ORIENTAL AROMATICS LTD, MUMBAI V. DCIT CIR 1(2)(2), MUMBAI

ITA 96/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8829 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 05-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: USHA KADAM
• Keywords: Transfer pricing; Earning of tax free income
• Section: 143(3); 14A; 144C

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI , # ,$ % BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI N.K.PRADHAN, ACCOUNTANT MEMBER . 96 / /201 8 (. . 2013-14 ) ITA NO.96/MUM/2018 (A.Y.2013-14) M/S.ORIENTAL AROMATICS LTD., 2 ND FLOOR, 133, JEHANGIR BUILDING, M.G.ROAD, MUMBAI 400 001 PAN: AAACO4618F ...... - / APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX 1(2)(2), AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 ..... #. / RESPONDENT -// APPELLANT BY : MS. USHA KADAM #. // RESPONDENT BY : SHRI UODAL RAJ SINGH 0. / DATE OF HEARING : 22/07/2020 123 0. / DATE OF PRONOUNCEMENT : 27/07/2020 / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ASSESSMENT ORDER DATED 31/10/2017 PASSED UNDER SECTION 143(3) R.W.S . 144C (13) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) FOR THE ASSESSM ENT YEAR 2013-14. 2 ITA NO.96/MUM/2018(A.Y.2013-14 ) 2. THE ASSESSEE HAS RAISED 12 GROUNDS OF APPEAL. M S. USHA KADAM, APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED AT TH E OUTSET THAT SHE WOULD NOT BE PRESSING GROUND NO.1 TO 3 OF THE APPEAL. 2.1. IN GROUNDS OF APPEAL NO.4, 5 & 6 THE ASSESSEE HAS ASSAILED TRANSFER PRICING (TP) ADJUSTMENT MADE IN RESPECT OF INTEREST ON LOANS GIVEN TO ITS ASSOCIATED ENTERPRISE (AE). THE LD. AUTHORIZED REPR ESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD ADVANCED LOANS AGGR EGATING TO USD 29,00,000 (EQUIVALENT TO INR 12,66,18,520/-) TO OVERSEAS AE. THE TRANSFER PRISING OFFICER (TPO) TO BENCHMARK ARMS LENGTH PRICE (ALP) OF THE LOAN TRANSACTIONS APPLIED LIBOR + 3% INTEREST AND MADE TP ADJUSTMENT OF RS.77 ,22,054/-. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT ON SIMILAR LOAN TRANSACTIONS IN ASSESSMENT YEARS 2010-11 AND 2011-1 2, THE TPO MADE IDENTICAL TP ADJUSTMENT. THE ASSESSEE CARRIED THE ISSUE IN AP PEAL BEFORE THE TRIBUNAL IN ITA NOS.1039 & 687/MUM/2016, RESPECTIVELY. THE TRIB UNAL VIDE ORDER DATED 06/12/2019 COMMON FOR BOTH THE ASSESSMENT YEARS HEL D THAT LIBOR RATE IS TO BE APPLIED WITHOUT ANY MARK-UP. TO FURTHER BUTTRESS HER CONTENTIONS, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE PLACED RE LIANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TA TA AUTOCOMP SYSTEMS LTD. REPORTED AS 56 TAXMANN.COM 206. 2.2. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESS EE SUBMITTED THAT IN GROUND NO.7 TO 11 OF THE APPEAL, THE ASSESSEE HAS A SSAILED DISALLOWANCE OF RS.23,08,735/- MADE UNDER SECTION 14A R.W.R. 8D. T HE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT DURIN G PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAS EARNED EXEMPT DIVIDEND 3 ITA NO.96/MUM/2018(A.Y.2013-14 ) INCOME OF RS.2,01,121/-. THE DISALLOWANCE UNDER SEC TION 14A SHOULD BE RESTRICTED TO THE EXEMPT INCOME EARNED. 3. PER CONTRA, SHRI UODAL RAJ SINGH, REPRESENTING T HE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ASSESSMENT ORDER. HOWEVER, THE LD. DEPARTMENTAL REPRESENTATIVE ADMITTED THAT THE TP AD JUSTMENT IN RESPECT OF INTEREST ON LOANS TO AE WAS MADE IN ASSESSMENT YEAR 2010-11 AND 2011-12, AS WELL. THE TRIBUNAL HAS ADJUDICATED THIS ISSUE IN A SSESSEES APPEALS FOR THE AFORESAID ASSESSMENT YEARS. 4. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SIDE S AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THERE ARE TWO ISSU ES IN APPEAL FOR OUR CONSIDERATION I.E.: I. TP ADJUSTMENT W.R.T. INTEREST ON LOANS ADVANCED TO AE; AND II. DISALLOWANCE U/S 14A R.W.R. 8D. 5. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSE E STATED AT THE BAR THAT SHE IS NOT PRESSING GROUNDS OF APPEAL NO. 1 TO 3, THESE GROUNDS ARE DIS MISSED AS NOT PRESSED, ACCORDINGLY . 6. IN GROUNDS OF APPEAL NO.4 TO 6, THE ASSESSEE HAS ASSAILED TP ADJUSTMENT OF RS.77,22,054/- ON ACCOUNT OF INTEREST ON LOANS A DVANCED TO AE. THE ASSESSE HAS PURPORTEDLY ADVANCED INTEREST FREE LOANS TO ITS AE. THE TPO IN ORDER TO BENCHMARK THE LOAN TRANSACTION AT ARMS LENGTH APPL IED LIBOR +3% RATE OF INTEREST. THE CONTENTION OF THE ASSESSE IS THAT ONL Y LIBOR RATE SHOULD BE APPLIED WITHOUT ANY MARK-UP. WE FIND THAT THE HON'B LE BOMBAY HIGH COURT IN 4 ITA NO.96/MUM/2018(A.Y.2013-14 ) THE CASE OF CIT VS TATA AUTOCOMP SYSTEMS LTD. (SUPR A) HAS UPHELD THE ORDER OF TRIBUNAL IN DETERMINING ALP OF LOANS ADVANCED TO OV ERSEAS AE AT EURIBOR/LIBOR RATES WITHOUT ANY MARK-UP. WE FURTHER OBSERVE THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS, THE TPO HAD MADE SIMILAR ADJUSTMENTS QUA INTEREST ON LOANS ADVANCED TO AE. THE CO-ORDINATE BENCH DIRECTED THE TPO TO APPLY LIBOR RATES TO BENCHMARK ARMS LENGTH PRICE (ALP) OF INTERNATIONAL LOAN TRANSACTION. THUS, IN THE LI GHT OF THE AFORE MENTIONED JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT AND THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE, WE DIRECT THE TPO TO APPLY LIB OR RATE TO BENCHMARK THE TRANSACTIONS OF LOAN ADVANCED TO AE DURING THE RELE VANT PERIOD. THE GROUNDS OF APPEAL NO.4 TO 6 ARE PARTLY ALLOWED, ACCORDINGLY . 7. THE GROUNDS OF APPEAL NO.7 TO 11 ARE ON DISALLOW ANCE MADE UNDER SECTION 14A R.W.S. 8D. THE ASSESSEE DURING THE PER IOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL HAS EARNED DIVIDEND INCOME OF RS. 2,01,121/-. THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS.23,08,734/- UND ER SECTION 14A R.W.S. 8D(2)(III). THE HON'BLE APEX HIGH COURT IN THE CAS E OF PCIT VS. STATE BANK OF PATIALA REPORTED AS 99 TAXMANN.COM 286 HAS APPROVED THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT IS TO BE RESTRICTED TO EXEMP T INCOME EARNED. THUS, IN THE LIGHT OF ABOVE, WE DIRECT THE ASSESSING OFFICER TO RESTRICT DISALLOWANCE UNDER SECTION 14A R.W.R. 8D TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSE DURING THE RELEVANT PERIOD. THE GROUNDS OF APPEAL NO.7 TO 11 ARE PARTLY ALLOWED . 5 ITA NO.96/MUM/2018(A.Y.2013-14 ) 8. THE GROUND NO.12 OF THE APPEAL IS GENERAL, HENCE , REQUIRES NO ADJUDICATION. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED ON MONDAY THE 27TH DAY OF JULY, 2020. SD./- SD./- (N.K.PRADHAN) (VIKAS AWASTHY) $ / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 5 / DATED 27/07/2020 VM , SR. PS (O/S) COPY OF THE ORDER FORWARDED TO : 1. - / THE APPELLANT , 2. #. / THE RESPONDENT. 3. 6. ( )/ THE CIT(A)- 4. 6. CIT 5. 78#. , . . . , / DR, ITAT, MUMBAI 6. 89:;< / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI