GDF Suez Energy India Private Limited, Bangalore V. ACIT, Bangalore

ITA 984/BANG/2010

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4353 (ITAT-BANGALORE)
• Duration Of Justice: 8 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 13-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BISWARANJAN SASMAL
• Assessee Lawyers: A SHANKAR
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary; Avoidance of tax; Capital Gains
• Section: 92C; 234B; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI G. MANJUNATHA , ACCOUNTANT MEMBER ITA NO. 984/BANG/2010 ASSESSMENT YEAR : 2002 - 03 ENGIE ENERGY AND SERVICES INDIA PVT. LTD., (FORMERLY GDF SUEZ ENERGY INDIA PVT. LTD.), SRINIVAS AND BADRI COUNSELS, 25/3, 2 ND FLOOR, LAVELLE ROAD, OPP. NITESH BUCKINGHAM GATE, ASHOK NAGAR, BANGALORE 560 001. PAN: AAACT 5405D VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(2), BANGALORE. A PP ELL ANT RESPONDENT APPELLANT BY : SHRI A. SHANKAR, ADVOCATE R E SPONDENT BY : SHRI BISWARA NJAN SASMAL, CIT DATE OF HEARING : 12 . 03.2019 DATE OF PRONOUNCEMENT : 15 .0 3 .201 9 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST AN ORDER DATED 24.06.2010 OF THE CIT(APPEALS)IV, BANGALORE. ORIGI NALLY THIS APPEAL TOGETHER WITH THE APPEAL BY THE REVENUE BEING ITA N O.1030/BANG/2010 AGAINST THE VERY SAME ORDER OF CIT(A) WAS HEARD AND DECIDED BY THIS TRIBUNAL BY ORDER DATED 25.7.2016. LATER THE ASSES SEE FILED M.P.NO.15/BANG/2017 & M.P.NO.165/BANG/2017 PRAYING THAT CERTAIN GROUNDS RAISED BY THE ASSESSEE WAS NOT ADJUDICATED BY THE TRIBUNAL AND ITA NO.984/BANG/2010 PAGE 2 OF 14 THOSE GROUNDS SHOULD BE HEARD AND ADJUDICATED. THE TRIBUNAL VIDE ORDER DATED 27.3.2017 & 13.9.2017 RESPECTIVELY DIRECTED T HAT GROUNDS NO.2,3, 6, 7 & 10 OF THE CONCISE GROUNDS OF APPEAL FILED BY TH E ASSESSEE WERE OMITTED TO BE ADJUDICATED BY THE TRIBUNAL AND ACCORDINGLY D IRECTED THAT THE APPEALS BE FIXED FOR HEARING FOR THE LIMITED PURPOSE OF ADJ UDICATING THE AFORESAID GROUNDS OF APPEAL. THIS IS HOW THE APPEAL BY THE A SSESSEE IS NOW FIXED FOR HEARING BEFORE US FOR THE LIMITED PURPOSE OF ADJUDI CATING GROUNDS NO.2,3, 6, 7 & 10 OF THE CONCISE GROUNDS OF APPEAL RAISED BY T HE ASSESSEE IN ITS APPEAL. 2. GROUNDS 2,3,6,7 & 10 OF THE CONCISE GROUNDS OF A PPEAL RAISED BY THE ASSESSEE READS THUS:- 2. THE LEARNED CIT(A) ERRED IN NOT HOLDING THAT THE ACIT ERRED IN MAKING A REFERENCE TO THE ADDITIONAL DIREC TOR OF INCOME- TAX (TRANSFER PRICING) BANGALORE (TPO), AND THAT THE ORDER OF THE TPO WAS WITHOUT JURISDICTION. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT IT IS NOT IN ACCORDANCE WITH LAW FOR THE TPO TO MAKE COMMENTS/AR GUMENTS ON THE TAXABILITY OF A TRANSACTION WHEN HER SCOPE WAS TO DEAL WITH TRANSFER PRICING MATTERS ONLY AND NOT BEYOND. 6. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE A PPELLANT WAS A CONDUIT ONLY FOR AVOIDANCE OF TAXES BY SUEZ T RACTEBEL S.A.(STSA). WITHOUT PREJUDICE, AFTER HOLDING THAT THE APPELLANT WAS A CONDUIT FOR THE AVOIDANCE OF TAX BY SUEZ TRAC ETEBEL S.A., THE LEARNED CIT(A) ERRED IN NOT DETERMINING THE TAXABLE CAPITAL GAINS IN THE HANDS OF THE APPELLANT AT RS.NIL. 7. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN HOLDI NG THAT THE ENTIRE TRANSACTION WAS STRUCTURED TO EVADE TAX ON T HE ALLEGED INCOME OF RS.32.02 CRORES BY SUEZ TRACETEBEL S.A. THE CIT(A) HAS FURTHER ERRED IN CONFIRMING THE ADDITION MADE B Y THE ASSESSING OFFICER OF A SUM OF RS.96.90 CRORES IN THE HANDS OF THE APPELLANT, WHICH IS THREE TIMES THE ALLEGED INCOME ITSELF. ITA NO.984/BANG/2010 PAGE 3 OF 14 10. THE LEARNED CIT(A) ERRED IN CONFIRMING THE LE VY OF INTEREST UNDER SEC.234B OF THE ACT UPON THE APPELLA NT AND FAILED TO APPRECIATE THAT THE INTEREST UNDER SECTION 234B OF THE ACT, IF ANY, OUGHT TO BE COMPUTED AT 1% PER MONTH, BEING THE RAT E PREVAILING ON THE DATE OF PASSING OF THE ASSESSMENT ORDER. HE FURTHER ERRED IN NOT HOLDING THAT INTEREST LEVIABLE, IF AT ALL, OUGH T TO BE COMPUTED WITH REFERENCE TO RETURNED INCOME AND FURTHER THE P ERIOD FOR WHICH THE SAME HAS BEEN LEVIED IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 3. THE ASSESSEE IS A 100 % SUBSIDIARY OF ONE M/S. T RACTEBEL S.A., BELGIUM [HEREINAFTER REFERRED TO AS TSA]. M/S. T SA AND A BUSINESS GROUP CALLED JINDAL GROUP HAD FLOATED A JOINT VENTURE C OMPANY CALLED JINDAL THERMAL POWER COMPANY LTD, (JTPCL IN SHORT). BOT H TSA AND JINDAL GROUP WERE HAVING 50% EQUITY SHARES SUCH IN THIS JO INT VENTURE COMPANY. SUCH 50% HOLDING WAS REPRESENTED BY 14,45,00,000 NO S. OF EQUITY SHARES OF FACE VALUE OF RS.10/- EACH. THERE WAS A SHAREHO LDERS AGREEMENT BETWEEN THE TWO JOINT VENTURE PARTNERS WHICH INTER ALIA STIPULATED MODE OF TRANSFER OF SHARE CAPITAL OF EITHER PARTY, MANNER O F MANAGEMENT OF THE JOINT VENTURE COMPANY, METHODOLOGY FOR REIMBURSEMENT OF E XPENDITURE INCURRED BY TSA AND METHODOLOGY FOR RESOLUTION OF DISPUTES. AFTER FLOATING THE JOINT VENTURE COMPANY, NAMELY JTPCL, M/S. TSA ENTERED INT O TWO AGREEMENTS ON 21.04.1994 WITH THEM, ONE FOR ENGINEERING ASSIST ANCE AND THE SECOND FOR LEGAL AND FINANCIAL ASSISTANCE. AS PER THE FIR ST AGREEMENT TSA WAS TO PROVIDE ENGINEERING ASSISTANCE TO JTPCL, IN RELATIO N TO A CONTRACT FOR ERECTION AND COMMISSIONING OF POWER PLANT AT TORANA GALLU, IN KARNATAKA STATE WHICH WAS TENDERED BY JTPCL. FOR SERVICES RE NDERED BY TSA, THE FEES THAT WAS REQUIRED TO BE PAID BY JTPCL WAS ALSO SPECIFIED. THE SECOND AGREEMENT WAS FOR LEGAL AND FINANCIAL ASSIST ANCE. AS PER THIS AGREEMENT, TSA WAS TO PAY THE PROFESSIONAL FEES OF A FINANCIAL ADVISOR NAMED M/S. HERBERTH SMITH (IN SHORT HS) AND SUCH LEGAL FEES PAID BY TSA TO HS WAS TO BE REIMBURSED BY JTPCL. THE POWER PROJECT WHICH ITA NO.984/BANG/2010 PAGE 4 OF 14 JTPCL HAD CONTRACTED WAS EVENTUALLY ERECTED AND COM MISSIONED BY M/S. JTPCL. TSA RAISED INVOICE ON M/S. JTPCL FOR PAYMENT AGAINST ENGINEERING SERVICES RENDERED BY THEM AND ALSO FOR REIMBURSEMEN T OF LEGAL AND FINANCIAL CHARGES PAID BY IT TO THE ADVISORS. 4. DISPUTES AROSE BETWEEN TSA AND JINDAL GROUP ON T HE ABOVE BILLINGS DONE BY M/S. TSA ON M/S. JTPCL. TSA INITIATED ARBIT RATION PROCEEDINGS AGAINST JINDAL GROUP BEFORE THE INTERNATIONAL CHAMB ER OF COMMERCE, ALLEGING VIOLATION OF SHAREHOLDERS AGREEMENT, ENGI NEERING ASSISTANCE AGREEMENT AND LEGAL AND FINANCIAL AGREEMENT. JINDA L GROUP ALSO FILED COUNTER CLAIMS BEFORE THE INTERNATIONAL CHAMBER OF COMMERCE, FOR ALLEGED DELAY ON THE PART OF TSA IN RENDERING SERVICES AGRE ED BY THEM. AS PER JINDAL GROUP, AS A RESULT OF THE DELAY IT SUFFERED LOSSES. THEREAFTER A SETTLEMENT WAS REACHED BETWEEN THE WARRING JOINT VE NTURE PARTNERS ON 13 TH SEPTEMBER, 2001. THROUGH THIS SETTLEMENT AGREEMENT, JINDAL GROUP AGREED TO BUY OUT THE SHARES HELD BY TSA IN JTPCL. IN LIE U, M/S. TSA WAS TO RECEIVE THE SETTLEMENT AMOUNT AGREED BY THE PARTIES . 5. ASSESSEE, A SUBSIDIARY OF M/S. TSA IN INDIA WAS APPOINTED TO ACT AS AN INTERMEDIARY FOR THE SALE OF SHARES HELD BY M/S. TSA TO JINDAL GROUP. AMOUNT AGREED BY THE PARTIES AS VALUE OF THE SHARES WAS USD 55 MILLION (WHICH WAS LATER REDUCED TO USD 50.5 MILLION, EQUIV ALENT TO INDIAN RS.261,03,00,000/-. ASSESSEE AFTER ACQUIRING THE S HARES OF M/S. JTPCL FROM M/S. TSA WAS TO TRANSFER SUCH SHARES TO COMPAN IES IN THE JINDAL GROUP AND CERTAIN FINANCIAL INSTITUTIONS, RECOUPING THE COST INCURRED FOR ACQUIRING SUCH SHARES. 6. ON 14.09.2001 ASSESSEE AND ITS PRINCIPAL TSA FIL ED AN APPLICATION BEFORE THE RBI SEEKING APPROVAL FOR TRANSFER OF SHA RES OF 14,45,00,000/- EQUITY SHARES TO THE ASSESSEE COMPANY. AS PER THIS APPLICATION, ASSESSEE, ITA NO.984/BANG/2010 PAGE 5 OF 14 THE BUYER OF THE SHARES WAS TO PAY RS.18.06 PER SH ARE TO M/S. TSA. REASON CITED FOR THE SALE WAS TSAS DESIRE TO EXIT THE JOINT VENTURE. FOR JUSTIFYING THE SALE PRICE OF RS.18.06 PER SHARE, VA LUATION REPORTS OF ONE M/S. LODHA & CO., CAS, AND ONE M/S. A. K. JHUNJHUNWALA & CO., WERE FILED. THESE EXPERTS HAD VALUED ONE EQUITY SHARE OF JTPCL AT RS.28 AND RS.28.52 PER SHARE RESPECTIVELY. METHODOLOGY ADOPT ED BY THEM FOR VALUATION WAS CAPITALISATION OF FUTURE PROFITS. TR ANSFER OF SHARES WAS APPROVED BY RBI ON 25.09.2001. ACCORDINGLY, TSA TRA NSFERRED 14,45,00,000 EQUITY SHARES TO THE ASSESSEE. THE AC TUAL PRICE WAS REVISED IN DECEMBER 2001 TO USD 50.50 MILLION, THROUGH ANOT HER MULTI-PARTY AGREEMENT DT.12TH DECEMBER 2001 BETWEEN TSA AND JIN DAL GROUP. PARTIES TO THIS AGREEMENT WERE AS UNDER : ITA NO.984/BANG/2010 PAGE 6 OF 14 7. ASSESSEE AFTER ACQUIRING 14,45,00,000 EQUITY SHA RES IN JTPCL FROM TSA FOR USD 50.50 MILLION WAS IN TURN, BY VIRTUE OF THE MULTI-PARTY AGREEMENT, REQUIRED TO SELL IT TO THE FOLLOWING PAR TIES FOR THE CONSIDERATION MENTIONED AGAINST EACH : 8. WHEN THE SHARES WERE TRANSFERRED BY M/S. TSA TO THE ASSESSEE, ASSESSEE COLLECTED THE ABOVE SUM FROM THE ABOVE PAR TIES AND PAID IT TO M/S. TSA. IN TURN, IT TRANSFERRED THE SHARES TO TH E RESPECTIVE PARTIES. 9. ASSESSEE IN ITS RETURN OF INCOME FILED FOR ASSES SMENT YEAR 2002-03 DECLARED LONG-TERM CAPITAL GAINS (LTCG) OF RS.49,41 ,79,382/- FROM THE ACQUISITION AND TRANSFER OF SHARES OF M/S. JTPCL. FOR WORKING OUT THIS LTCG, THE ASSESSEE ADOPTED THE ORIGINAL COST OF RS. 10/- PER SHARE, WHICH WAS THE FACE VALUE PAID BY THE RESPECTIVE PARTIES W HEN THEY FORMED THE ITA NO.984/BANG/2010 PAGE 7 OF 14 JOINT VENTURE COMPANY, JTPCL. ASSESSEE INDEXED THE COST TO RS.192,03,52,868/-, WHILE WORKING OUT THE LTCG. ASS ESSEE CLAIMED EXEMPTION U/S.10(23G) OF THE ACT FOR SUCH AMOUNT. AS PER THE ASSESSEE BY VIRTUE OF SECTION 49(1)(III) OF THE ACT, THE COST O F ACQUISITION OF AN ASSET BY A PARENT COMPANY WAS TO BE TAKEN AS COST OF ACQUISITI ON FOR THE SUBSIDIARY. FURTHER AS PER THE ASSESSEE BY VIRTUE OF EXPLANATIO N (1)(B) TO SECTION 2(42A) OF THE ACT, WHERE AN ASSET WAS TRANSFERRED B Y A HOLDING COMPANY TO ITS WHOLLY OWNED SUBSIDIARY AND IF THE SUBSIDIARY C OMPANY WAS AN INDIAN COMPANY, THE PERIOD OF HOLDING OF THE ASSET BY THE HOLDING COMPANY WAS ALSO TO BE RECKONED FOR DETERMINING THE NATURE OF T HE CAPITAL GAINS. 10. SINCE THE TRANSFER OF SHARES OF JTPCL BY M/S. T SA TO ASSESSEE WAS AN INTERNATIONAL TRANSACTION, REFERENCE WAS MADE BY THE AO TO THE TRANSFER PRICING OFFICER (TPO) FOR FIXING THE ARMS LENGTH PR ICE (ALP) OF THE VALUE OF SHARES ACQUIRED BY THE ASSESSEE. THE TPO DETERMINE D THE ALP FOR PURCHASE OF SHARES BY THE ASSESSEE FROM M/S.TSA AT RS.10/-. ACCORDING TO HIM, THUS THE ALP FOR 14,45,00,000 EQUITY SHARES CA ME TO RS.144,50,00,000/-. THE PRICE PAID BY THE ASSESSEE AT RS.16.71 PER SHARE CAME TO 241,45,32,250/- (EQUIVALENT TO USD 50.50 MI LLION). THUS, ACCORDING TO THE TPO ASSESSEE HAD PAID AN EXCESS AM OUNT OF RS.96,95,32,250/- OVER THE FAIR VALUE OF THE SHARES . HE RECOMMENDED AN ADJUSTMENT OF THE ABOVE AMOUNT IN HIS ORDER U/S.92C A OF THE ACT. TPO ALSO MADE AN OBSERVATION THAT ASSESSEES CLAIM OF EXEMPT ION U/S.10(23G) OF THE ACT, MAY NOT BE CORRECT SINCE THE SAID SECTION ONLY EXEMPTED INCOME ARISING OUT OF LONG-TERM INVESTMENT AND THE ASSESSE E HAVING NOT HELD THE SHARES EVEN FOR ONE DAY, THE HOLDING COULD NOT BE C ONSIDERED AS INVESTMENT. 11. THE VIEW OF THE TPO WAS CONFIRMED BY THE CIT(A) AND ALSO BY THE TRIBUNAL IN ITS ORDER REFERRED TO IN THE FIRST PARA GRAPH OF THIS ORDER. ITA NO.984/BANG/2010 PAGE 8 OF 14 12. WITH THE ABOVE BACKGROUND OF FACTS, WE SHALL NO W DEAL WITH THE CONCISE GROUNDS WHICH NEED TO BE ADJUDICATED BY THE TRIBUNAL PURSUANT TO THE ORDER IN MP NO.15 & 165/BANG/2017. GR.NO.2 & 3 OF THE CONCISE GROUNDS OF APPEAL WHICH REQUIRES TO BE ADJUDICATED IS WITH REGARD TO THE VALIDITY OF REFERENCE BY THE AO TO THE TPO FOR DETE RMINATION OF ALP OF THE INTERNATIONAL TRANSACTION AND THE ACTION OF THE TPO IN MAKING COMMENTS ABOUT THE TAXABILITY OF THE TRANSACTION OF SALE OF SHARES BY THE ASSESSEE. 13. AS FAR AS THE VALIDITY OF REFERENCE MADE BY THE AO TO THE TPO IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THE BASIS FOR MAKING REFERENCE TO THE TPO WAS NOT COMMUNICATED TO THE ASSESSEE AND NO OPPORTUNITY OF BEING HEARD WAS GIVEN TO THE ASSE SSEE BEFORE MAKING SUCH REFERENCE. IT WAS SUBMITTED THAT THE AO OR TH E TPO DID NOT SPELL OUT THE REASON AS TO WHY THE DETERMINATION OF ALP IS BE ING RESORTED TO IN THE CASE OF THE ASSESSEE. IT WAS SUBMITTED THAT THE RE LIANCE PLACED BY THE REVENUE AUTHORITIES ON THE DECISION OF THE SPECIAL BENCH IN THE CASE OF AZTEC SOFTWARE AND TECHNOLOGY SERVICES PVT. LTD. VS . ACIT 107 ITD 141(SB)(BANGALORE) WAS ERRONEOUS. IT WAS ALSO SUBMITTED THAT AMENDMENT MADE TO SEC.92CA(4) OF THE ACT BY THE FIN ANCE ACT, 2007 IMPLIES THAT THE AO WAS BOUND TO GIVE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE BEFORE MAKING REFERENCE TO THE TPO. IT WA S ALSO CONTENDED THAT THE AO PASSED THE ORDER GIVING EFFECT TO TPOS ORDE R WITHOUT PROVIDING PROPER OPPORTUNITY TO THE ASSESSEE. THE TPO PASSED ORDER ON 21.3.2005 WHILE THE AO AFTER ONE HEARING PASSED HIS ORDER ON 28.3.2005. 14. ON THE ABOVE ARGUMENTS, WE FIND THAT THE CIT(A) HAS RIGHTLY HELD THAT THERE IS NO PROVISION IN THE ACT WHICH MANDATE S GIVING OF ANY OPPORTUNITY TO THE ASSESSEE BEFORE MAKING REFERENCE TO THE TPO BY THE AO OR COMMUNICATING REASONS FOR MAKING SUCH REFERENCE. THE SPECIAL BENCH OF THE ITAT IN THE CASE OF AZTEC SOFTWARE (SUPRA) HAS TAKEN THE VIEW THAT ITA NO.984/BANG/2010 PAGE 9 OF 14 THERE IS NO REQUIREMENT TO HEAR THE ASSESSEE OR REC ORD REASONS BEFORE MAKING REFERENCE TO TPO. SEC.92CA(4) OF THE ACT, AS IT STOOD PRIOR TO AMENDMENT BY THE FINANCE ACT, 2007 READ AS FOLLOWS: - 92CA (4) ON RECEIPT OF THE ORDER UNDER SUB-SECTION (3), THE ASSESSING OFFICER SHALL PROCEED TO COMPUTE THE TOTA L INCOME OF THE ASSESSEE UNDER SUB-SECTION (4) OF SECTION 92C HAVIN G REGARD TO THE ARM'S LENGTH PRICE DETERMINED UNDER SUB-SECTION (3) BY THE TRANSFER PRICING OFFICER. 15. THE AO ON RECEIPT OF A REPORT FROM THE TPO HAD POWER TO DISREGARD TO THE ALP DETERMINED BY THE TPO. HOWEVER WITH EF FECT FROM 1 ST JUNE, 2007, SECTION 92CA(4) HAS UNDERGONE A CHANGE VIDE S ECTION 33 OF THE FINANCE ACT, 2007 WHEREBY IT HAS BEEN LAID DOWN THA T THE ASSESSING OFFICER IS BOUND TO PASS AN ORDER IN CONFORMITY WITH THE AL P DETERMINED BY THE TPO. AMENDED SECTION 92CA(4) READS AS UNDER:- '92CA(4) ON RECEIPT OF THE ORDER UNDER SUB-SECTION (3), THE ASSESSING OFFICER SHALL PROCEED TO COMPUTE THE TOTA L INCOME OF THE ASSESSEE UNDER SUB-SECTION (4) OF SECTION 92C IN CONFORMITY WITH THE ARM'S LENGTH PRICE AS SO DETERMINED BY THE TRA NSFER PRICING OFFICER. (EMPHASIS SUPPLIED) 16. THE AFORESAID AMENDMENT BY NO STRETCH OF IMAGIN ATION CAN BE SAID TO LAY DOWN A CONDITION THAT AN OPPORTUNITY OF HEAR ING HAS TO BE AFFORDED BY THE AO BEFORE MAKING REFERENCE TO THE TPO. THE ASS ESSEE HAS OPPORTUNITY BEFORE TPO TO PUT FORTH HIS CASE AND TH E ALL HIS GRIEVANCES CAN BE PUT FORTH BEFORE TPO. GR.NO.2 RAISED BY THE ASS ESSEE IS THEREFORE HELD TO BE WITHOUT ANY MERIT. ITA NO.984/BANG/2010 PAGE 10 OF 14 17. AS FAR AS GROUND NO.3 RAISED BY THE ASSESSEE IS CONCERNED, THE ARGUMENT ADVANCED IS WITH REGARD TO THE COMMENTS MA DE BY THE TPO IN HIS ORDER REGARDING THE ASSESSEES CLAIM FOR EXEMPT ION US.10(23G) OF THE ACT. THIS COMMENT OF THE TPO IS QUALIFIED BY THE T PO HIMSELF IN HIS ORDER BY STATING THAT IT IS BEYOND THE SCOPE OF REFERENCE TO HIM U/S.92CA OF THE ACT. IT IS THE PLEA OF THE ASSESSEE THAT THE TPOS ORDER INFLUENCED THE MIND OF THE AO IN HIS CONCLUSION THAT THE ASSESSEE WAS N OT ENTITLED TO EXEMPTION U/S.10(23G) OF THE ACT. 18. WE FIND NO MERITS IN THIS ARGUMENT ADVANCED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THE AO IN HIS ORDER HAS GIVEN HI S OWN REASONS FOR DENYING EXEMPTION U/S.10(23G) OF THE ACT. IT CANNO T THEREFORE BE SAID THAT THE AO WAS INFLUENCED BY THE OBSERVATIONS OF THE SU PERIOR OFFICER (TPO) IN THE ORDER PASSED U/S.92CA OF THE ACT. GROUND NO.3 RAISED BY THE ASSESSEE IS THEREFORE WITHOUT ANY MERIT. 19. AS FAR AS GROUND NOS. 6 & 7 RAISED BY THE ASSES SEE IS CONCERNED, THE SAME IS IN RELATION TO THE ACTION OF THE REVENU E AUTHORITIES IN TERMING THE ASSESSEE AS A MERE INTERMEDIARY (CONDUIT) FOR AVOID ANCE OF TAXES BY TSA AND HIS FURTHER CONCLUSION THAT THE ENTIRE TRANSACT ION WAS STRUCTURED TO EVADE TAXES. THE FURTHER CONTENTION OF THE ASSESSE E IS THAT IF THE ASSESSEE IS REALLY A CONDUIT THEN THE TRANSACTION OF SALE OF SHARES OF JTCPL HAS TO BE CONSTRUED AS A SALE BY TSA TO THE ULTIMATE TRANSFER EES AND IN SUCH CASE, THERE IS NO INCOME WHICH CAN BE ASSESSED IN THE HAN DS OF THE ASSESSEE. ON THIS ASPECT THE CIT(A) CAME TO THE CONCLUSION TH AT THE ENTIRE STRUCTURE OF TRANSACTION OF SALE OF SHARES BY M/S.TSA THROUGH THE ASSESSEE WAS TO AVOID PAYMENT OF RS.32,02,67,019/- WHICH WAS FEES F OR TECHNICAL SERVICES PAYABLE BY JTPCL WHICH WAS GIVEN UP BY M/S.TSA IN T HE SETTLEMENT PURSUANT TO WHICH SHARES OF JTPCL WERE ULTIMATELY T RANSFERRED BY M/S.TSA. HE HELD AS FOLLOWS [PAGE-24 OF CIT(A)S O RDER] :- ITA NO.984/BANG/2010 PAGE 11 OF 14 THE APPELLANT HAS BEEN HELD TO BE ONLY A CONDU IT FOR AVOIDANCE OF TAXES BY ITS PARENT COMPANY IN THE ENT IRE TRANSACTION. IT IS NOT THE CASE OF THE AO/TPO THAT THE APPELLANT IS A SHELL OR FICTITIOUS ENTITY. THUS, THE TRANSACTION UNDER THE SETTLEMENT AGREEMENT CANNOT BE TREATED AS BETWEEN TSA AND THE ULTIMATE BUYERS BY DISREGARDING EXISTENCE OF THE APPELLANT W HICH WAS VERY MUCH A PARTY TO THE SAID AGREEMENT. IN VIEW OF THI S, THE SUM OF RS.32,02,67,019/- INCLUDED IN THE SALE CONSIDERATIO N OF SHARES RECEIVED BY THE APPELLANT (REPRESENTING FEES FOR T ECHNICAL SERVICES PAYABLE TO TSA BY JTPCL AND SUBSTANTIVELY ASSESSED IN THE HANDS OF TSA) IS TO BE ASSESSED PROTECTIVELY IN THE HANDS OF THE APPELLANT. THE AO MAY ACCORDINGLY; RE-COMPUTE TOTA L INCOME OF THE APPELLANT WHILE GIVING EFFECT TO THIS ORDER. I N CASE IT IS FINALLY HELD THAT THE SAID INCOME COULD NOT BE BROUGHT TO T AX IN THE HANDS OF TSA, SUCH INCOME WILL BE LIABLE TO BE CHARGED TO TAX SUBSTANTIVELY IN THE HANDS OF THE APPELLANT. .. 20. THE CIT(A) HAS DEALT WITH SIMILAR GROUND RAISED BY THE ASSESSEE BEFORE HIM IN PARAGRAPH 7.3 TO 7.3.3 OF HIS ORDER. IN SHORT, THE REASON GIVEN BY THE CIT(A) IS THAT THE ENTIRE TRANSACTION OF SAL E OF SHARES BY M/S.TSA THROUGH THE ASSESSEE (INCLUDING THE SETTLEMENT) WAS ARRANGED TO AVOID TAXES LEGITIMATELY PAYABLE BY M/S.TSA IN INDIA AND THAT IS THE REASON WHY THE DETERMINATION OF ALP OF THE TRANSACTION OF PURC HASE OF SHARES OF JTPCL BY THE ASSESSEE FROM M/S.TSA WAS REQUIRED TO BE DET ERMINED BY THE TPO. THE EXPRESSION CONDUIT WAS USED IN THE CONTEXT OF T AX EVASION. THAT DOES NOT MEAN THAT THE ASSESSEE IS A PASS-THROUGH ENTITY . AS HELD BY THE CIT(A), THE TRANSACTION OF PURCHASE AND SALE OF SHA RES BY THE ASSESSEE WAS REAL AND THEREFORE THE TAX INCIDENCE ARISING FR OM SUCH TRANSACTIONS WILL HAVE TO BE GIVEN EFFECT TO. WE THEREFORE CONCUR WI TH THE VIEW OF THE CIT(A) ON THIS ASPECT. THEREFORE, THERE IS NO MERIT IN GR OUND NOS. 6 & 7 RAISED BY THE ASSESSEE. ITA NO.984/BANG/2010 PAGE 12 OF 14 21. THE NEXT ASPECT WHICH REQUIRES ADJUDICATION IS GROU ND NO.10 WHICH IS WITH REGARD TO THE RATE AT WHICH INTEREST HAS TO BE LEVIED U/S.234B OF THE ACT. THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSES SEE WERE LIMITED ONLY WITH REFERENCE TO THE RATE AT WHICH INTEREST SHOULD BE LEVIED U/S.234B OF THE ACT. THE AO COMPLETED THE ASSESSMENT ON 28.3.2005. AS PER SECTION 234B, AS IT EXISTED PRIOR TO 8.9.2003, THE RATE OF INTEREST WAS TO BE CHARGED AT A HIGHER RATE THAN 1% AND W.E.F. 8.9.2003 THE RA TE OF TAX WAS 1%. THE AO CHARGED INTEREST U/S.234B AT A HIGHER RATE FOR T HE PERIOD PRIOR TO 8.9.2003. THE PLEA OF THE ASSESSEE IS THAT SINCE T HE ORDER OF ASSESSMENT WAS PASSED ON 28.3.2005 THE RATE OF TAX TO BE CHARG ED SHOULD BE ONLY 1% FOR THE ENTIRE PERIOD EVEN PRIOR TO 8.9.2003. THE PLEA OF THE ASSESSEE IS SUPPORTED BY DECISION OF MADRAS HIGH COURT IN THE C ASE OF ACIT VS, MADURA SOUTH INDIA CORPORATION (P) LTD. 110 ITR 322 (MADRAS) . IN THE AFORESAID CASE, WHICH RELATED TO AY 1967-68, THE AO COMPLETED THE ASSESSMENT O N 30-11-1968. THE ASSESSEE HAD PAID ADVANCE TAX IN EXCESS OF THE TAX ULTIMATELY ASSESSED. CONSEQUENTLY, THE ASSESSEE BECAME ENTITLED TO INTEREST ON THE SAID EXCESS AMOUNT UNDE R SECTION 214. THE ITO CALCULATED THE INTEREST AT 6 PER CENT PER ANNUM FOR THE PERIOD FROM 1-4-1967 TO 30-9-1967, AND AT 9 PER CENT THEREAFTER AS PER T HE AMENDMENT MADE BY THE TAXATION LAWS (AMENDMENT) ACT, 1967 WITH EFFECT FROM 1-10-1967. THE ASSESSEE FILED AN APPLICATION UNDER SECTION 154 REQ UESTING ITO TO RECTIFY HIS ORDER BY CALCULATING INTEREST AT 9 PER CENT FOR THE ENTIRE PERIOD. THE ITO DECLINED TO MAKE ANY RECTIFICATION. THE AAC ALLOWED THE CLAIM OF THE ASSESSEE WHICH WAS CONFIRMED BY THE TRIBUNAL. ON FU RTHER REFERENCE AT THE INSTANCE OF THE REVENUE, THE HONBLE MADRAS HIGH CO URT HELD THAT THE LIABILITY TO PAY INTEREST ON THE PART OF THE GOVERN MENT AND CORRESPONDINGLY THE RIGHT OF THE ASSESSEE TO RECEIVE INTEREST ARISE S ONLY WHEN THE ASSESSMENT IS COMPLETED. SO LONG AS THE ASSESSMENT HAS NOT BEEN COMPLETED, IT WILL NOT BE POSSIBLE TO FIND OUT WHET HER THE ADVANCE TAX PAID ITA NO.984/BANG/2010 PAGE 13 OF 14 BY THE ASSESSEE IS IN EXCESS OF THE ULTIMATE TAX PA YABLE BY HIM OR FALLS SHORT OF THAT TAX. CONSEQUENTLY, THE PROVISIONS OF SECTION 214 AS IN FORCE ON THE DATE WHEN THE ASSESSMENT IS COMPLETED WILL BE T HE ONLY PROVISION THAT WILL BE APPLICABLE WITH REGARD TO PAYMENT OF INTERE ST ON THE SAID EXCESS AMOUNT. THE HONBLE COURT FURTHER HELD THAT IF THE INTENTION OF THE LEGISLATURE WAS TO PAY INTEREST AT 6 PER CENT, FOR THE PERIOD ANTERIOR TO 1-10-1967, AND TO PAY INTEREST AT 9 PER CENT ONLY F OR THE PERIOD ON OR AFTER 1-10-1967, IT WOULD HAVE MADE SPECIFIC PROVISION IN THIS BEHALF. THE HONBLE COURT THEREFORE HELD THAT TRIBUNAL WAS RIGH T IN HOLDING THAT THE INCREASED RATE OF INTEREST PAYABLE UNDER THE PROVIS IONS OF SECTION 214, AS AMENDED BY THE TAXATION LAWS (AMENDMENT) ACT, 1967, AT 9 PER CENT WAS APPLICABLE FOR THE PERIOD FROM 1-4-1967 TO 30-9-196 7. THE AFORESAID DECISION SUPPORTS THE PLEA OF THE ASSESSEE. THE AO IS ACCORDINGLY DIRECTED TO CHARGE INTEREST U/S/234B OF THE ACT AT 1% AS CLAIMED BY THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 22. THE GROUNDS NO. 2, 3, 6, 7 & 10 ARE DECIDED ACC ORDINGLY AS GIVEN IN THIS ORDER. PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF MARCH, 2019. SD/- SD/- ( G. MANJUNATHA ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 15 TH MARCH, 2019. / D ESAI S MURTHY / ITA NO.984/BANG/2010 PAGE 14 OF 14 COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. C I T(A ) 5. DR, ITAT, BANGALORE. 6. GUAR D FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.