VVF LTD, MUMBAI V. DCIT CEN CIR 6(1), MUMBAI

ITA 846/MUM/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8932 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 19-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UDAY RAJ SINGH
• Keywords: Transfer pricing; International transaction; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO. 846/MUM/2016 (ASSESSMENT YEAR: 2011-12) M/S. VVF LIMITED PLOT NO. 109 OPP. SION FORT GARDENS SION (E), MUMBAI 400022 VS. DCIT, CENTRAL CIRCLE - 6(1) ROOM NO. 1905, 19TH FLOOR AIR INDIA BUILDING NARIMAN POINT, MUMBAI 400020 PAN AAACV3847R APPELLANT RESPONDENT APPELLANT BY: SHRI MADHUR AGRAWAL RESPONDENT BY: SHRI UDAY RAJ SINGH DATE OF HEARING: 20.07.2020 DATE OF PRONOUNCEMENT: 30.07.2020 O R D E R PER SHAMIM YAHYA, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) R.W.S . 144(C) OF INCOME TAX ACT, 1961 (HEREINAFTER 'THE ACT') DATED 29.12.2015 FOR ASSESSMENT YEAR 2011-12 PASSED PURSUANT TO THE DIRECTION OF THE DIS PUTE RESOLUTION PANEL (DRP) DATED27.11.2015. 2. ALTHOUGH THE ASSESSEE HAS RAISED VARIOUS GROUNDS, T HE ISSUES CAN BE SUMMARISED AND DEALT WITH AS UNDER: - I. TRANSFER PRICING ADJUSTMENT ON PROVISION OF CORPORA TE GUARANTEE. II. TRANSFER PRICING ADJUSTMENT ON INTEREST RECEIVABLE ON LOAN GIVEN TO ASSOCIATED ENTERPRISE. III. TRANSFER PRICING ADJUSTMENT BY IMPUTING INTEREST ON SHARE APPLICATION MONEY SENT TO ASSOCIATED ENTERPRISE. IV. SET OFF OF BROUGHT FORWARD THE ASSESSEE ITA NO. 846/MUM/2016 M/S. VVF LIMITED 2 3. IN THIS CASE ASSESSEE IS A PRODUCER AND EXPORTER O F CHEMICALS AND A LEADING CONTRACT MANUFACTURER OF TOILET SOAPS AND P ERSONAL CARE PRODUCTS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE EN TERED INTO VARIOUS INTERNATIONAL TRANSACTIONS. THE TRANSFER PRICING OF FICER HAS MADE THE FOLLOWING TRANSFER PRICING ADJUSTMENT: - I. ADJUSTMENT ON ACCOUNT OF CORPORATE GUARANTEE ISSUED TO AES OF ` 2,03,60,516/- II. INTEREST ON FOREIGN CURRENCY LOAN GIVEN TO ASSOCIAT ED ENTERPRISE OF ` 45,69,098/- III. CHARACTERISATION OF SHARE APPLICATION MONEY AS LOAN AND CONSEQUENT INTEREST OF ` 25,35,316/- 4. UPON ASSESSEE'S APPEAL IN THIS REGARD LEARNED CIT(A ) HAS UPHELD THE ADJUSTMENT ON ACCOUNT OF CORPORATE GUARANTEE. FOR T HE ADJUSTMENT ON ACCOUNT OF FOREIGN CURRENCY LOAN GIVEN TO THE ASSOC IATED ENTERPRISE, DISPUTE RESOLUTION PANEL HAS REFERRED TO THE EARLIE R YEAR ORDER OF THE ITAT AND DIRECTED THAT THE INTEREST SHOULD BE CHARGED AT THE RATE OF LIBOR +3%. FOR THE RE-CHARACTERISATION OF SHARE APPLICATION MO NEY INTO LOANS, THE SAME WAS UPHELD BY THE DRP. HOWEVER, IT WAS DIRECTE D THAT THE INTEREST CHARGE SHOULD BE @ LIBOR +3%, AS IN THE CASE OF LOA NS. AGAINST THIS ORDER ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE REC ORDS. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT ASSESSEE HAS CHARGED CORPORATE GUARANTEE FEE AT THE RATE OF 1.68% ON THE BASIS OF ITS INTERNAL CUP, THE RATE AT WHICH ASSESSEE OBTAINS SUCH GUARANTEE. FURTHER H E SUBMITTED THAT INTERNAL CUP IN THIS REGARD HAS BEEN FOUND TO BE AC CEPTABLE BY THE ITAT IN ASSESSEE'S OWN CASE IN THE DECISION REFERRED BY THE DRP. LEARNED COUNSEL FURTHER SUBMITS THAT THE DRP HAS WRONGLY INTERPRETE D THE ITAT DECISION THAT THE CHARGE OF INTEREST SHOULD BE AT THE RATE O F LIBOR +3% PERPETUALLY. HE SUBMITTED THAT THE SAME WAS THE INTERNAL CUP AVA ILABLE FOR THAT ASSESSMENT YEAR AND FOLLOWING THE AFORESAID RATIO T HE INTERNAL CUP AVAILABLE FOR THE CURRENT YEAR HAS BEEN ADOPTED BY THE ASSESSEE AND ITA NO. 846/MUM/2016 M/S. VVF LIMITED 3 ACCORDINGLY, THE SAME NEEDS TO BE UPHELD. 6. AS REGARDS THE INTEREST ON SHARE APPLICATION MONEY LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THERE ARE VARIOUS DE CISIONS OF HONOURABLE BOMBAY HIGH COURT IN WHICH FOR DELAY IN ALLOTMENT O F SHARES THE RE- CHARACTERISATION OF SHARE APPLICATION MONEY AS LOAN TRANSACTION HAS NOT BEEN SUSTAINED. HOWEVER, ON QUERY FROM THE BENCH LE ARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT IN THE SUBSEQUENT YEAR THE SHARE APPLICATION MONEY HAS BEEN REFUNDED. HOWEVER, HE SUBMITTED THAT THE SHARE APPLICATION MONEY TRANSACTION AND ITS REFUND WERE G ENUINE TRANSACTIONS. 7. PER CONTRA LEARNED DEPARTMENTAL REPRESENTATIVE RELI ED UPON THE GROUNDS OF APPEAL, AND THE ORDERS OF THE AUTHORITIE S BELOW. 8. UPON CAREFUL CONSIDERATION AS REGARDS THE CORPORATE GUARANTEE FEE IS CONCERNED, WE FIND THAT AUTHORITIES BELOW RIGHTLY R EJECTED THE ASSESSEE'S CONTENTION THAT THE SAME IS NOT AN INTERNATIONAL TR ANSACTION AND THAT THE SAME WAS SHAREHOLDER FUNCTION. HOWEVER WE AGREE WIT H THE LEARNED COUNSEL OF THE ASSESSEE THAT IF THE ASSESSEE IS CHA RGING THE SAME RATE AS IT IS BEING CHARGED ON SEARCH GUARANTEE RECEIVED THE S AME NEEDS TO BE ACCEPTED. AS THE RATE OF 1.68% CHARGED BY THE ASSES SEE IS AN INTERNAL CUP AVAILABLE, THE SAME NEEDS TO BE UPHELD. THE DRP HAS FOUND THAT THE TPO CHARGED A MARK UP OF 1.75% ON BANK RATES FOR SUCH T RANSACTIONS. THIS WE FOUND IS NOT SUSTAINABLE. IN SEVERAL DECISIONS THE HON'BLE BOMBAY HIGH COURT HAS UPHELD A CHARGE OF 0.5% FOR SUCH GUARANTE E. HENCE WE SET ASIDE THE ORDER OF THE AUTHORITIES BELOW ON THIS ISSUE. 9. SIMILARLY, AS REGARDS THE INTEREST ON LOAN TO THE ASSOCIATE ENTERPRISE WE AGREE WITH THE LEARNED COUNSEL OF THE ASSESSEE T HAT THE ITAT HAS UPHELD THE APPLICATION OF INTERNAL CUP FOR THAT ASSESSMENT YEAR ON THE BASIS OF INTERNAL CUP OF LIBOR + 3% AVAILABLE FOR THAT ASSES SMENT YEAR, IF THE RATE OF INTEREST BEING THE INTERNAL CUP AVAILABLE FOR THE C URRENT ASSESSMENT YEAR IS LIBOR + 2.68% THE SAME NEEDS TO BE ACCEPTED. WE DIR ECT ACCORDINGLY. 10. AS REGARDS THE SHARE APPLICATION MONEY ISSUE IS CON CERNED, WE FIND ITA NO. 846/MUM/2016 M/S. VVF LIMITED 4 THAT LEARNED COUNSEL OF THE ASSESSEE HAS ACCEPTED T HAT THE SHARES HAVE NOT BEEN ALLOTTED AND THE SHARE APPLICATION MONEY HAS B EEN REFUNDED. HOWEVER, LEARNED COUNSEL OF THE ASSESSEE SUBMITS TH AT THE TRANSACTIONS WERE GENUINE AND THE REFUND WAS ALSO WARRANTED BY G ENUINE CIRCUMSTANCES. ACCORDINGLY IN THE INTEREST OF JUSTI CE, WE DIRECT THE ASSESSING OFFICER TO EXAMINE THE VERACITY OF ASSESS EE'S SUBMISSIONS. IF THE ASSESSING OFFICER IS CONVINCED BY THE VERACITY OF A SSESSEE SUBMISSIONS, NO INTEREST IS LEVIABLE, HOWEVER, IF THE ASSESSING OFF ICER IS NOT SO CONVINCED THE INTERNAL CUP RATE OF INTEREST BEING LIBOR + 2.68% S HALL BE LEVIED. 11. AS REGARDS THE ISSUE OF GIVING EFFECT TO THE BROUGH T FORWARD LOSSES CONCERNED, THE ASSESSING OFFICER SHALL EXAMINE THE ISSUE AND GIVE EFFECT AS PER LAW. 12. IN THE RESULT, THIS APPEAL BY THE ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED UNDER RULE 34(4) OF THE ITAT RULES ON 30 TH JULY, 2020. SD/ - SD/ - (RAM LAL NEGI) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH JULY, 2020 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. DRP-2, MUMBAI 4. THE CIT - CENTRAL-6, MUMBAI 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.