Bumi Hiway (India) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 974/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74005 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 22-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 27-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN
• Assessee Lawyers: S D KAPILA R R MAURYA; PRAVESH SHARMA S
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: I : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NO.974/DEL/2012 ASSESSMENT YEAR : 2007-08 BUMI HIGHWAY (INDIA) PVT. LTD., A/292, FRONT PORTION, GROUND FLOOR, JANAK PURI, PANKHA ROAD, NEW DELHI. PAN : AABCB5995M VS. DCIT, CIRCLE-3(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI S.D. KAPILA, R.R. MAURYA, & PRAVESH SHARMA, ADVOCATES . DEPARTMENT BY : SHRI PEEYUSH JAIN, CIT, DR ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE AO ON 24.8.2011 U/S 143(3) READ WITH SECTION 14 4C OF THE INCOME- ITA NO.974/DEL/2012 2 TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) I N RELATION TO THE ASSESSMENT YEAR 2007-08. 2. THE FIRST GROUND AGAINST THE ADDITION OF RS.85,0 00/- U/S 40(A)(IA) AND THE SECOND GROUND AGAINST THE ADDITION OF RS.1, 45,660/- TOWARDS INTEREST ON LATE DEPOSIT OF TDS, WERE NOT PRESSED B Y THE LD.AR. THESE GROUNDS, THEREFORE, STANDS DISMISSED AS NOT PRESSED . 3. THE ONLY SURVIVING GROUND NO.3 IS AGAINST THE AD DITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF RS.83,49,926/-. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A COMPANY HELD BY BUMI HIGHWAY MAURITIUS LTD. WITH 99 .96% SHAREHOLDING AND BUMI HIGHWAY (M) SDN. BHD. WITH TH E REMAINING 0.04% SHAREHOLDING. THE ASSESSEE REPORTED TWO INTER NATIONAL TRANSACTIONS OF INTEREST PAYABLE ON ECB AND INTERES T RECEIVABLE ON LOAN ADVANCED. THERE IS NO DISPUTE ON THE FIRST TRANSAC TION. THE ENTIRE CONTROVERSY IS AGAINST THE DETERMINATION OF ARMS L ENGTH PRICE (ALP) OF THE SECOND INTERNATIONAL TRANSACTION OF : INTEREST RECEIVABLE ON LOAN ADVANCED WITH THE REPORTED VALUE OF TRANSACTION AT RS.80,18,588/-. THE ITA NO.974/DEL/2012 3 COMPARABLE UNCONTROLLED PRICE METHOD (CUP) WAS USED TO DEMONSTRATE THAT THIS TRANSACTION WAS AT THE ALP. THE DETAIL O F THIS TRANSACTION IS THAT THE ASSESSEE HAD RECOVERABLE ADVANCE/LOAN AMOUNTING TO RS.6.97 CRORE AND ODD WITH THE OUTSTANDING OF RS.1.99 CRORE AND O DD FROM ITS ASSOCIATED ENTERPRISE, NAMELY, M/S BUMI HIGHWAY (M) SDN. BHD, ORISSA PROJECT. THE ASSESSEE CHARGED INTEREST @ 9% PER AN NUM AMOUNTING TO RS.80,18,588/- ON THESE LOAN/OUTSTANDING TRANSACTIO NS AGGREGATING TO AROUND RS. 9 CRORE. INTEREST PAID BY THE ASSESSEE TO BANK OF NOVA SCOTIA DURING THE YEAR UNDER CONSIDERATION @ 9% WAS USED A S INTERNAL COMPARABLE UNCONTROLLED TRANSACTION. ON PERUSAL OF THE TERMS OF LOAN AGREEMENT OF THE ASSESSEE WITH THIS BANK, THE TPO O BSERVED THAT THE SANCTION LETTER DATED 14.12.2001 MENTIONS ON PAGE N O.2 AS UNDER:- IN THE EVENT OF ANY DEFAULT/UNTIMELY REPAYMENT BY THE BORROWER, PENAL INTEREST WILL BE CHARGED BY THE BAN K AT ITS SOLE DISCRETION. THIS WILL BE CALCULATED ON THE HI GHER OF THE BANKS COST OF FUNDING THE OVER DUES IN THE INT ERBANK CALL MONEY MARKET PLUS 4% P.A. OR THE BANKS PREVAI LING ITA NO.974/DEL/2012 4 PRIME LENDING RATE ON OVERDRAFTS PLUS 4% P.A. THE BANKS PRIMARY LENDING RATE IS CURRENTLY 14.50% P.A . 5. SINCE THE ABOVE AMOUNTS OF ROUGHLY RS.9 CRORE WERE RECEIVABLE BY THE ASSESSEE FROM ITS AE FOR A LONG TIME, THE TPO H ELD THAT THE ALP OF THE INTEREST CHARGEABLE BE COMPUTED AT 18.5% PER AN NUM, BEING THE RATE PAYABLE BY THE ASSESSEE TO ITS BANK IN THE CASE OF DEFAULT. THAT IS HOW THE TRANSFER PRICING ADJUSTMENT OF RS.83,49,926/- W AS PROPOSED. THE DISPUTE RESOLUTION PANEL (DRP) DID NOT CHANGE THE F ORTUNE OF THE ASSESSEE ON THIS POINT, WHICH EVENTUALLY LED TO THE MAKING OF THE ADDITION IN THE FINAL ASSESSMENT ORDER FOR RS.83.49 LAC. TH E ASSESSEE IS AGGRIEVED AGAINST THIS ADDITION. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESS EE EMPLOYED THE CUP METHOD FOR DEPICTING THAT THIS INTERNATIONAL TRANSA CTION WAS AT ARMS LENGTH PRICE. THE APPLICABILITY OF THE CUP AS THE MOST APPROPRIATE METHOD OR THE SELECTION OF COMPARABLE UNCONTROLLED TRANSACTION HAS NOT BEEN DISPUTED BY THE TPO. THE ONLY AREA OF DISPUTE IS ABOUT THE ITA NO.974/DEL/2012 5 APPLICATION OF 9% INTEREST RATE (ACTUALLY PAID) OR 18.5% RATE OF INTEREST (WHICH WOULD HAVE BEEN PAYABLE IN CASE OF DEFAULT T O ITS BANKER.) 7. IN THIS REGARD, IT IS RELEVANT TO NOTE THAT S ECTION 92C(1) OF THE ACT PROVIDES THAT THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE METHO DS PROVIDED THEREIN. THE FIRST METHOD IS : COMPARABLE UNCONTROLLED PRIC E METHOD. THE MECHANISM FOR THE DETERMINATION OF THE ALP UNDER TH E CUP METHOD HAS BEEN ENSHRINED UNDER RULE 10B(1)(A) AS UNDER:- (A) COMPARABLE UNCONTROLLED PRICE METHOD, BY WHIC H, (I) THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFER RED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED ; (II) SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFEREN CES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPA RABLE UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISE S ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT TH E PRICE IN THE OPEN MARKET ; (III) THE ADJUSTED PRICE ARRIVED AT UNDER SUB-CLAUS E (II) IS TAKEN TO BE AN ARMS LENGTH PRICE IN RESPECT OF THE PROPERTY TR ANSFERRED OR SERVICES PROVIDED IN THE INTERNATIONAL TRANSACTION ; ITA NO.974/DEL/2012 6 8. A PERUSAL OF SUB-CLAUSE (I) OF CLAUSE (A) OF RULE 10B(1) MANIFESTS THAT IT TALKS OF IDENTIFYING THE PRICE CHARGED OR PAID FOR THE SERVICES PROVIDED ETC. IN A COMPARABLE UNCONTROLLED TRANSACT ION OR NUMBER OF SUCH TRANSACTIONS. THE ASSESSEE HAS ADOPTED INTERN AL COMPARABLE UNCONTROLLED TRANSACTION, BEING THE INTEREST PAID B Y IT TO BANK OF NOVA SCOTIA. SUB-CLAUSE (II) REFERS TO MAKING CERTAIN A DJUSTMENTS IN THE PRICE DETERMINED UNDER SUB-CLAUSE (I) AND SUB-CLAUSE (II I) TREATS SUCH ADJUSTED PRICE AS AN ARMS LENGTH PRICE. A CAREFUL PERUSAL OF SUB-CLAUSE (I) AMPLY TRANSPIRES THAT WHAT IS TO BE TAKEN AS A COMPARABLE UNCONTROLLED TRANSACTION IS THE PRICE CHARGED OR PAID. IT IS THE ACTUAL TRANSACTION OF CHARGING OR PAYING THE PRICE IN A COMPARABLE UNCONTROLLED TRANSACTION WHICH IS TO BE CONSIDERED FOR THE PURPOSES OF DETER MINING THE ALP UNDER THE CUP METHOD. THERE IS NO REFERENCE TO ANY HYPO THETICAL OR ILLUSIVE PRICE WHICH OUGHT TO HAVE BEEN CHARGED OR PAID FOR THE SERVICES RENDERED. SINCE THE DELEGATED LEGISLATION REFERS T O THE PRICE CHARGED OR PAID, THERE CAN BE NO QUESTION OF SUBSTITUTING SUC H ACTUAL PRICE CHARGED OR PAID WITH A NOTIONAL OR HYPOTHETICAL PRICE WHICH COULD HAVE BEEN CHARGED OR PAID. ITA NO.974/DEL/2012 7 9. COMING BACK TO THE FACTS OF THE INSTANT CASE, IT IS SEEN THAT THE ASSESSEE PAID INTEREST TO BANK OF NOVA SCOTIA @ 9% PER ANNUM, WHICH HAS NOT BEEN DISPUTED BY THE TPO. HE SIMPLY PICKED UP THE ABOVE EXTRACTED CLAUSE FROM THE SANCTION LETTER INDICATIN G THAT IN THE EVENT OF ANY DEFAULT OR UNTIMELY REPAYMENT BY THE ASSESSEE, PENAL INTEREST WILL BE CHARGED BY THE BANK @ 18.5%. THE ASSESSEES CATEGO RICAL STATEMENT BEFORE THE TPO THAT THERE WAS NO DEFAULT COMMITTED BY IT IN MAKING REPAYMENT LEADING TO PAYMENT OF INTEREST AT SUCH HI GHER RATE TO THE BANK, HAS REMAINED UNCONTROVERTED. IT MEANS THAT THE ASS ESSEE ACTUALLY PAID INTEREST @ 9% DURING THE YEAR AND NO EVENTUALITY OF PAYING INTEREST @ 18.5% DUE TO DEFAULT OR UNTIMELY REPAYMENT AROSE DU RING THE YEAR. SINCE THE CUP METHOD TALKS OF MAKING A COMPARISON O F THE INTERNATIONAL TRANSACTION WITH THE ACTUAL PRICE CHARGED OR PAID IN A COMPARABLE UNCONTROLLED TRANSACTION, WHICH IS 9% IN THE PRESEN T CASE, WE CANNOT ACCEPT THE VIEW POINT OF THE AUTHORITIES BELOW IN S UBSTITUTING THE HYPOTHETICAL PRICE OF 18.5%, WHICH WOULD HAVE BEE N PAID IN THE CASE OF AN EVENTUALITY, THAT NEVER OCCURED. AS THE SUBSTA NCE OF THE MATTER IS TO SEE THE ACTUAL PRICE PAID AND NOT ANY THEORETICAL O R IMAGINARY PRICE, WE ITA NO.974/DEL/2012 8 HOLD THAT THE ACTUAL INTEREST PAID BY THE ASSESSEE TO ITS BANK @ 9% PER ANNUM CONSTITUTES A COMPARABLE UNCONTROLLED TRANSAC TION. SINCE THE ASSESSEE ITSELF CHARGED INTEREST FROM ITS AE @ 9% O N THE AMOUNTS DUE, THE SAME MAKES UP ARMS LENGTH PRICE OF THE TRANSAC TION NOT WARRANTING ANY TRANSFER PRICING ADJUSTMENT ON THIS SCORE. WE, ERGO, ORDER FOR THE DELETION OF THIS ADDITION. 10. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 22.01.201 5. SD/- SD/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 22 ND JANUARY, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.