESSEES APPEAL FOR AY 2006-07 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. APROPOS CROSS APPEAL FOR AY 2007-08, THE GROUND ABOUT ALP ADJUSTMENT OF LIBOR +2/0.75% HAS BEEN SET ASIDE AND RESTORED BACK TO THE FILE OF LD. TPO. ACCORDINGLY, THIS GROUND OF THE A SSESSEE AND REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 10. APROPOS ASSESSEES OTHER ISSUE PERTAINING TO CL AIM OF SALES TAX EXEMPTION/SUBSIDY AS CAPITAL IN NATURE HAS FAIRLY C ONSIDERED BY THE ITAT IN ITA NOS. 999, 2467 & 3426/AHD/2008, IN WHICH IT HAS BEEN HELD AS REVENUE IN NATURE. ACCORDINGLY, THIS GROUND OF ASSESSEE IS DISMISSED. 11. APROPOS THIRD ISSUE CHALLENGING THE ALLOWABILIT Y OF DEDUCTION U/S 80IB ON THE AMOUNT OF SALES TAX SUBSIDY, THE LD. CO UNSEL FOR THE ASSESSEE CONTENDS THAT THE ISSUE IN QUESTION IS SQUARELY COV ERED IN FAVOUR OF THE ASSESSEE BY THE HONBLE SUPREME COURT JUDGMENT IN T HE CASE OF CIT VS. M/S. SHREE BALAJI ALLOYS IN CIVIL APPEAL NO.10061 O F 2011 AND CIT VS. MEGHALAYA STEEL LTD, 383 ITR 217. THE LD. DR, ON T HE OTHER HAND, SUPPORTED THE ORDER OF THE ASSESSING OFFICER. THE GROUND OF SALES TAX SUBSIDY BEING REVENUE IN NATURE IS COVERED AGAINST THE ASSESSEE B Y ITAT DECISION IN ASSESSEES OWN CASE. ONCE THE SALES TAX SUBSIDY IS HELD TO BE REVENUE IN NATURE, THE SAME AMOUNT BECOMES THE INCOME OF THE A SSESSEES INDUSTRIAL UNDERTAKING; CONSEQUENTLY, DEDUCTION U/S 80IB IS TO BE ALLOWED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE HONBLE SU PREME COURT JUDGMENTS IN THE CASE OF M/S. SHREE BALAJI ALLOYS & M/S. MEGH ALAYA STEEL LTD (SUPRA), THIS GROUND OF THE ASSESSEE IS ALLOWED. 12. APROPOS REVENUES REMAINING GROUND FOR AY 2007- 08 CHALLENGING THE LD. CIT(A)S HOLDING THAT THE CORPORATE GUARANTEE G IVEN BY THE ASSESSEE ITA NOS. 664, 665 & 795/AHD/2012 ASSESSEE : RUBAMIN LTD AY : 2006-07 & 2007-08 6 BEING A DOMESTIC TRANSACTION IS OUTSIDE THE PURVIEW OF TP PROVISIONS IS CLAIMED TO BE COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE IN THE CASE OF MICRO INKS LIMITED VS. ACIT, REPORTED IN [2 016] 157 ITD 132 (AHMEDABAD - TRIB.), WHEREIN IT WAS HELD AS UNDER:- 48. IN THE PRESENT CASE, WE HAVE HELD THAT THE ISS UANCE OF CORPORATE GUARANTEES WERE IN THE NATURE OF SHAREHOLDER ACTIVI TIES- AS WAS THE UNCONTROVERTED CLAIM OF THE ASSESSEE, AND, AS SUCH, COULD NOT BE INCLUDED IN THE 'PROVISION FOR SERVICES' UNDER THE DEFINITION O F 'INTERNATIONAL TRANSACTION' UNDER SECTION 92 B OF THE ACT. WE HAVE ALSO HELD, T AKING NOTE OF THE INSERTION OF EXPLANATION TO SECTION 92B OF THE ACT, THAT THE ISSUANCE OF CORPORATE GUARANTEES IS COVERED BY THE RESIDUARY CLAUSE OF TH E DEFINITION UNDER SECTION 92 B OF THE ACT BUT SINCE SUCH ISSUANCE OF CORPORAT E GUARANTEES, ON THE FACTS OF THE PRESENT CASE, DID NOT HAVE 'BEARING ON PROFI TS, INCOME, LOSSES OR ASSETS', IT DID NOT CONSTITUTE AN INTERNATIONAL TRA NSACTION, UNDER SECTION 92B, IN RESPECT OF WHICH AN ARM'S LENGTH PRICE ADJUSTMEN T CAN BE MADE. IN THIS VIEW OF THE MATTER, AND FOR BOTH THESE INDEPENDENT REASONS, WE HAVE TO DELETE THE IMPUGNED ALP ADJUSTMENT. RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECIS ION IN THE CASE OF MICRO INKS LIMITED (SUPRA), THIS GROUND OF THE REVE NUE IS DISMISSED. 13. IN THE RESULT, ASSESSEES APPEALS FOR AYS 2006- 07 & 2007-08 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE REVENUES APPEAL FOR AY 2007-08 IS ALSO PARTLY ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (MANISH BORAD ACCOUNTANT MEMBER (R.P. TOLANI) JUDICIAL MEMBER AHMEDABAD; DATED /02/2017 *BIJU T., SR PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD