Appeal Details
Counselvise Citation
[2021] 107 COUNSELVISE.COM (IT) 4178 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 8 month(s) 26 day(s)
Appellant
Respondent
Appeal Type
Income Tax (Search & Seizure) Appeal
Pronouncement Date
05-10-2021
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
D
Assessment Year
2012-2013
Appeal Filed On
09-01-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI WASEEM AHMED, ACCOUNTANT MEMBER) ( THROUGH VIRTUAL COURT ) IT(SS)A. NOS: 20, 21, 22/AHD/2018 & ITA NO. 1291/AHD/2018 (ASSESSMENT YEARS: 2011-12 TO 2013-14 & 2014-15) M/S. RUBAMIN LIMITED 4 TH FLLOR, BUILDING ARK, SHREE KRISHNA INDUSTIRAL ESTATE, OPP BIDC, GORWA, BARODA-390016 V/S DEPUTY COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE-2,BARODA (APPELLANT) (RESPONDENT) ITA. NO: 2929/AHD/2014 (ASSESSMENT YEARS: 2009-10) M/S. RUBAMIN LIMITED 4 TH FLLOR, BUILDING ARK, SHREE KRISHNA INDUSTIRAL ESTATE, OPP BIDC, GORWA, BARODA-390016 V/S THE A.C.I.T., CIRCLE-4, BARODA (APPELLANT) (RESPONDENT) ITA. NO: 2909/AHD/2014 (ASSESSMENT YEARS: 2009-10) IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 2 THE D.C.I.T., CENTRAL CIRCLE-2, BARODA V/S M/S. RUBAMIN LIMITED 4 TH FLLOR, BUILDING ARK, SHREE KRISHNA INDUSTIRAL ESTATE, OPP BIDC, GORWA, BARODA-390016 (APPELLANT) (RESPONDENT) PAN: AAACR8758H APPELLANT BY : SHRI S.N. SOPARKAR, SR. ADVOCATE, & SHRI MILIN MEHTA, BHAVIN MARFATIA SHRI NIMIT MEHTA & SHRI ARPIT JAIN, AR RESPONDENT BY : SHRI MAHESH SHAH, CIT/DR & SHRI MOHAD USMAN, CIT/DR ()/ ORDER DATE OF HEARING : 05 -08-2021 DATE OF PRONOUNCEMENT : 05 -10-2021 PER BENCH ITSS 20/AHD/2018 FOR THE AY 2011-12 1. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL VALIDITY OF THE ASSESSMENT ORDER: 1 THE ASSESSMENT ORDER PASSED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX- CENTRAL CIRCLE-2, VADODARA ('THE AO') IS INVALID AND VOID-AB-INITIO AS IT IS BARRED BY TIME. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 3 2 THE ASSESSMENT ORDER PASSED BY THE LEARNED AO IS INVALID AND VOID-AB-INITIO AS IT IS NOT PASSED IN ACCORDANCE WITH THE DIRECTION GIVEN BY THE LEARNED DISPUTE RESOLUTION PANEL-2, MUMBAI ('THE DRP'). NO INCRIMINATING MATERIAL FOUND: 3 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW IN MAKING ADDITIONS IN THE ASSESSMENT U/S 153 A OF THE INCOME TAX ACT, 1961 ('THE ACT'), DESPITE THE FACT THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE SEARCH. ADDITION IN RESPECT OF RUBAMIN LTD.: 4 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW IN TAXING THE PROFIT OF SUBSIDIARY COMPANY OF THE APPELLANT VIZ. RUBAMIN FZC SITUATED IN UAE, IN THE HANDS OF THE APPELLANT. 5 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW BY MAKING ADDITION OF RS. 27,05,11,474 BY WAY OF TAXING THE PROFIT OF RUBMAIN FZC IN THE HANDS OF THE ASSESSEE BY HOLDING RUBAMIN FZC AS A COLOURABLE DEVICE/SHELL ENTITY CREATED SOLELY FOR THE PURPOSE OF SHIFTING OF THE APELLANT'S PROFIT OUT OF INDIA WITHOUT ANY BASIS. 6 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW BY TAXING THE PROFIT EARNED BY RUBAMIN FZC FROM AN ACTIVITY WHICH HAS NO NEXUS WITH INDIA AND THUS THE AO HAS CLEARLY EXCEEDED HIS JURISDICTION. 7 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW IN RELYING ON THE DOCUMENTS AND PAPERS WHICH ARE WHOLLY IRRELEVANT FOR THE YEAR UNDER CONSIDERATION AND ALSO FOR COMING TO THE ALLEGED CONCLUSION. DISALLOWANCE OF FRAUD LOSS INCURRED BY RUBAMIA LTD. 8 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW BY NOT ALLOWING DEDUCTION OF RS. 1,50,87,623 IN RESPECT OF FRAUD LOSS INCURRED BY RUBAMIN FZC BY HOLDING THAT SUCH LOSS IS NOT CRYSTALLISED DURING THE AY 2011-12. IN THE FACTS AND CIRCUMSTANCES, IF THE PROFITS OF RUBAMIN FZC ARE TO BE INCLUDED IN THE HANDS OF RUBAMIN LIMITED, THE SAID AMOUNT REPRESENTS LOSS INCURRED IN THE COURSE OF BUSINESS BY WAY OF FRAUD CONDUCTED BY THE EMPLOYEE AND ALLOWABLE U/S. 28 / 37(1) OF THE ACT. 9 THE APPELLATE SUBMITS THAT IF THE SAID LOSS IS NOT ALLOWED ON THE GROUNDS THAT IT IS NOT CRYSTALLISED DURING AY 2011-12, A DIRECTION MAY PLEASE BE ISSUED TO THE AO IN THE YEAR IN WHICH IT IS CRYSTALLISED. TRANSFER PRICING ADJUSTMENT: 10 THE LEARNED AO ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE DRP BY MAKING TRANSFER PRICING ADDITION FOR PURCHASE OF COBALT OF RS. 84,47,422 FROM RUBAMIN FZC IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 4 U/S 92 OF THE ACT, WHERE THE DRP HAS SPECIFICALLY DELETED THE SAID ADDITION IN ITS DIRECTIONS. 11 THE LEARNED AO ERRED IN FACT AND IN LAW IN NOT FOLLOWING THE DIRECTIONS OF THE DRP BY MAKING ADDITION ON ACCOUNT OF TRANSFER PRICING IN RESPECT OF CORPORATE GUARANTEE COMMISSION OF RS. 1,47,85,930 TO THE TOTAL INCOME OF THE ASSESSEE U/S 92 OF THE ACT, WHERE THE DRP HAS SPECIFICALLY DIRECTED TO MAKE THE TRANSFER PRICING ADDITION ONLY ON A PROTECTIVE BASIS. 12 THE LEARNED AO ERRED IN FACT AND IN LAW IN MAKING ADDITION ON ACCOUNT OF TRANSFER PRICING IN RESPECT OF CORPORATE GUARANTEE COMMISSION OF RS. 1,47,85,930 TO THE TOTAL INCOME OF THE ASSESSEE U/S 92 OF THE ACT. SALES TAX SUBSIDY TREATED REVENUE IN NATURE: 13 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW IN TREATING THE SALE TAX SUBSIDY AS REVENUE IN NATURE AND THEREBY MAKING AN ADDITION OF RS. 1,71,68,570. 14 WITHOUT PREJUDICE TO ABOVE, THE LEARNED AO ERRED IN FACT AND IN LAW IN NOT ALLOWING DEDUCTION U/S 80IB ON THE ADDITION MADE ON ACCOUNT OF SALES TAX SUBSIDY BEING TREATED AS REVENUE IN NATURE. ADDITION U/S 50C: 15 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW IN MAKING AN ADDITION OF RS. 1,45,65,207 BY INVOKING SECTION 50C OF THE ACT. 16 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW IN COMPUTING THE VALUE OF THE LANDS ON AD HOC BASIS. 17 WITHOUT PREJUDICE TO ABOVE, THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW IN NOT REFERRING THE VALUATION TO THE VALUATION OFFICER IN TERMS OF SECTION 50C(2) OF THE ACT, DESPITE THE FACT THAT THE APPELLANT HAD OBJECTED TO THE VALUE ADOPTED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. OTHER GROUNDS: 18 THE LEARNED AO ERRED IN FACT AND IN LAW IN CHARGING INTEREST U/S 234B OF THE ACT. 19 THE LEARNED AO ERRED IN FACT AND IN LAW IN CHARGING INTEREST U/S 234C OF THE ACT. 20 THE LEARNED AO ERRED IN FACT AND IN LAW IN INITIATING PENALTY PROCEEDINGS U/S 271(L)(C)OF THEACT. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 5 21 YOUR APPELLANT CRAVES A RIGHT TO ADD TO OR AMEND, ALTER, SUBSTITUTE, DELETE OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL. 2. THE ASSESSEE IN GROUND NOS. 1 AND 2 HAS CHALLENGED THE VALIDITY OF ASSESSMENT ORDER ON THE REASONING THAT IT IS BARRED BY TIME. 3. AT THE OUTSET WE NOTE THE LEARNED AR BEFORE US SUBMITTED THE ISSUE RAISED IN THESE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE ISSUE RAISED IN GROUND NOS. 4 TO 7 OF THIS APPEAL. IT WAS THE CONTENTION OF THE LEARNED AR THAT IF THE ISSUE RAISED IN GROUNDS NOS. 4 TO 7 IS HELD AGAINST THE ASSESSEE I.E. PROFIT OF RUBAMIN FZC BE MERGED WITH THE ASSESSEES PROFIT BY TREATING RUBAMIN FZC AS PART OR ARM OF ASSESSEE, THEN THE ASSESSMENT SHOULD BE BARRED BY TIME AS IN SUCH SCENARIO THE PROVISION OF TP WILL NOT APPLY. ACCORDINGLY, THE AO WOULD NOT HAVE THE EXTENDED PERIOD OF TIME FOR COMPLETING THE ASSESSMENT. AT THIS JUNCTURE IT IS IMPORTANT TO HIGHLIGHT THE FACT THAT WE HAVE DECIDED THE ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 4 TO 7 OF THE APPEAL IN ITS (THE ASSESSEE) FAVOUR VIDE PARAGRAPH NUMBER 47 TO 65 OF THIS ORDER. IT WAS HELD THAT THE PROFIT OF RUBAMIN FZC SHALL NOT BE INCLUDED THE PROFIT OF THE ASSESSEE. THUS IN VIEW OF ASSESSEE SUBMISSION AND DECISION HELD IN GROUND NOS. 4 TO 7 RAISED BY THE ASSESSEE ON MERITS, WE DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. 4. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NUMBER 3 IS THAT THE LEARNED DRP ERRED IN HOLDING THE ASSESSMENT UNDER SECTION 153A AS VALID WITHOUT BEING ANY INCRIMINATING MATERIAL FOUND DURING SEARCH. 5. THE LEARNED AR AT THE TIME OF HEARING BEFORE US SUBMITTED THAT HE WAS DIRECTED BY THE ASSESSEE NOT TO PRESS THIS GROUND OF APPEAL. ACCORDINGLY, WE DISMISS THE SAME AS BEING NOT PRESSED. 6. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 4 TO 7 OF ITS APPEAL IS THAT THE LEARNED DRP ERRED IN CONFIRMING THE ORDER OF THE AO/TPO BY SUSTAINING THE ADDITION OF RS. 27,05,11,474/- ONLY BY HOLDING THAT THE PROFIT EARNED BY ITS AE, M/S RUBAMIN FZC LOCATED AT SHARJAH UAE BELONGS TO THE ASSESSEE. 7. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING OF VARIOUS GRADE OF ZINC OXIDE AND IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 6 ZINC BASED CHEMICALS, MANUFACTURING OF MOLY BASED CHEMICALS. THE ASSESSEE HOLDS 90% SHARES OF A COMPANY BASED IN UAE NAMELY M/S RUBAMIN FZC (HERE AFTER RFZC) WHICH WAS INCORPORATED IN THE YEAR 2004-05. LIKEWISE, THE RFZC HAS TWO WHOLLY OWNED SUBSIDIARIES COMPANIES IN DEMOCRATIC REPUBLIC OF CONGO (FOR SHORT DRC) NAMELY RUBAMIN SPRL AND RUBACO SPRL. THE RFZC IS A TRADING COMPANY WHEREAS THE COMPANIES LOCATED IN DRC NAMELY RUBAMIN SPRL AND RUBACO SPRL ARE ENGAGED IN THE BUSINESS OF MANUFACTURING OF COBALT CONCENTRATES FROM COBALT ORE AND COPPER CONCENTRATE FROM COPPER ORE AND MINERAL EXPLORATION AND EXTRACTION RESPECTIVELY. THUS, THE RUBAMIN GROUP CONSISTS OF THE VARIOUS COMPANIES. THE DETAILS OF SUCH GROUP COMPANIES ALONG WITH THE SHAREHOLDING PATTERNS ARE DETAILED AS UNDER: S.NO. CO. NAME COUNTRY SHARE HOLDING SHARE HOLDING 1 RUBAMIN LIMITED INDIA ---- ---- 2 RUBAMI FZC UAE 90 BY RUBAMIN LIMITED 10 BY NAVIN DALMIA 3 RUBAMIN SPRL DRC(CONGO) 100% BY RFZC NA 4 RUBACO SPRL DRC (CONGO) 100% BY RFZC NA 8. THE ABOVE GROUP OF COMPANIES WERE CONTROLLED AND MANAGED BY DIFFERENT PERSONS AS DETAILED UNDER: SNO NAME OF THE PERSON DESIGNATION IN RUBAMIN LIMITED DESIGNATION IN RFZC DESIGNTION IN DRC BASED CO. 1 ATUL N DALMIA (IN SHORT AD) PROMOTORS, DIRECTOR, MD AND CEO NON EXECUTIVE DIRECTOR NA 2 ANIL R PATEL (IN SHORT AP) PROMOTERS AND DIRECTORS DIRECTOR NA 3 AJAY AGARWAL (IN SHORT AA) UPTO MID 2012-013 CFO NA NA 4 SANJAY DUDHORIA FROM FY 2012-13 TILL DATE (IN SHORT SD) CFO NA NA 5 MICHAEL HOMAWALLA HR NA NA 6 MILIND THAKKAR NA GM, TAXATION NA IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 7 7 NAVIN N DALMIA (IN SHORT ND & EARLIER EMPLOYEE IN RUBAMIN LIMITED) NA MD AND CEO CEO 8 RAJESH AGARWAL (IN SHORT RA & EARLIER EMPLOYEE IN RUBAMIN LIMITED NA CFO CFO THERE WAS A SEARCH CONDUCTED ON THE ASSESSEE UNDER SECTION 132 OF THE ACT DATED 26 TH APRIL 2013. AS A RESULT OF SEARCH VARIOUS DOCUMENTS WERE SEIZED. THESE DOCUMENTS CAN BE CATEGORIZED UNDER THE FOLLOWING SUB-HEADS: I. EXCHANGE OF VARIOUS EMAILS SHOWING THE COMMUNICATION BETWEEN THE DIRECTORS & CFO OF THE ASSESSEE AND RFZC ON DIFFERENT DATES RELATED TO THE AFFAIRS OF RFZC AND ITS SUBSIDIARY COMPANIES LOCATED AT DRC. II. VARIOUS OTHER DOCUMENTS RELATED TO THE AFFAIRS OF RFZC AND ITS SUBSIDIARY COMPANY LOCATED AT DRC. 9. THE IMPORTANT CONTENTS IN THESE EMAILS CAN BE SUMMARIZED AS UNDER: I. AS PER THE SOP PREPARED IN THE OFFICE OF RUBAMIN LTD. AT BARODA, ALL THE PAYMENTS TO BE MADE BY RFZC LOCATED IN UAE, AFTER THE APPROVAL OF SHRI ND/RA, SHALL BE SUBJECT TO THE AUTHORIZATION OF SHRI AD AND SD WHO ARE THE DIRECTORS/ CFO OF RUBAMIN LTD IN INDIA. ( EMAIL DATED 17-01-2013) II. THE EMAIL RELATING TO THE RESTRUCTURING OF LOAN AND ADVANCES GIVEN BY RUBAMIN LTD TO ITS DRC-BASED COMPANIES. IT WAS ADVISED TO DRC BASED COMPANIES TO ARRANGE FINANCE DIRECTLY FROM THE BANK AND TO RETURN THE LOAN AND ADVANCE TAKEN FROM THE ASSESSEE COMPANY. THE PURPOSE FOR SUCH RESTRUCTURING WAS TO STRENGTHEN THE BALANCE SHEET OF RUBAMIN LTD BY HAVING BETTER CURRENT RATIO AND TO REDUCE THE INTEREST COST. IN THE PROCESS OF TAKING THE LOAN, IT WAS ALSO DISCUSSED THAT RUBAMIN LTD. (INDIA) MAY NEED TO GIVE THE GUARANTEE. (EMAIL DATED 06-03-2009) III. IN THE PROCESS OF LOAN BY THE DRC BASED COMPANIES, THE HOLDING COMPANY I.E. RFZC BASED IN UAE WAS TO PROVIDE THE CORPORATE GUARANTEE AS IT IS BOOKING THE PROFIT IN RFZC WHEREAS THE COMPANIES BASED IN DRC WERE INCURRING THE LOSSES. (EMAIL DATED 26-10-2012) IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 8 IV. THE DISCUSSION OF DISTRIBUTION OF DIVIDEND OF USD 2 MILLION BY RFZC COMPANY BASED IN UAE AFTER CONSIDERING THE CURRENT YEAR PERFORMANCE VIZ A VIZ REDUCTION IN INTEREST COST AND THE BURDEN OF TAX IN INDIA ON SUCH PAYMENT OF DIVIDEND. LIKEWISE, IT WAS POINTED OUT TO SET OFF THE DIVIDEND INCOME FROM THE BUSINESS LOSS OF RUBAMIN LIMITED. (EMAIL ON DIFFERENT DATES 31- 10-2011, 23-08-2012, 17-09-2012, 03-10-2012 ETC) V. THE POLICY FOR HEDGING THE COPPER CANNOT BE CHANGED WITHOUT THE APPROVAL OF SHRI AD AND TO THIS EFFECT A CONFIRMATION FROM THE PARTIES WAS OBTAINED. THERE WAS ALSO A DISCUSSION FOR THE REGULAR REPORT FROM DRC BASED COMPANY TO THIS EFFECT. (EMAIL DATED 04-10-2011) VI. THERE WAS ALSO A CONVERSATION ABOUT THE SALES REALIZATION, PROFIT GENERATION FROM THE SALE OF THE PRODUCT NAMELY COPPER BLISTER. THE RFZC IS DEALING IN SUCH PRODUCT. (EMAIL DATED 01-04-2009) VII. THERE WAS A DISCUSSION ABOUT THE SALE OF COBALT CONCENTRATES BETWEEN SHRI YOLONG CUI, A CUSTOMER OF RFZC AND SHRI AD. (EMAIL DATED 24-02-2009) VIII. THERE WERE ALSO CONVERSATIONS ABOUT THE STRATEGIES WHICH RUBAMIN LTD AS A GROUP SHOULD FOLLOW IN THE FINANCIAL YEAR 2009-10 INCLUDING THE EXPLORATION IN DRC COMPANIES AS WELL AS THE OPTIMAL PRODUCTION OF COBALT AND COPPER IN LIKASI. (EMAIL DATED 30-01-2009). IX. THERE WERE CERTAIN RECOMMENDATIONS BY SHRI AJAY AGARWAL WHICH WERE FORWARDED TO AD FOR HIS COMMENTS. THESE RECOMMENDATIONS INCLUDE THE DISCUSSION ABOUT THE OPERATING STATUS OF DRC BASED COMPANIES, INVENTORY AT DRC, TRANSFER PRICING OF DRC. (EMAIL DATED 29-12-2007). X. THERE WAS ALSO A CONVERSATION BETWEEN AA AND AD REGARDING THE RESTRUCTURING OF THE EXPENSES AT DRC OFFICE WITH THE RESPONSIBILITY TO CURTAIL SUCH EXPENSES. (EMAIL DATED 11-02-2009) XI. THERE WERE CERTAIN CONVERSATION AMONG THE EMPLOYEES OF RUBAMIN GROUP OF COMPANIES ABOUT THE SOP FOR ZINC TRANSACTIONS WHICH THE ASSESSEE WAS PURCHASING FROM MIDDLE EAST BUT GETTING IT BILLED THROUGH RFZC. (EMAIL DATED 10-12-2012 AND 11-12-2012) XII. THE BOOKS OF ACCOUNTS DURING THE PERIOD 2008-09 OF RFZC WERE BEING MAINTAINED IN INDIA BY THE SHRI PARDEEP. (EMAIL DATED 27-02-2013) IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 9 XIII. THERE WERE CERTAIN SUGGESTIONS GIVEN TO ND IN ORDER TO ACHIEVE CERTAIN TARGETS INCLUDING FINANCIAL AND OPERATIONAL TARGETS, INCENTIVE AFTER ACHIEVING SUCH TARGETS. (EMAIL DATED 14-04-2011) XIV. IT WAS ALSO RECOMMENDED BY SHRI AA TO SHRI AD FOR CURTAILING THE COST OF ALL THE EMPLOYEES TO THE TUNE OF 10% FOR INDIAN AS WELL AS DRC COMPANIES. (EMAIL DATED 20-02-2009) XV. AN EMAIL DETAILING THE EXPENSES INCURRED BY RUBAMIN LTD AT BARODA TOWARDS THE VISA AND TRAVELLING CHARGES IN CONNECTION WITH THE APPOINTMENT OF EMPLOYEES OF RFZC. (EMAIL DATED 7-7-2010). 10. LIKEWISE, THE IMPORTANT CONTENTS IN THE DOCUMENTS SEIZED DURING THE SEARCH PROCEEDINGS CAN BE SUMMARIZED AS UNDER: I. THIS DOCUMENT CONTAINS THE INFORMATION ABOUT THE BANK EXPOSURE IN INDIA AND DRC, DEBT EQUITY RATIO, CURRENT RATIO AND OTHER RATIOS IN INDIAN COMPANY AS WELL AS THE COMPANIES BASED IN DRC IN ORDER TO FIND OUT WHETHER BOTH THE COMPANIES WERE MODERATELY OR FULLY LEVERAGED. IT ALSO CONTAINED THE INFORMATION FOR THE ROADMAP OF THE DEBT REDUCTION VIZ A VIZ THE USE OF SURPLUS FUND FOR THE FUTURE GROWTH AND ROADMAP FOR THE ELIMINATION OF PERSONAL GUARANTEES. IT ALSO CONTAINED THE INFORMATION ABOUT COPPER HEDGING MECHANISM IN THE COMPANIES BASED IN DRC. II. THERE WAS A RESOLUTION DATED 17 TH SEPTEMBER 2012 DECLARING THE AMOUNT OF DIVIDEND WHICH WAS PREPARED IN INDIA AND SIGNED BY SHRI ANIL R PATEL AS HE NEVER VISITED TO UAE DURING THAT RELEVANT TIME. III. THERE WAS AVAILABLE THE SALES CONTRACT OF RFZC WITH THE 3 RD PARTY NAMELY BAXVILLE MINERALS TRADING LTD. AS PER THE SALES CONTRACT THE SHIPPING SCHEDULE WAS DATED IN THE MONTH OF NOVEMBER/ DECEMBER 2006. IV. THERE WAS ALSO FOUND A SUPPLY CONTRACT AGREEMENT BETWEEN RUBAMIN SPRL AND KIRBY BUILDING SYATEM KUWAIT DATED 11 JULY 2007 WHICH WAS DULY STAMPED BY RUBAMIN SRPL. V. THERE WERE CERTAIN LETTER OF APPOINTMENT/ CONTRACT OF THE RFZC/DRC EMPLOYEES WHICH WERE FOUND FROM THE OFFICE OF RUBAMIN LTD AT BARODA. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 10 VI. THE SALARY CHART FOR THE EMPLOYEES BASED IN DRC WAS FOUND FROM THE PREMISES OF RUBAMIN LTD AT BARODA. VII. THERE WAS THE APPOINTMENT LETTER OF SHRI RAJESH AGARWAL, THE VICE PRESIDENT (COMMERCIAL) OF RFZC WHICH WAS ISSUED BY SHRI MICHAEL HAMAWALLA WHO IS HR OF RUBAMIN LTD AT BARODA. 11. BESIDES THE ABOVE, THE AO DURING THE ASSESSMENT PROCEEDINGS ALSO NOTED THAT THERE WAS NO TELEPHONE/INTERNET CONNECTION UP TO NOVEMBER 2010 AT THE OFFICE OF RFZC AT UAE WHICH EVIDENCES THAT THE OFFICE WAS NOT FUNCTIONING INDEPENDENTLY AND PROPERLY. 12. THE AO AFTER CONSIDERING THE FACTS AS DISCUSSED ABOVE OPINED THAT ALL THE MONETARY ISSUES INCLUDING CAPITAL AND DEBT, FINANCIAL PLANNING, THE BUSINESS AFFAIRS, HEDGING ACTIVITIES, SALES REALIZATIONS, PROFITS OF RFZC WERE CONTROLLED AND MANAGED BY THE ASSESSEE. FURTHERMORE, THE ASSESSEE HAS MADE POLICY FOR HEDGING THE COPPER AND COBALT PRODUCTS OF RFZC THOUGH IT WAS NOT DEALING IN SUCH PRODUCTS. THE AO FURTHER OBSERVED THAT ON ANALYZING THE ENTIRE FLOW OF TRANSACTIONS RIGHT FROM THE MANUFACTURING OF THE GOODS IN THE COMPANIES BASED IN DRC AND SUBSEQUENT SALES TO THE PARTIES WERE CONTROLLED BY THE ASSESSEE. IN OTHER WORDS, HAD THE ASSESSEE DIRECTLY MADE THE BUSINESS TRANSACTIONS FROM THE COMPANIES BASED IN DRC, THEN IT WOULD HAVE EARNED HUGE PROFIT WHICH WOULD HAVE BEEN SUBJECT TO TAX IN INDIA. AS SUCH THE ASSESSEE, TO AVOID SUCH INCOME TAX LIABILITY IN INDIA HAS INCORPORATED A COMPANY IN UAE WHERE THERE IS NO TAX LIABILITY. THUS THE ASSESSEE HAS DIVERTED ALL ITS BUSINESS TRANSACTIONS TO ITS COMPANY BASED IN UAE SO THAT THE PROFIT GENERATED THEREIN SHOULD REMAIN TAX FREE. 13. IN VIEW OF THE ABOVE THE AO WAS OF THE OPINION THAT THE PURPOSE OF CREATING THE OFFICE OF RFZC WAS TO SHIFT THE PROFIT FROM INDIA BY USING A COLORABLE DEVICE. ACCORDINGLY, THE AO, VIDE SHOW CAUSE NOTICE, DATED 06 TH DECEMBER 2016 SOUGHT AN EXPLANATION FROM THE ASSESSEE ON THE ISSUES/OBSERVATIONS AS DISCUSSED ABOVE. 14. THE ASSESSEE IN RESPONSE TO SUCH SHOW CAUSE NOTICE VIDE LETTER DATED 16 TH DECEMBER 2016 AND 20 TH DECEMBER 2016 SUBMITTED THAT: IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 11 I. THE AO IN THE SHOW CAUSE NOTICE HAS ADMITTED THE FACT THAT THE RFZC IS A SEPARATE AND INDEPENDENT LEGAL ENTITY BUT ITS AFFAIRS ARE CONTROLLED AND MANAGED FROM INDIA. II. THE ASSESSEE COMPANY WAS ONE OF THE LARGEST MANUFACTURER OF COBALT METAL IN INDIA IN THE YEAR 2003-04. IT USED TO PURCHASE COBALT CONCENTRATES FROM CUBA BUT SHIFTED TO DRC ON ACCOUNT OF UNCERTAINTIES IN THE SUPPLY OF COBALT CONCENTRATES FROM CUBA. HOWEVER, THERE WAS A LOT OF POLITICAL AND ECONOMIC UNCERTAINTIES IN DRC BESIDES INAPPROPRIATE BANKING SYSTEM TO SUPPORT THE INTERNATIONAL BUSINESS TRANSACTIONS. AS IT WAS DIFFICULT TO CARRY ON THE INTERNATIONAL BUSINESS DIRECTLY FROM DRC, IT WAS ESSENTIAL TO ESTABLISH A 3 RD COMPANY IN ORDER TO CARRY ON THE BUSINESS FROM DRC. FURTHERMORE, THE INDIAN REGULATIONS DO NOT PERMIT TO CARRY ON THE BUSINESS IN THE MANNER AS PREVAILING IN DRC. AS SUCH IT WAS POSSIBLE TO CARRY ON THE BUSINESS FROM UAE AS IT PROVIDES LIBERALIZED EXCHANGE CONTROL SYSTEM. ACCORDINGLY, THE ASSESSEE AFTER OBTAINING THE PERMISSION FROM THE RBI ESTABLISHED ITS SUBSIDIARY COMPANY IN RFZC IN THE YEAR 2004-05. III. THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE WITH RFZC WERE ACCEPTED BY THE INCOME TAX DEPARTMENT UNDER THE PROVISIONS OF TRANSFER PRICING REQUIRING THE DETERMINATION OF ARM LENGTH PRICE. IV. THE ASSESSEE UNDER PROTEST SUBMITTED THAT THE RFZC WAS HAVING THE BUSINESS TRANSACTIONS WITH THE ASSESSEE AND OTHER PARTIES. THE PROFIT EARNED BY RFZC ON THE BUSINESS TRANSACTIONS CARRIED OUT WITH OTHER PARTIES CANNOT BE TAXED IN THE HAND OF THE ASSESSEE. THEREFORE, THE PROFIT EARNED BY RFZC WITH THE BUSINESS TRANSACTIONS CARRIED ON WITH THE ASSESSEE SHOULD ONLY BE CONSIDERED FOR THE PURPOSE OF TAX INSTEAD OF ITS ENTIRE PROFIT. V. THE ASSESSEE ALSO SUBMITTED THAT RFZC HAS INDEPENDENT LEGAL EXISTENCE, ITS OWN ASSETS AND LIABILITIES, MAINTAINS SEPARATE BOOKS OF ACCOUNTS. IT ALSO HAS ITS OWN BOARD OF DIRECTORS, FUNDS, RECEIVABLES, PAYABLES. IT CARRIES OUT ITS CONTRACT WITH THE 3 RD PARTIES INCLUDING THE BANKS AND OPERATION INDEPENDENTLY. HOWEVER, THE RFZC DOES NOT HAVE LARGE NUMBER OF EMPLOYEES AT UAE. MOST OF ITS EMPLOYEES ARE EITHER LOCATED IN DRC OR IN IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 12 TANZANIA AND CARRY OUT THE FUNCTIONS OF RFZC FROM THERE. NONE OF THE EMPLOYEES OF RUBAMIN FCZ IS BASED IN INDIA. VI. THE DOCUMENTS SEIZED DURING THE SEARCH PROCEEDINGS ARE PART OF THE OFFICIAL RECORDS AND THEREFORE THEY CANNOT BE TERMED AS INCRIMINATING IN NATURE. ACCORDINGLY, BASED ON THESE DOCUMENTS, IT CANNOT BE CONCLUDED THAT THE AFFAIRS OF RFZC ARE CONTROLLED AND MANAGED FROM INDIA. FURTHERMORE, THE SEIZED DOCUMENTS DEMONSTRATE THAT THESE WERE PREPARED TO PROVIDE INFORMATIONS TO THE STAKEHOLDERS AND FOR THE STEWARDSHIP PURPOSES/ ACTIVITIES. AS SUCH IT IS QUITE NORMAL FOR A HOLDING COMPANY TO MAINTAIN SUCH RECORDS TO EXERCISE CONTROL ON THE ACTIVITIES OF SUBSIDIARY COMPANIES. IN THE ASSESSMENT YEAR 2008-09 THERE WERE AROUND 52 EMPLOYEES WHICH HAVE INCREASED TO 132 IN THE ASSESSMENT YEAR 2014-15 IN RFZC. HOWEVER, MOST OF THE EMPLOYEES WERE BASED IN DRC WHERE THE SUBSIDIARY COMPANIES WERE SITUATED. VII. FROM THE EMAILS, FOUND DURING THE SEARCH, IT IS CLEAR THAT FIRSTLY, THE PAYMENT HAS TO BE APPROVED BY SHRI ND AND THEREAFTER IT HAS TO BE AUTHORIZED BY SHRI RAJESH AGARWAL WHO IS THE CFO OF DRC OPERATIONS. AFTER SUCH APPROVALS, SOME OF THE PAYMENTS ARE REQUIRED TO BE AUTHORIZED BY THE OFFICE OF RUBAMIN LTD LOCATED IN INDIA. AS SUCH ALL THE PAYMENTS ARE CONTROLLED AND MANAGED BY SHRI ND AND RA. VIII. LIKEWISE, THE DISCUSSION IN THE MATTER OF CORPORATE LOAN BETWEEN RFZC AND RUBAMIN LTD IN INDIA, THE DECISION WITH RESPECT TO RFZC WAS TAKEN BY SHRI RA. IX. SIMILARLY, IN THE DOCUMENT LISTING THE ITEM OF AGENDA IN THE MEETING INCLUDES DEBT POSITION IN INDIA AND RFZC, IT WAS POINTED OUT ON THE LAST LINE OF THE PAGES WHERE IT WAS MENTIONED THAT ND AND SD HAVE TO COME ON THE SAME PLATFORM IN A DAY OR TWO. THESE WORDS SUGGEST THAT THE DECISION CAN BE TAKEN WITH THE CONSENT OF BOTH THE PARTIES. HAD AD OR ANY OTHER INDIAN PERSON BEEN AUTHORIZED TO TAKE A DECISION INDEPENDENTLY, THERE WAS NO NEED TO BRING THESE 2 OFFICES ON THE SAME PLATFORM. RATHER, THESE LINES SUGGEST THAT BOTH THE OFFICES ARE INDEPENDENTLY WORKING IN THEIR OWN CAPACITY. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 13 X. LIKEWISE, THE ACTIVITY OF HEDGING THE TRANSACTION REQUIRES SPECIALIZED KNOWLEDGE AND THEREFORE SUCH DECISIONS ARE TAKEN BY THE HOLDING COMPANY WITHOUT GIVING ANY AUTHORITY TO THE RESPECTIVE SUBSIDIARIES. XI. THE SALE CONTRACT FOUND DURING THE SEARCH PERTAINS TO THE FINANCIAL YEAR 2006- 7 AND THEREFORE IT IS NOT RELEVANT FOR THE YEAR UNDER CONSIDERATION. XII. THE AFFAIRS OF RFZC WERE CONTROLLED BY THE AUTHORIZED PERSONS WHO WERE APPOINTED BY THE RFZC BUT POSTED AT DRC. THESE PERSONS WERE HIGHLY QUALIFIED AND PERFORMING CRITICAL FUNCTIONS OF THE COMPANY AFTER DRAWING HUGE SALARIES WITH DEFINITE RESPONSIBILITIES. AS SUCH THESE EMPLOYEES WERE NOT CARRYING OUT THE CLERICAL ACTIVITIES. IT IS THE NORMAL PRACTICE FOR A HOLDING COMPANY BEING A SHAREHOLDER TO KEEP THE INFORMATION BY WAY OF MIS REPORT FOR THE ACTIVITIES CARRIED OUT BY THE SUBSIDIARIES. BUT THAT DOES NOT GIVE THE AUTHORITY TO INFER THAT THE CONTROLS AND MANAGEMENTS ARE BASED IN INDIA WITH THE HOLDING COMPANY. SOME OF THE CONTROLS INDEED HAVE BEEN EXERCISED IN INDIA BUT WITH RESPECT TO GROUP POLICIES. THERE WAS NO IOTA OF EVIDENCE SUGGESTING THAT THERE WAS ANY DECISION WHICH HAS BEEN SOLELY TAKEN BY THE PERSONS BASED IN INDIA. XIII. THE SOFT COPY OF THE BOARD MEETINGS FOUND IN THE COMPUTER CANNOT BE DECIDING FACTOR THAT THE BOARD MEETING WAS HELD IN INDIA IN THE ABSENCE OF ANY CORROBORATIVE INFORMATION. THERE WERE NO FINDING THAT THE MINUTES WITH RESPECT TO SUCH BOARD MEETINGS ARE IN INDIA. THERE WAS NO PHYSICAL COPY FOUND OF THE BOARD MEETING. THEREFORE ON THE BASIS OF SUCH SOFT COPY, IT CANNOT BE DECIDED THAT MEETING WAS HELD IN INDIA. XIV. ALL THE DECISIONS RELATED TO RFZC WERE TAKEN BY SHRI ND WITHOUT TAKING ANY DIRECTION FROM SHRI AD OR ANY OTHER PERSON. HOWEVER, SHRI ND HAS SOUGHT OPINION WITH RESPECT TO CERTAIN MATTERS INVOLVING PRINCIPLES OR GENERAL ISSUES. XV. THE TRANSACTIONS CARRIED OUT BETWEEN RFZC AND INDIAN COMPANY HAVE BEEN SUBJECT MATTER OF TRANSFER PRICING FOR DECIDING THE ALP. THEREFORE THERE IS NO POSSIBILITY OF SHIFTING THE PROFIT FROM INDIA TO ITS SUBSIDIARY COMPANY. XVI. THE ASSESSEE HOLDS 90% SHARES OF RFZC. THE DIVIDEND RECEIVED BY THE ASSESSEE FROM RFZC IS SUBJECT TO TAX IN INDIA. AS SUCH THERE WAS NO IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 14 VIOLATION OF ANY PROVISION OF LAW AND THEREFORE IT CANNOT BE CONCLUDED THAT THE ASSESSEE HAS SHIFTED ITS PROFIT TO A COUNTRY OUTSIDE INDIA BY USING THE COLORABLE DEVICE. 15. HOWEVER, THE AO DURING THE ASSESSMENT PROCEEDINGS AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE OBSERVED CERTAIN FACTS AS DETAILED UNDER: I. THE ROLE OF THE TPO IS LIMITED TO THE EXTENT OF DETERMINATION OF THE ALP WITH RESPECT TO THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. HIS ROLE IS NOT TO UNEARTH OR FIND OUT THE REAL NATURE OF THE TRANSACTIONS BASED ON THE SEIZED MATERIALS FOUND DURING THE SEARCH. THEREFORE, THE ORDER OF THE TPO CANNOT DECIDE THE REAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE IN THE GIVEN FACTS AND CIRCUMSTANCES. II. THE DOCUMENTS FOUND DURING THE SEARCH PROCEEDINGS CLEARLY LEADS TO FORM THE BELIEF THAT ALL THE DAY TO DAY TRANSACTIONS AND IMPORTANT DECISIONS WERE TAKEN BY THE OFFICE OF RUBAMIN LTD LOCATED IN BARODA. III. THE BOARD MEETING OF RFZC WAS HELD IN INDIA AS EVIDENT FROM THE BOARD RESOLUTIONS PASSED FOR DECLARATION OF THE DIVIDEND WHICH WAS SIGNED BY SHRI ANIL R PATEL WHO NEVER VISITED TO UAE DURING THAT RELEVANT TIME. IV. THE MAJORITY PURCHASES OF RFZC IS FROM ITS SUBSIDIARY COMPANY NAMELY RUBAMIN SPRL AND SALES IS TO RUBAMIN LTD IN INDIA OF ITS PRODUCT NAMELY COBALT CONCENTRATES. FURTHER, RFZC IS PURCHASING FROM THE LOCAL MARKET OF MIDDLE EAST AND SELLING THE SAME TO RUBAMIN LTD IN INDIA. ALL THESE TRANSACTIONS LEAVE AN IMPRESSION THAT RFZC IS PLAYING A ROLE FOR SHIFTING THE PROFIT FROM INDIA TO TAX HEAVEN. V. THE BANKING FACILITIES IN THE DRC WERE ESTABLISHED MORE THAN A CENTURY AGO. FURTHERMORE, IN CASE THE ASSESSEE WAS TO AVAIL THE BANKING FACILITY THEN THERE WAS NO NECESSITY FOR ROUTING ALL THE TRANSACTIONS FOR PURCHASE AND SALE OF THE PRODUCTS EXCEPT FINANCIAL TRANSACTIONS FROM RFZC. VI. SHRI AD HAS ADMITTED IN A STATEMENT RECORDED DATED 28 TH APRIL 2013 THAT RUBAMIN LTD EXPORTED MACHINERIES TO RUBAMIN SPRL AND RUBACO SPRL IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 15 AND PAYMENT WAS MADE BY RFZC UP-TO JULY 2010. THEREAFTER THE PAYMENT WAS RECEIVED BY RUBAMIN LTD DIRECTLY FROM RUBAMIN SPRL, UAE BANK ACCOUNT. ACCORDINGLY, IT WAS ALLEGED THAT ONCE THE ASSESSEE IS ABLE TO EXPORT THE GOODS TO THE COMPANIES PRESENT DRC THAT THERE WAS NO REASON TO INVOLVE RFZC WITH RESPECT TO THE PURCHASE AND SALES OF TRANSACTION. AS SUCH THE ASSESSEE WAS IN A POSITION TO IMPORT THE GOODS DIRECTLY WITHOUT INVOLVING RFZC. 16. IN VIEW OF THE ABOVE THE AO CONCLUDED THAT THE SOLE PURPOSE OF CREATING THE RFZC WAS TO SHIFT THE PROFIT FROM INDIA TO THE TAX HEAVEN I.E. RFZC. FURTHERMORE, THE RFZC IS A PAPER COMPANY CARRYING OUT NO ACTIVITY EXCEPT FOR RECORDING PURCHASE AND SALES OF THE TRANSACTIONS ON PAPERS. THUS THE AO TREATED THE ENTIRE PROFIT OF RFZC FOR RS. 27,05,11,474/- BELONGING TO THE ASSESSEE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 17. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO THE LEARNED DRP AND ASSAILED THE ORDER OF THE AO ON VARIOUS GROUNDS WHICH ARE SUMMARIZED AS UNDER: I. THE ASSESSEE BEFORE THE LEARNED DRP SUBMITTED THAT EMAILS AND DOCUMENTS FOUND DURING THE SEARCH OPERATION HAVE BEEN USED AGAINST THE ASSESSEE IN THE YEAR UNDER CONSIDERATION THOUGH DETAILS THEREIN PERTAINS TO DIFFERENT ASSESSMENT YEARS. AS SUCH, THE DOCUMENTS/EMAILS PERTAINING TO THE ASSESSMENT YEAR 2009-10 CORRESPONDING TO FINANCIAL YEAR 2008-09 CANNOT BE USED FOR DECIDING THE ISSUE PERTAINING TO THE YEAR UNDER CONSIDERATION. THE CONTROL AND MANAGEMENT OF RFZC HAS TO BE DECIDED FOR EACH YEAR SEPARATELY AND INDEPENDENTLY BASED ON THE DOCUMENTS PERTAINING TO THAT VERY YEAR ONLY. AS SUCH THERE WERE ONLY 2 DOCUMENTS FOUND DURING THE SEARCH PROCEEDINGS RELATED TO THE YEAR UNDER CONSIDERATION. FIRSTLY A DOCUMENT DISCUSSING ABOUT THE PURCHASES MADE BY RFZC OF GALVANISER PRODUCT WHICH WAS SUBSEQUENTLY EXPORTED TO RUBAMIN LTD AT COST BY RFZC. THUS IT IS CLEAR THAT THERE WAS NO ELEMENT OF PROFIT IN THE EXPORT OF GALVANISER BY RFZC TO RUBAMIN LTD AS SUCH TRANSACTION WAS ON COST TO COST BASIS. THE SECOND DOCUMENT WAS IN THE FORM OF EMAIL TELLING ABOUT THE RECOVERY OF THE VISA CHARGES, IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 16 TRAVELLING CHARGES ON ACTUAL BASIS AND IT DOES NOT DEAL WITH THE DECISION OF THE APPOINTMENT OF THE EMPLOYEES OF RFZC. II. THE COMPANY RFZC WAS ESTABLISHED IN UAE ON ACCOUNT OF LIBERALIZED EXCHANGE CONTROL REQUIREMENT IN ORDER TO CARRY OUT THE BUSINESS IN DRC WHICH WAS NOT POSSIBLE FROM INDIA. III. THE MAJORITY SALES MADE BY RFZC WAS TO A COMPANY NAMELY TRAFIGURA WHICH IS A 3 RD PARTY. THE SALES TO SUCH PARTY CONSTITUTES 80% OF THE TOTAL SALES. ALL THE NEGOTIATIONS FOR THE SALES TO SUCH PARTY WERE MADE BY SHRI ND AND RA. LIKEWISE CONTRACT FOR THE SALE WAS SIGNED BY SHRI RA/ DC GUPTA OUTSIDE INDIA. IV. THE EMAIL DATED 17 TH JANUARY 2013 REGARDING THE SOP FOR THE PAYMENT OF RFZC CANNOT BE USED FOR THE YEAR UNDER CONSIDERATION. IT IS BECAUSE THE YEAR IN DISPUTE EXPIRES ON 31 ST MARCH 2010 WHEREAS THIS EMAIL IS DATED 17-01-2013 WHICH WAS RECOVERED IN THE SEARCH OPERATION. THUS, IT IS CLEAR THAT PRIOR TO THIS EMAIL DATED 17 TH JANUARY 2013 ALL THE BANKING OPERATIONS WERE CARRIED OUT BY THE OFFICERS/EMPLOYEES OF RFZC. AS SUCH, THE AO CANNOT DRAW ANY INFERENCE AGAINST THE ASSESSEE REGARDING THE CONTROL AND MANAGEMENT OF RFZC BASED ON THIS EMAIL DATED 17 TH JANUARY 2013 FOR THE YEAR UNDER CONSIDERATION. V. THE EMAIL DATED 06 TH MARCH 2009 WRITTEN BY AA WHICH EXPLAINS HOW TO IMPROVE THE FINANCIAL POSITION OF RUBAMIN LTD WITH RESPECT TO THE LOAN GIVEN TO THE SUBSIDIARY, DEBT EQUITY RATIO AND INTEREST COST REDUCTION. FOR THIS PURPOSE, THERE WAS A DISCUSSION FOR THE ARRANGEMENT OF THE FUNDS IN THE HANDS OF THE SUBSIDIARIES BY OBTAINING THE FINANCE FACILITIES FROM THE BANK. AS SUCH THIS EMAIL RELATES TO THE FINANCIAL POSITION/BALANCE SHEET OF RUBAMIN LTD AND IT HAS NOTHING TO DO WITH THE OPERATION OF RFZC. IT IS A QUITE NORMAL PRACTICE IN THE INDUSTRIES FOR THE PARENT COMPANY TO DISCUSS THE GROUP POLICY IN ORDER TO CUT DOWN THE COST, IMPROVEMENT OF THE PROFITABILITY OF THE GROUP, VARIOUS RISKS FACED BY THE GROUP AND THE SUGGESTION FOR MANAGING THESE FACTORS AS WELL AS MITIGATING THE RISK. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 17 VI. RUBAMIN LTD PROVIDES THE SUPPORTING SERVICES IN CONNECTION WITH THE RECRUITMENT OF THE EMPLOYEES AT RFZC/ DRC AND FOR THIS IT RECOVERS/GETS REIMBURSEMENT OF THE ACTUAL CHARGES INCURRED BY IT. SUCH SERVICES ARE PROVIDED FOR THE REASON THAT REQUIRED SKILLS ARE NOT AVAILABLE EITHER IN UAE OR DRC. HOWEVER THE FINAL INTERVIEWS ARE TAKEN BY SHRI ND WHO IS NON-RESIDENT AND RESIDES IN DRC. AS SUCH SHRI ND HAS FULL CONTROL OVER THE MANAGEMENT OF THE AFFAIRS OF RFZC AND FOR THIS HE IS REMUNERATED ALONG WITH INCENTIVE. HAD THE ENTIRE WORK BEEN HANDLED BY SHRI AD, THERE WAS NO NEED TO GIVE ANY INCENTIVE TO THE EMPLOYEES TO ACHIEVE THE TARGETS OF THE BUSINESS. VII. THE BOOKS OF ACCOUNTS OF RFZC WERE PREPARED BY SHRI PARDEEP GUPTA WHO IS THE EMPLOYEE OF RFZC. HOWEVER SHRI PARDEEP GUPTA WAS EARLIER WORKING WITH RUBAMIN LTD. DURING THE SEARCH, NO DOCUMENT/INVOICE RELATING TO RFZC WAS FOUND EXCEPT MIS REPORT WHICH WAS RELATING TO PROTECT THE INTEREST OF THE SHAREHOLDERS, STATUTORY DOCUMENTS REQUIRED FOR CONSOLIDATION, TRANSFER PRICING COMPLIANCE WHICH WERE REQUIRED TO BE MAINTAINED BY THE ASSESSEE FOR RECORD/INFORMATION PURPOSES. ACCORDINGLY, NO ADVERSE VIEW CAN BE TAKEN AGAINST THE ASSESSEE. VIII. THE ASSESSEE BEING A SHAREHOLDER IN RFZC HAS RIGHT TO INQUIRE FOR THE DISTRIBUTION OF DIVIDEND. AS SUCH, THE COMMUNICATION WAS MADE BETWEEN AD AND ND FOR THE DIVIDEND AS THE ASSESSEE WANTED TO REDUCE INTEREST LIABILITY. CERTIFIED TRUE COPY OF THE RESOLUTION OF DIVIDEND DECLARATION HELD BY THE ASSESSEE WAS PROVIDED TO THE BANKERS AND THE AUDITORS. IX. MOST OF THE E-MAILS FOUND DURING THE SEARCH ARE RELATING TO THE MIS REPORTING WHICH DOES NOT HAVE ANY BEARING ON THE DECISION-MAKING PROCESS ON THE RFZC. THERE WAS NO EMAIL BINDING THE RFZC OR ITS EMPLOYEES/OFFICERS. FURTHERMORE, THERE WAS NO INFORMATION FOUND ABOUT THE CONTROL AND MANAGEMENT OF THE COMPANIES BASED IN DRC. X. THERE IS NO LOSS TO THE GOVERNMENT, RATHER IT IS BENEFICIAL TO THE GOVERNMENT ON ACCOUNT OF FORMATION OF THE COMPANY IN UAE. IT IS BECAUSE RFZC IS ABLE TO DECLARE HIGHER AMOUNT OF PROFIT BEING A TAX IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 18 HEAVEN ZONE WHICH IS COMING TO INDIA IN THE FORM OF DIVIDEND WHICH IS SUBJECT TO TAX IN INDIA. IN OTHER WORDS, HAD THE RFZC NOT BEEN ESTABLISHED AND THE ASSESSEE WOULD HAVE BEEN DIRECTLY DEALING WITH DRC COMPANIES, THEN THE PROFIT OF DRC COMPANIES WOULD HAVE BEEN SUBJECT TO CORPORATE TAX @ 30% AND THE ASSESSEE WOULD HAVE RECEIVED DIVIDEND AFTER SUCH TAX FURTHER DIVIDEND WOULD HAVE SUBJECT TO 20% WITHHOLDING TAX IN DRC. IN SIMPLE WORDS, FOR EXAMPLE THERE IS A PROFIT OF RS. 100/- IN THE HANDS OF DRC COMPANY, THEN ASSESSEE WOULD ONLY GET A DIVIDEND OF RS. 70/- ONLY AFTER THE PAYMENT OF TAX OF RS. 30 ONLY. THE ASSESSEES TAX LIABILITY ON SUCH DIVIDEND WOULD BE OF RS. 21 ONLY BUT ULTIMATELY PAID TAX AMOUNT WOULD BE PAID TO INDIAN AUTHORITY FOR RS. 7 ONLY AFTER GETTING BENEFIT OF WITHHOLDING TAX OF RS 14 @ 20% ON SUCH DIVIDEND. IT IS EXPLAINED AS UNDER: TAX COMPARISON PRE-AMENDMENT POST- AMENDMENT A . WITH FZC NO FZC WITH FZC NO FZC TOTAL COMBINED PROFITS 100.00 100.00 100.00 100.00 PROFITS AT DRC 40.00 100.00 40.00 100.00 PROFITS AT UAE 60.00 - 60.00 - TAX PAYABLE AT DRC CORPORATE INCOME TAX 12.00 30.00 12.00 30.00 WITHHOLDING TAX 5.60 14.00 5.60 14.00 NET REMITTED TO INDIA 82.40 56.00 82.40 56.00 IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 19 TAX PAYABLE IN INDIA TAX DIVIDENDS IN INDIA 26.40 21.00 15.84 12.60 XI. RFZC IS ANOTHER ARM OF DRC COMPANIES AND IT IS NOT THE EXTENSION OF THE ASSESSEE COMPANY. RFZC WAS FORMED TO OFF LOAD CERTAIN FUNCTIONS OF THE DRC COMPANIES IN ORDER TO MITIGATE THE RISK ATTACHED WITH THE DRC COMPANIES ON ACCOUNT OF POLITICAL DISTURBANCE/LACK OF BANKING FACILITIES ETC. FURTHERMORE, THE TRANSACTIONS BETWEEN THE ASSESSEE AND THE RFZC HAVE BEEN DETERMINED AT THE ALP. AS SUCH, THE ASSESSEE HAS NO ROLE TO PLAY WITH RESPECT TO THE OTHER TRANSACTIONS CARRIED OUT BETWEEN THE DRC COMPANIES AND RFZC. THEREFORE, THERE CANNOT BE ANY ALLEGATION AGAINST THE ASSESSEE FOR SHIFTING OF PROFIT OF THE TRANSACTIONS BETWEEN THE DRC AND THE RFZC. IN ANY CASE, EVEN THERE IS A SHIFTING OF PROFIT WITH RESPECT TO THE TRANSACTIONS BETWEEN THE DRC AND THE RFZC, THEN ASSESSEE HAS NO ROLE TO PLAY IN THIS SERIES OF TRANSACTION. ACCORDINGLY, NOTHING ADVERSE CAN BE ATTRIBUTED TO THE ASSESSEE. 18. THE LEARNED DRP AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ORDER OF THE AO HAS FORMULATED 7 COMPARTMENTS FOR DECIDING THE ISSUE. THESE 7 COMPARTMENTS ARE LISTED AS UNDER: 1) THE ASSESSEE WAS EXERCISING COMPLETE CONTROL OVER BANKING, FINANCES, CAPITAL AND DEBT RESTRUCTURING OF RFZC. A) THE SOP FOR AUTHORIZATION OF BANK PAYMENTS OF RUBAMIN FZC, SHOWS THAT APPROVAL OF CFO OF RL OR SH. ATUL DALMIYA WAS REQUIRED FOR ANY PAYMENT. B) THE CAPITAL, DEBT RESTRUCTURING AND PAYMENTS OF RUBAMIN FZC TO BENEFIT RUBAMIN LTD. C) CORPORATE GUARANTEE OF RUBAMIN FZC & SUBSIDIARIES BY ASSESSEE. D) THE TIMING & QUANTUM OF DIVIDEND DISTRIBUTION BY RUBAMIN FZC WAS DECIDED BY RUBAMIN LTD. 2) THE ASSESSEE HAD ABSOLUTE CONTROL OVER BUSINESS OPERATION OF RUBAMIN FZC. TO PROVE THIS POINT, HE HAS DISCUSSED EVIDENCE TO SHOW THAT: A) ASSESSEE' S CONTROL OVER COPPER BUSINESS OF RUBAMIN FZC IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 20 B) HEDGING OF COPPER OF RUBAMIN FZC DIRECTED BY RUBAMIN LTD, THOUGH RUBAMIN LTD. DOES NOT DEAL WITH COPPER BLISTERS. C) ASSESSEE'S CONTROL OVER COPPER BLISTER BUSINESS OF RUBAMIN FZC THOUGH RUBAMIN LTD NEITHER IMPORT NOR EXPORT AND DOES NOT INDULGE IN CONSUMPTION OR PRODUCTION OF COPPER BLISTERS D) SALE OF COPPER ORE WAS TOTALLY CONTROLLED BY RUBAMIN LTD. E) SHRI ATUL DALMIA WAS DIRECTLY DEALING WITH RUBAMIN FZC'S CUSTOMER OF COBALT CONCENTRATE F) ASSESSEES CONTROL OVER ZINC BUSINESS OF RUBAMIN FZC 3) THE ASSESSEE HAD CONTROL OVER BUSINESS AGREEMENTS AND STRATEGY OF RFZC & SUBSIDIARIES IN SUPPORT. IN SUPPORT HE HAS DISCUSSED EVIDENCE TO SHOW THAT: A) AGREEMENTS FOR RUBAMIN SPRL AND RUBAMIN FZC ARE MADE BY RUBAMIN LTD. B) STRATEGIC BUSINESS DECISIONS MADE BY RUBAMIN LTD. C) COST CUTTING MEASURES ON THE EXPENSES OF ENTIRE GROUP INCLUDING RUBAMIN FZC & SUBSIDIARIES DECIDED BY ASSESSEE. 4) THE BOOKS OF ACCOUNT OF RUBAMIN FZC MAINTAINED AT THE OFFICE OF RUBAMIN LTD. 5) THE HR FUNCTIONS OF RUBAMIN FZC WAS PERFORMED FROM INDIA BY RUBAMI LTD. HE HAS HIGHLIGHTED EVIDENCE TO SHOW THAT: A) APPOINTMENTS FOR RUBAMIN FZC ARE MADE BY RUBAMIN LTD. EVEN THE DETAILS OF SALARY PAYMENTS WAS MAINTAINED BY RUBAMIN LTD. B) APPOINTMENTS, TARGETS, SALARY OTHER INCENTIVE OF SH. NAVIN DALMIA MD OF RUBAMIN FZC ARE DECIDED BY RUBAMIN LTD. C) SALARY CUTTING OF ALL EMPLOYEES OF RUBAMIN FZC BY 10% IS DECIDED BY RUBAMIN LTD. AS A PART OF COST CUTTING MEASURE 6) THERE WAS NO WORKING OFFICE OF RUBAMIN FZC AT UAE FOR ABOUT 6 YEARS 7) NO APPARENT REASON FOR ESTABLISHING RUBAMIN FZC 19. THE LEARNED DRP BASED ON THE EMAILS AND THE DOCUMENTS FOUND DURING THE SEARCH PROCEEDINGS ELABORATED IN THE PRECEDING PARAGRAPH REACHED TO THE CONCLUSION THAT AFFAIRS OF RFZC ARE CONTROLLED AND MANAGED BY THE MANAGING DIRECTOR NAMELY AD AND ANIL R PATEL OF RUBAMIN LTD. THE AFFAIRS OF RFZC INCLUDE THE COMPLETE CONTROL OVER BANKING, FINANCES, CAPITAL AND DEBT RESTRUCTURING, BUSINESS OPERATIONS, BUSINESS AGREEMENTS AND STRATEGIES, OTHER FUNCTIONS. IT WAS ALSO NOTICED THAT EVEN THE BOOKS OF ACCOUNTS OF RFZC WERE MAINTAINED AT THE OFFICE OF RUBAMIN LTD. THERE WAS NO WORKING OFFICE OF RFZC FOR ABOUT 6 YEARS. FURTHERMORE THERE WAS NO REASON POINTED OUT BY THE ASSESSEE FOR ESTABLISHING THE COMPANY NAMELY RFZC IN UAE. 20. IN CONSEQUENCE TO THE OBSERVATION THAT THE MAJOR DECISIONS AND THE ACTIONS REGARDING THE AFFAIRS OF RFZC ARE TAKEN BY THE ASSESSEE AND ITS CORE TEAM, THE DRP IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 21 ACCORDINGLY WAS OF THE VIEW THAT IN THE EVENT THE EXISTENCE OF RFZC ARE DENIED THEN THE PROFIT OF RFZC SHALL MERGE/BELONG TO THE ASSESSEE AND NOT WITH THE COMPANIES BASED IN DRC. IT IS BECAUSE THE RFZC IS A SUBSIDIARY OF THE ASSESSEE COMPANY WHICH HAS NO EXISTENCE WITHOUT THE SUPPORT OF ITS HOLDING COMPANY. IN OTHER WORDS RFZC IS NOTHING BUT AN ARM OF THE ASSESSEE. ACCORDINGLY, THE TAXES WHICH WERE PAYABLE IN INDIA BUT DIVERTED TO UAE BEING TAX HEAVEN ZONE. THUS THE LEARNED DRP REJECTED THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE WAS BEARING THE BURDEN OF TAX IN THE FORM OF DIVIDEND INCOME. 21. THE ASSESSEE AS A HOLDING COMPANY OF THE GROUP WAS ABLE TO SHIFT THE PROFIT OF THE COMPANIES WITHIN DRC AS WELL AS ITS OWN PROFIT TO RFZC BEING A TAX HEAVEN ZONE. IN FACT, THE ACTIVITIES ARE CARRIED OUT IN THE COMPANY BASED IN DRC BUT THESE ENTITIES ARE SHOWING LOSSES IN ALL 6 YEARS BEGINNING FROM AY 2008-09 TO AY 2013-14. LIKEWISE THE ASSESSEE COMPANY IN OVERALL IS ALSO SHOWING LOSSES ONLY OVER A PERIOD OF 6 YEARS BEGINNING FROM AY 2008-09 TO 2013-14 AFTER EXCLUDING THE DIVIDEND INCOME DESPITE HAVING THE BUSINESS ACTIVITIES. ON THE CONTRARY, THE RFZC WAS DECLARING HUGE AMOUNT OF PROFIT IN ALL THE 6 YEARS WHICH WAS DIVERTED TO THE ASSESSEE IN THE FORM OF DIVIDEND. FURTHERMORE, THE ASSESSEE HAS SET OFF THE ENTIRE AMOUNT OF DIVIDEND RECEIVED FROM RFZC AGAINST THE LOSSES SHOWN BY IT. EFFECTIVELY, THE ASSESSEE HAS NOT MADE ANY TAX ON THE INCOME BEING A COMPANY INCURRING THE LOSSES EXCEPT IN THE ASSESSMENT YEAR 2013-14 WHERE A SMALL AMOUNT OF PROFIT CHARGEABLE TO TAX WAS SHOWN AMOUNTING TO 2.15 CRORES WHICH WAS GENERATED ON ACCOUNT OF EXTRAORDINARY ITEM BEING THE FRAUD EXPENDITURE REVERSED BY THE ASSESSEE. 22. IN VIEW OF THE ABOVE STATED DISCUSSION, THE DRP HELD THAT MOTIVE OF THE ASSESSEE WAS TO AVOID THE TAX BY CARRYING OUT THE TRANSACTIONS WITHIN ITS GROUP COMPANIES IN SUCH A MANNER THAT THERE SHOULD NOT BE ANY TAX LIABILITY EITHER IN DRC OR INDIA VIZ A VIZ IN UAE BEING A TAX HEAVEN ZONE. IN ALL THESE AFFAIRS OF THE GROUP COMPANIES THE ENTITY NAMELY RFZC IS ACTING AS A CORPORATE VEIL IN ORDER TO AVOID THE PAYMENT OF TAXES. 23. IT WAS ALSO POINTED OUT BY THE LEARNED DRP THAT DURING THE INITIAL PHASE WHEN THE RFZC WAS FORMED, ITS OFFICE WAS CONFINED TO ONE ROOM AND WITH ONE EMPLOYEE ONLY IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 22 AND WITHOUT HAVING ANY TELEPHONE/INTERNET CONNECTION. AS SUCH THE OFFICE OF RFZC WAS IN OPERATION JUST LIKE A POST OFFICE. 24. THE ASSESSEE WAS DIRECTLY PROCURING THE ZINK FROM THE MIDDLE EAST THROUGH ITS OWN EMPLOYEE BUT ON PAPERS IT WAS SHOWN AS PURCHASED THROUGH THE OFFICE OF RFZC. AS SUCH, EVEN THE PROCUREMENT OF ZINK WAS NOT DONE BY THE OFFICE OF RFZC IN ACTUALITY. 25. THE BUSINESS OF COPPER AND COBALT WAS BEING CARRIED OUT BY THE COMPANIES BASED IN DRC WHICH WERE MAINLY SUPPLYING TO THE ASSESSEE AND A COMPANY BASED IN CHINA THROUGH THE RFZC. AS SUCH THE DRC BASED COMPANIES COULD HAVE DIRECTLY SUPPLIED TO THE COMPANY BASED IN CHINA AND TO THE ASSESSEE WITHOUT THE ROLE OF RFZC. AS SUCH THERE WAS NO REAL NEED OF RFZC. 26. IN VIEW OF THE ABOVE THE LEARNED DRP DISREGARDED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: 7.20 IF THE ENTIRE FACTS AND EVIDENCES DISCUSSED ARE VIEWED IN TOTALILTY, IT IS VERY CLEAR THAT E SUPREME CONTROL OF ALL THE COMPANIES VESTS WITH THE ASSESSEE AND SHRI ATUL DALMIYA. THEIR CONTROL IS EXTENDING TO EVEN IN DAY TO DAY EXECUTIVE FUNCTIONING ALSO, WHICH IS MUCH BEYOND THE SHAREHOLDER'S CONTROL. IT IS ALSO VERY CLEAR THAT THE PROFITS IN VARIOUS ENTITIES ARE BEING SHOWN AS PER CONVENIENCE. THERE ARE EVIDENCES CLEARLY SHOWING SHIFTING OF PROFITS. THE SAME IS ALSO EVIDENT FROM THE FINAL RESULTS OF THE COMPANIES. THERE ARE EVIDENCE TO SHOW THAT THE QUANTUM AND TIMING OF DIVIDEND IS DECIDED BY THE ASSESSEE THROUGH SH. ATUL DALMIYA. NO TAX OR HARDLY ANY TAX IS PAID IN INDIA OR IN FACT IN ANY OF THE COUNTRIES. THERE IS ALSO NO DOUBT ABOUT THE FACT THAT THE FACAD OF RUBAMIN FZC HAS BEEN CREATED WITH THE MOTIVE OF TAX AVOIDANCE. THE INTEGRITY OF TRANSACTIONS OF RUBAMIN FZC WITH ITS SUBSIDIARIES AS WELL AS WITH THE ASSESSEE HAVE BEEN SERIOUSLY COMPROMISED. THE EVIDENCES FOUND DURING THE COURSE OF SEARCH SHOW THAT THE TRANSACTIONS HAVE BEEN ARRANGED IN A MANNER TO SERVE THE MOTIVE OF TAX AVOIDANCE. NO REAL BUSINESS PURPOSE OF SETTING RUBAMIN FZC IS VISIBLE, BUT FOR TAX AVOIDANCE. THIS ENTITY CLEARLY IS A CORPORATE VEIL AND INTERPOSED ENTITY. THEREFORE, IN THE OPINION OF THE PANEL CREATION OF THE RUBAMIN FZC IS CLEARLY A COLOURABLE DEVICE. 7.21. IT IS AGAIN REITERATED THAT THE SUPREME COURT IN THE CASE OF MCDOWELL & CO. LTD VS. CIT (1985) 154 ITR 148 HAS HELD THAT TAX AVOIDANCE THROUGH THE USE OF COLOURABLE DEVICES AND BY RESORTING TO DUBIOUS METHODS AND SUBTERFUGES IS NOT PERMISSIBLE. THE SAME WAS UPHELD ONCE AGAIN IN THE CASE OF VODAFONE INTERNATIONAL HOLDING B. V. (SUPRA) BY HON'BLE SUPREME COURT CLEARING THE DOUBTS ABOUT THE PERCEIVED OVERRULING EFFECT OF DECISION OF HON'BLE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN (SUPRA) OVER THE FINDINGS OF HON'BLE SUPREME COURT IN THE CASE OF MCDOWELL & CO. LTD. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 23 IT IS ALSO BY HON'BLE SUPREME COURT HELD THAT IN CASES OF ABUSE OF ORGANISATION FORM/LEGAL FORM AND WITHOUT REASONABLE BUSINESS PURPOSE' WHICH RESULTS IN TAX AVOIDANCE OR AVOIDANCE OF WITHHOLDING TAX. THE REVENUE MAY DISREGARD THE FORM OF THE ARRANGEMENT IN GIVING OUR FINAL FINDINGS, WE HAVE ALSO BEEN CONSIDERATE OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDING B. V. (SUPRA) THAT IN THE APPLICATION OF A JUDICIAL ANTI-AVOIDANCE RULE, THE REVENUE MAY INVOKE THE PRINCIPLE OF 'SUBSTANCE OVER FORM' OR 'PIERCING THE CORPORATE VEIL' TEST ONLY AFTER IT IS ABLE TO ESTABLISH ON THE BASIS OF THE FACTS AND CIRCUMSTANCES SURROUNDING THE TRANSACTION THAT THE IMPUGNED TRANSACTION IS A SHAM OR TAX AVOIDANT. 7.21.1 TO SUM UP, FOLLOWING THE DIRECTION OF HON'BLE SUPREME COURT, WE HAVE CONSIDERED THE ENTIRE FACTS & CIRCUMSTANCES TOGETHER WITHOUT DISSECTING APPROACH. IN OUR OPINION THE FACTS AND EVIDENCES DISCUSSED IN DETAIL CLEARLY ESTABLISHED THAT: (A) THE COMPETENCES OF EXECUTIVE DIRECTORS'OF RUBAMIN FZC ARE TRANSFERRED TO ASSESSEE THOUGH SHRI ATUL DALMIA & OTHERS AND HIS DECISION MAKING HAS BECOME FULLY SUBORDINATE TO THE ASSESSEE. (B) (B) A LESS OBVIOUS BUT ARGUABLY MORE IMPORTANT FACTOR WHICH TO BE TAKEN INTO CONSIDERATION FOR CONSIDERING AN ENTITY AS COLOURABLE DEVICE IS THAT WHERE ONE ENTITY ACTS THROUGH ANOTHER V'ITHOUT MAINTAINING PROPER SEPARATION AND A CORPORATE ENTITY TAKING ACTION OR MAKING REPRESENTATIONS INCONSISTENT WITH ITS ASSERTED PURPOSES AND FUNCTION. (C) IT IS MOST PERTINENT TO NOTE THAT A COMPANY CANNOT BE TAKEN AS A SEPARATE ENTITY MERELY BECAUSE IT CALLS ITSELF A DISTINCT ENTITY WITH A PARTICULAR FUNCTION WHEN IT HAS ACTED OUTSIDE OF THE SCOPE OF THAT FUNCTION. IN ORGANIZATION AND SUPERVISING AFFILIATED ENTITIES, ONE SHOULD ENSURE THEY STAY WITHIN THE BONDS OF THEIR INTENDED PURPOSES. WHERE INTERACTIONS WITH THIRD PARTY IS NECESSARY, MANAGEMENT AND EMPLOYEES SHOULD MAKE CLEAR THE IDENTITY OF THE ENTITY ON WHOSE BEHALF THEY ARE ACTING, ESPECIALLY IF THE SAME INDIVIDUAL IS AN OFFICER OR PRINCIPAL OF MULTIPLE RELATED ENTITIES. HOWEVER, IN THE CASE OF THE ASSESSEE IT IS FOUND THAT THERE HAS BEEN A SERIOUS FAILURE TO MAINTAIN ADEQUATE SEPARATENESS AMONG THE ENTITIES. RATHER THE IDENTITIES AND FUNCTIONS OF THE RUBAMIN FZC HAVE BEEN SEVERELY COMPROMISED SO AS TO SERVE THE UNDUE INTEREST OF THE PARENT THAT IS THE ASSESSEE. ON THE SAME REASONING, THE SOUTH CAROLINA SUPREME COURT HAS UPHELD THE PRINCIPLE OF PIERCING OF CORPORATE VEIL, IN THE CASE OF STURKIE VS. SIFLY. (C) THE FACTS & EVIDENCES CLEARLY SHOW THAT THE SUBSERVIENT ENTITY I.E. RUBAMIN FZC IN THIS CASE MANIFESTS NO SEPARATE INTEREST ON ITS OWN AND FUNCTIONS SOLELY TO ACHIEVE THE GOALS OF THE ASSESSEE. (D) THE RUBAMIN FZC IS AN ENTITY WHICH HAS NO COMMERCIAL BUSINESS SUBSTANCE AND HAS BEEN INTERPOSED ONLY TO AVOID TAX. (E) WHILE A SUBSIDIARY WILL ALWAYS BE CONTROLLED TO SOME DEGREE BY THE PRINCIPLES OF PARENT COMPANY, HOWEVER IN THIS CASE THE CONTROL HAS REACHED TO A POINT WHERE THERE IS NO SEMBLANCE OF THE EXISTENCE OF A SEPARATE ENTITY OF RUBAMIN FZC. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 24 (F) THE MOTIVE OF TAX AVOIDANCE VERY CLEARLY ESTABLISHED. (G) THE EVIDENCES ALSO VERY CLEARLY ESTABLISH THAT THE INTERGROUP TRANSACTIONS ARE VITIATED AND HAVE BEEN ARRANGED IN A MANNER TO SERVE THE DOMINANT PURPOSE OF TAX AVOIDANCE. THUS, IT IS VERY CLEAR THAT INTERPOSITIONING OF RUBAMIN FZC BETWEEN ASSESSEE AND CONGO COMPANIES IS TO EVADE TAX. IT IS AN INSERTED ENTITY WHICH HAS NO BUSINESS PURPOSE EXCEPT DEFERMENT OF TAX, THOUGH IT HAD A BUSINESS EFFECT. THEREFORE, IT IS HELD THAT CREATION OF RUBAMIN FZC IS A COLOURABLE DEVICE AND BY USE OF IT THE ASSESSEE HAS INDULGED IN TAX AVOIDANCE BY USING DUBIOUS METHOD AND SUBTERFUGES. 7.21.2 ACCORDINGLY IN THIS CASE, THE REVENUE CAN APPLY TEST OF PHSICAL NULLITY AND DISCARD INTERPOSITIONING OF THIS ENTITY. HON'BLE SUPREME COURT HAS ALSO UPHELD THE POSITION THAT ONCE THE DEVICE IS PROVED AS COLOURABLE IN NATURE IT HAS TO BE IGNORED AS PHYSICAL NULLITY. 7.21.3 THE NEXT QUESTION COMES AS TO WHAT IS TO BE DONE TREATED, ONCE THE EXISTENCE OF RUBAMIN FZC IS IGNORED AFTER HOLDING IT A COLOURABLE DEVICE. AS THE COMPANY IS A SUBSIDIARY OF ASSESSEE AND ITS FUNCTIONS ARE CONTROLLED BY THE ASSESSEE, AND ITS EMPLOYEES THEREFORE ALL ITS TRANSACTIONS ARE HELD TO BE MERGED WITH ASSESSEE. THEREFORE, THE PROFIT SHOWN IN RUBAMIN FZC WILL MERGE WITH PROFIT OF ASSESSEE COMPANY AND SHOULD BE TAXED ACCORDINGLY. 7.21.4 AS THE EXISTENCE OF RUBAMIN FZC HAS BEEN IGNORED, THE AO IS ONCE AGAIN DIRECTED )T TE|MALE ANY ADDITION ARISING AS A RESULT OF TRANSACTION BETWEEN ASSESSEE AND RUBAMIN FZC ON SUBSTANTIVE BASIS. HOWEVER AS THE FINDING IS NOT ACCEPTED BY THE ASSESSEE AND IS LIKELY TO BE CONTESTED BEFORE THE COURT, THE ADDITIONS ARISING FROM THE TRANSACTIONS BETWEEN ASSESSEE AND RUBAMIN FZC MAY BE SEPARATELY CONSIDERED ON PROTECTIVE BASIS. 27. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 28. THE LEARNED AR BEFORE US FILED VARIOUS PAPER BOOK WHICH ARE DETAILED AS UNDER: 1. PAPER BOOK 1 GEN RUNNING FROM PAGES GEN-1 TO GEN 72 2. PAPER BOOK 2 TPO RUNNING FROM PAGES TPO-1 TO TPO-121 3. PAPER BOOK 3 FZC RUNNING FROM PAGES FZC-1 TO FZC-254 4. PAPER BOOK 4 RUB RUNNING FROM PAGES RUB-1 TO RUB-201 5. PAPER BOOK 5 OTHER RUNNING FROM PAGES 1 TO 245 29. BESIDES THIS THE LEARNED AR ALSO SUBMITTED VARIOUS CHARTS, CASE LAWS, SYNOPSIS OF ARGUMENTS ETC. WHICH ARE KEPT ON RECORD. THE LEARNED AR ACCORDINGLY CONTENDED IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 25 THAT IN THE CASE ON HAND THE REVENUE HAS CLUBBED THE PROFIT OF ITS SUBSIDIARY COMPANY BASED IN UAE. AS PER THE LEARNED AR THE CLUBBING PROVISIONS UNDER THE INCOME TAX ACT CONTAINS SECTION 60 TO 65 OF THE CHAPTER V, WHICH DEALS WITH RESPECT TO THE INDIVIDUALS AND THE HUF. AS SUCH UNDER THE PROVISIONS OF THE ACT, THERE IS NO MECHANISM/REQUIREMENT FOR CLUBBING THE INCOME OF 2 ENTITIES. THUS IN THE ABSENCE OF ANY ENABLING PROVISIONS THE REVENUE HAS EXCEEDED ITS JURISDICTION BY CLUBBING THE INCOME OF ITS FOREIGN SUBSIDIARY WITH THE INCOME OF THE ASSESSEE. 30. FURTHERMORE, THE INTERNATIONAL TRANSACTIONS BETWEEN THE ASSOCIATED ENTERPRISES ARE GOVERNED UNDER CHAPTER X OF THE ACT WHICH PROVIDES THE MECHANISM FOR THE DETERMINATION OF ARM LENGTH PRICE OF SUCH TRANSACTION. IN FACT, TPO HIMSELF HAS MADE ADJUSTMENTS WITH RESPECT TO THE TRANSACTION CARRIED OUT BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE BASED IN UAE. THEREFORE, THE PROFIT SHOWN BY THE AE CANNOT BE CLUBBED/ADDED TO THE TOTAL INCOME OF THE ASSESSEE BEING SEPARATE AND INDEPENDENT LEGAL ENTITIES. THUS, EVEN IF IT IS ASSUMED THAT RFZC WAS CONTROLLED AND MANAGED FROM INDIA, THEN ALSO ITS PROFIT HAS TO BE TAXED SEPARATELY AND THEREFORE ITS INCOME CANNOT BE CLUBBED WITH THE ASSESSEE. 31. IT WAS ALSO POINTED OUT THAT THE REVENUE IN THE CASE ON HAND HAS TREATED THE SUBSIDIARY COMPANY AS SHELL COMPANY ON VARIOUS REASONING BUT AFTER IGNORING CERTAIN UNDISPUTED/ADMITTED FACTS AS DETAILED UNDER: I. IT WAS ESTABLISHED WITH THE APPROVAL OF RBI IN THE YEAR 2004 FOR THE PURPOSE OF TRADING ACTIVITIES AND THIS FACT WAS ADMITTED BY THE REVENUE IN THE EARLIER YEARS. THE EXISTENCE OF RFZC WAS ACCEPTED BY THE REVENUE IN THE EARLIER YEARS WHICH WERE SUBJECT TO ASSESSMENT. THUS RFZC WAS WELL RECOGNISED AS A BODY CORPORATE AND THE STATUS OF THE SAME WAS NEITHER CHALLENGED NOR DISTURBED. THE PURPOSE OF ESTABLISHING THE RFZC WAS TO AVOID THE BANKING DIFFICULTIES WHICH WERE PREVAILING IN THE DRC. CONSIDERING THE BANKING DIFFICULTIES IN THE DRC, THE APPROVAL WAS GRANTED BY THE RBI. II. IT HAS EMPLOYED CERTAIN NUMBERS OF EMPLOYEES RANGING BETWEEN 52 TO 132 WHO WERE WORKING EXCLUSIVELY FOR RFZC. IT HAD ITS OWN CEO AND CFO BESIDES EMPLOYEES. THE SALARY PAID TO ALL THE EMPLOYEES INCLUDING THE CEO IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 26 AND CFO WERE ADMITTED AND ALLOWED AS DEDUCTION. ALL THE CONTRACT FOR THE EMPLOYMENT WERE EXECUTED BETWEEN RFZC AND THE EMPLOYEES IN THE RESPECTIVE NAMES AND UNDER THE SIGNATURE OF THE RESPECTIVE PARTIES. IT IS OF NO RELEVANCE TO FORM ANY OPINION BASED ON THE LOCATION OF THE EMPLOYEES WHETHER THEY ARE PLACED IN UAE WHERE THE LEGAL ENTITY OF RFZC IS BASED OR DRC WHERE THE OPERATIONAL BASE OF RFZC IS LOCATED. III. ALL THE CONTRACTS RELATING TO SALES WITH THE 3 RD PARTIES WERE EXECUTED BY RFZC INDEPENDENTLY AND UNDER THE SIGNATURE OF RESPECTIVE PARTIES. THE RFZC HAS SHOWN HUGE TURNOVER IN ITS AUDITED FINANCIAL STATEMENTS WHICH WERE DULY AUDITED AND ACCEPTED BY THE REVENUE. IV. RFZC HAS OBTAINED FINANCE FROM THE BANK IN ITS OWN NAME ON THE BASIS OF THE DOCUMENTS WHICH WERE EXECUTED BY IT. THE INTEREST PAID WITH RESPECT TO SUCH LOAN HAS BEEN ACCEPTED AND ALLOWED AS DEDUCTION BY THE REVENUE. 32. THEREFORE, IT CANNOT BE ALLEGED MERELY ON THE BASIS OF A FEW EMAILS AND DOCUMENTS COVERING ALL 6 ASSESSMENT YEARS THAT IT (FZC) WAS ACTING AS A CONDUIT FOR AVOIDING THE TAX OF THE ASSESSEE AS WELL AS SUBSIDIARY COMPANIES BASED IN DRC. IN FACT THERE WAS A FRAUD WHICH HAS TAKEN PLACE IN THE COMPANY BY THE ERSTWHILE CEO NAMELY AJAY AGGARWAL AND THEREFORE THE ASSESSEE PLACED A SYSTEM OF CHECK AND BALANCE WITH A VIEW TO HAVE A BETTER CONTROL ON THE FUNCTIONING OF THE GROUP COMPANIES AS A WHOLE. FURTHERMORE, THE CHECK AND BALANCE SYSTEM WAS INTRODUCED BY THE ASSESSEE BEING 90% SHAREHOLDER IN RFZC. IN FACT THESE CHECK AND BALANCE WERE REPRESENTING THE POLICY LEVEL DECISION FOR THE GROUP AS A WHOLE WHICH WERE NOT EXCEEDING MORE THAN 10% OF THE TOTAL TRANSACTIONS. IN OTHER WORDS MORE THAN 90% OF THE OPERATIONAL TRANSACTIONS AND ACTUAL ACTIVITIES WERE CARRIED OUT BY RFZC WITHOUT ANY INTERFERENCE OF THE ASSESSEE WHERE THE ASSESSEE HAD NO CONTROL OF WHATSOEVER. 33. THE GOODS MANUFACTURED IN DRC WERE SOLD TO THE CUSTOMERS BASED IN CHINA. THE CUSTOMERS WAS DEVELOPED BY RFZC AT ITS OWN THROUGH ITS EMPLOYEES WHO WERE QUALIFIED, COMPETENT, EXPERIENCED, AUTHORISED AND WERE ACTUALLY EXERCISING SUCH OPERATIONAL ACTIVITIES. THE ASSESSEE HAD NO CONTROL OR CONNECTION WITH THE CUSTOMERS OF RFZC. SIMILARLY THE ASSESSEE WAS NOT DEALING IN THE PRODUCTS SOLD BY RFZC TO ITS IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 27 CUSTOMERS. THEREFORE, IT WILL BE INAPPROPRIATE TO HOLD THAT THE AFFAIRS OF THE RFZC WERE CONTROLLED AND MANAGED IN ENTIRETY FROM INDIA. 34. THE LEARNED AR ALSO SUBMITTED THAT EXISTENCE OF THE COMPANIES BASED IN DRC WERE NOT DOUBTED/CHALLENGED BY THE REVENUE AND THEIR INCOME WAS ADMITTED AS BELONGING TO THEM WHICH ARE ALSO WHOLLY OWN SUBSIDIARY COMPANY OF RFZC. ONCE THE EXISTENCE OF RFZC IS DOUBTED/ELIMINATED THEN THE EXISTENCE OF WHOLLY OWNED SUBSIDIARY COMPANIES SHOULD ALSO BE DENIED. 35. IT WAS FURTHER CONTENDED THAT THE DRP WAS APPRISED WITH THE FACT THAT HAD THERE NOT BEEN RFZC, THEN THERE WOULD HAVE BEEN LESS TAX PAYABLE IN INDIA. THEREFORE IT CANNOT BE ALLEGED THAT THE PURPOSE OF ESTABLISHING RFZC WAS TO AVOID THE PAYMENT OF TAX IN INDIA. 36. IN VIEW OF THE ABOVE THE LEARNED AR CONTENDED THAT RFZC IS AN INDEPENDENT AND LEGAL ENTITY WHICH WAS APPROVED BY THE RBI VIZ A VIZ AFTER COMPLYING THE RULES AND REGULATIONS OF THE UAE. THEREFORE IT CANNOT BE TREATED AS A PAPER/SHELL COMPANY AND ITS PROFIT CANNOT BE CLUBBED WITH THE ASSESSEE COMPANY. 37. THE LEARNED AR FURTHER CONTENDED THAT ONUS IS UPON THE REVENUE TO ESTABLISH THAT THE PARTICULAR ENTITY IS A PAPER COMPANY WHICH IS TO BE DISCHARGED WITH THE FACTS AND FIGURES. THE LEARNED AR IN SUPPORT OF HIS CONTENTION RELIED ON THE FOLLOWING JUDGEMENTS: I. CIT VS. RAM RAWATMULL [1973] 87 ITR 349 (SC) II. CIT VS. PRAGATI CO-OPERATIVE BANK LTD [2005] 149 TAXMAN 149 (GUJARAT)/[2005] 278 ITR 170 (GUJARAT) III. VODAFONE INTERNATIONAL HOLDING B.V. VS. UNION OF INDIA [2012] 17 TAXMAN 202 (SC) 38. WITHOUT PREJUDICE TO THE ABOVE IT WAS ALSO POINTED OUT BY THE LEARNED AR THAT THE PROVISIONS OF SECTION 153 OF THE ACT PROVIDES THE TIME LIMIT FOR PASSING THE ASSESSMENT ORDER. THE PROVISIONS OF SUBSECTION 4 TO SECTION 153 OF THE ACT PROVIDES THAT WHERE A REFERENCE UNDER SUBSECTION 1 OF SECTION 92CA OF THE ACT HAS BEEN MADE TO THE TPO THEN THE TIME LIMIT PROVIDED UNDER SUBSECTION 1, 2 AND 3 OF SECTION 153 OF THE ACT SHALL BE EXTENDED BY 12 MONTHS. IN THE CASE ON HAND, THE REVENUE IF IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 28 TREATS THE INCOME OF THE RFZC TO BE TAXABLE IN INDIA, THEN SUCH EXTENDED IS NOT AVAILABLE FOR THE ASSESSMENT. ACCORDINGLY, IT WAS CONTENDED THE ASSESSMENT IS BARRED BY TIME. 39. ON THE CONTRARY, THE LEARNED DR BEFORE US CONTENDED THAT THE AO IS UNDER THE OBLIGATION TO MAKE THE REFERENCE TO THE TPO WHEREVER THE INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATED ENTERPRISES EXCEED 5 CRORES ACCORDING TO THE INSTRUCTION NO. 3/2003 DATED 20 MAY 2003 ISSUED BY THE CBDT. THE INSTRUCTION NO. 3/2003 DATED 20 TH MAY 2003 WAS SUPERSEDED BY INSTRUCTION NO. 15/2015 DATED 16 TH OCTOBER 2015 WHERE THE REQUIREMENT FOR REFERRING THE MATTER TO THE TPO FOR THE DETERMINATION OF ALP OF THE INTERNATIONAL TRANSACTIONS BASED ON THE VALUE OF INTERNATIONAL TRANSACTION WAS DISPENSED WITH. 40. ONCE A REFERENCE HAS BEEN MADE BY THE ASSESSING OFFICER, THE ROLE OF THE TPO IS LIMITED TO THE EXTENT OF THE DETERMINATION OF ARM LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS REFERRED BY HIM. AS IN THE CASE ON HAND THE TRANSACTIONS OF THE ASSESSEE WITH THE ASSOCIATED ENTERPRISES WAS EXCEEDING THE THRESHOLD LIMIT SPECIFIED BY THE CBDT, THE AO HAD NO CHOICE EXCEPT TO MAKE THE REFERENCE. ACCORDINGLY THE EXTENDED TIME LIMIT FOR PASSING THE ORDER SHALL BE APPLIED WHICH IS ENDING 31 ST DECEMBER 2016 WHEREAS THE ASSESSMENT WAS FRAMED BEFORE THE EXPIRY OF THE TIME LIMIT. 41. THE LEARNED DR IN SUPPORT OF HIS CONTENTION RELIED ON THE VARIOUS JUDGMENTS AS FOLLOW: I. PCIT VS. ASIA HOLDINGS (INDIA) PVT LTD. 108 TAXMANN.COM 213, II. SHRI VISHNU EATABLES (INDIA) PVT LTD. VS. DCIT 74 TAXMANN.COM 89. III. INTAS PHARMACEUTICAL LTD. VS. DCIT 33 TAXMANN.COM 308 IV. A T & S INDIA (P.) LTD VS. 94 TAXMANN.COM 16 V. CIT VS. CUSHMAN AND WAKEFIELD (INDIA) PVT LTD 367 ITR 730 42. IT WAS BROUGHT TO OUR NOTICE THAT THE AO DURING THE ASSESSMENT PROCEEDINGS CAME TO KNOW ABOUT THE COLOURABLE DEVICE ADOPTED BY THE ASSESSEE BY DIVERTING ITS PROFIT, BASED ON THE SEARCH DOCUMENTS AND ACCORDINGLY THE AO FRAME THE ASSESSMENT AFTER INCLUDING THE ENTIRE AMOUNT OF PROFIT DECLARED BY RFZC. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 29 ACCORDINGLY, IT CANNOT BE SAID THAT THE ASSESSMENT FRAMED BY THE AO IS BEYOND THE TIME AS PROVIDED UNDER SECTION 153B READ WITH SECTION 153 OF THE ACT. 43. ON THE OTHER HAND, SHRI MAHESH SHAH, THE LD. DR FOR THE REVENUE WHILE APPRAISING US WITH THE FACTS AND CIRCUMSTANCES OF THE CASE VERY ELOQUENTLY SUBMITTED THAT AS A RESULT OF SEARCH VARIOUS DOCUMENTS INCRIMINATING NATURE WERE FOUND WHICH ARE SUFFICIENT ENOUGH TO ESTABLISH THAT RFZC IS A PAPER COMPANY AND USED AS A COLOURABLE DEVICE TO DIVERT THE PROFIT. HE SUBMITTED THAT THE CUMULATIVE EFFECT OF ALL THE DOCUMENTS FOUND DURING THE SEARCH SHOULD BE TAKEN INTO CONSIDERATION WHILE DECIDING THE ISSUE ON HAND INSTEAD BY CONSIDERING EACH SINGLE FACT IN ISOLATION. 44. THE CONTENTIONS RAISED BY THE LEARNED DR TO PROVE HIS POINT THAT RFZC IS A PAPER COMPANY WHICH IS USED AS A COLOURABLE DEVICE ARE BASED ON THE DOCUMENTS FOUND DURING THE SEARCH WHICH ARE GIVING RISE TO BELIEVE THAT THERE WAS NO ACTIVITY CARRIED OUT AT RFZC AND ITS AFFAIRS ARE CONTROLLED AND MANAGED BY RUBAMIN LTD IN INDIA. THE CONTENTIONS OF THE LEARNED DR CAN BE SUMMARISED IN THE COMPARTMENTS AS DETAILED UNDER: A. THERE IS NO ACTUAL OFFICE OF RFZC IN UAE. B. THE ACTIVITIES SHOWN IN RFZC ON PAPERS ARE CONTROLLED AND MANAGED IN INDIA. C. OTHER CONTENTIONS/ ARGUMENTS/ POINTS REQUIRING ATTENTION. A. THERE IS NO ACTUAL OFFICE OF RFZC IN UAE. I. THE RFZC IS A TRADING COMPANY WHICH IS SOURCING ITS 100% PURCHASES FROM ITS 100% SUBSIDIARY COMPANIES BASED IN DRC. LIKEWISE, THE RFZC IS SELLING ALL THE GOODS ONLY TO TWO COMPANIES NAMELY TARIFIGURA BASED IN CHINA AND THE ASSESSEE BASED IN INDIA. THE RFZC HAS NOT MADE ANY VALUE ADDITION IN THE GOODS PURCHASED BY IT WHICH WERE SUPPLIED TO TWO PARTIES AS DISCUSSED ABOVE. THE GOODS PURCHASED BY RFZC WERE DIRECTLY SUPPLIED AND DELIVERED TO ITS PARTIES AT THEIR RESPECTIVE LOCATION. THE GOODS PURCHASED WERE NEVER RECEIVED BY RFZC AT ITS LOCATION. THUS THE ROLE OF RFZC WAS JUST TO RAISE THE INVOICE TO THE PARTIES AND WITHOUT DOING ANY VALUE ADDITION IN THE TRANSACTION OF PURCHASE AND SALES OF THE GOODS. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 30 II. THERE WERE 3 DIRECTORS OF RFZC NAMELY SHRI ATUL DALMIA, NAVEEN DALMIA AND ANIL R. PATEL. OUT OF 3 DIRECTORS, 2 OF THEM NAMELY SHRI ATUL DALMIA AND SHRI ANIL R PATEL WERE BASED IN INDIA AND 1 OF THEM NAMELY SHRI NAVEEN DALMIA WAS BASED IN DRC. THE DIRECTOR SHRI ANIL R. PATEL NEVER TRAVELLED TO DRC AND UAE. AS SUCH, THERE WAS NOBODY IN RFZC TO MANAGE AND CONTROL ITS AFFAIRS. III. THERE WAS ONLY ONE EMPLOYEE PRESENT IN RFZC. SIMILARLY, THERE WAS NO FIXED ASSETS SHOWN IN THE FINANCIAL STATEMENT OF RFZC AS ON 31 MARCH 2007 WHEREAS THERE WAS THE TURNOVER FOR THE YEAR ENDING 31 ST MARCH 2007 AT AED 10,05,70,174/-. LIKEWISE THE TURNOVER SHOWN AS ON 31 ST MARCH 2008 STANDS AT AED 74,00,128/- WHEREAS PROPERTY PLANT AND EQUIPMENT SHOWN AT AED 4,164/- ONLY AS ON 31 MARCH 2008. IV. IT WAS POINTED OUT BY THE LEARNED DR THAT THE CONTENTION OF THE LEARNED AR THAT THE EMPLOYEES OF THE ENTIRE GROUP OF RUBAMIN ARE USING THE EMAIL IDS IN THE DOMAIN NAME OF RUBAMIN.COM, BUT THE SAME IS NOT TRUE. FOR THIS PURPOSE, THE LEARNED DR DREW OUR ATTENTION ON VARIOUS PAGES OF THE PAPER BOOK INCLUDING THE PAGE 36 OF THE PAPER BOOK 2 TPO FOR THE AY 2011-12 WHERE DIFFERENT IDS WERE USED AS DETAILED BELOW: A. NAVEEN_DALMIA2002@YAHOO.COM B. RAJESHAGGARWAL2004@YAHOO.CO.IN C. GUPTADC2006@YAHOO.COM D. PRESANNAKUMAR2002@YAHOO.CO.IN E. RUBAMINFZC@GMAIL.COM F. INFO@RUBAMIN.COM V. LIKEWISE, THE INVOICES ISSUED BY RFZC IN THE NAME OF THE ASSESSEE WERE NOT CONTAINING ANY ADDRESS AND PHONE NUMBERS. IT IS ALSO NOT CLEAR WHO IS SIGNING THE INVOICES. FURTHERMORE, IT IS ALSO NOT CLEAR WHETHER THESE INVOICES WERE PREPARED IN THE OFFICE OF RFZC OR ANYWHERE ELSE. IT IS BECAUSE THERE IS NO OPERATION IN THE OFFICE OF RFZC UAE. THIS FACT CAN BE VERIFIED FROM THE COPIES OF THE INVOICES IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 31 PLACED ON PAGES 36 TO 68 OF THE PAPER BOOK 2-TPO FOR THE AY 2011- 12. VI. THERE WAS NO BOARD MEETING HELD IN RFZC AS ADMITTED BY SHRI ND IN THE STATEMENT FURNISHED UNDER SECTION 131(1A) OF THE ACT DATED 6 JUNE 2013 VIDE QUESTION NO. 17 PLACED ON PAGES 27 PAPER BOOK 4- RUB FOR THE ASSESSMENT YEAR 2008-09 TO 2013-14. HOWEVER, THE BOARD MEETINGS WERE HELD IN RFZC DATED 1 MARCH 2012 AND 5 TH SEPTEMBER 2012 WHICH WERE RELATED TO THE DIVIDEND ONLY. HOWEVER SUCH BOARD MEETING WAS NOT SIGNED AT UAE AND THERE WAS NO INFORMATION ABOUT THE PERSONS WHO ATTENDED SUCH BOARD MEETINGS. LIKEWISE THERE WAS NO MENTIONED ABOUT THE PLACE WHERE THE BOARD MEETING WAS HELD. THIS FACT CAN BE VERIFIED FROM PAGES 105 AND 108 OF THE PAPER BOOK 3-FZC. B. THE ACTIVITIES SHOWN IN RFZC ON PAPERS ARE CONTROLLED AND MANAGED IN INDIA. I. THERE WERE VARIOUS EMAILS/DOCUMENTS PERTAINING TO RFZC FOUND FROM THE PREMISES OF THE ASSESSEE DURING THE SEARCH. THESE DOCUMENTS/ EMAILS PRIMARILY CONTAIN THE FOLLOWING INFORMATION: A. SOP FOR THE PAYMENT B. DIVIDEND DISTRIBUTION RESOLUTION C. COMMUNICATION BETWEEN AD AND MR. YU LONG ABOUT THE DEALING IN COPPER PRODUCTS. D. BOOKS OF ACCOUNTS OF RFZC MAINTAINED IN TALLY IN THE COMPUTER NUMBERED B-0110D IN INDIA. E. BANK ACCOUNT OF RFZC WAS OPERATED BY AD FROM INDIA AS ADMITTED BY AD VIDE QUESTION NO. 52 AND 55, 58 & 59 IN THE STATEMENT RECORDED UNDER SECTION 132(4) OF THE ACT DATED 20 TH APRIL 2013 AFTER UNDERSTANDING THE BUSINESS TRANSACTIONS. BASED ON THE ABOVE EMAILS/DOCUMENTS, THE LEARNED DR VEHEMENTLY SUBMITTED THAT THE AFFAIRS OF RFZC ARE CONTROLLED AND MANAGEMENT IN INDIA. AS SUCH, THE IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 32 OFFICE OF RFZC HAS BEEN ESTABLISHED IN UAE BEING TAX FREE ZONE, TO DIVERT THE INCOME BY ADOPTING A COLOURABLE DEVICE WHICH IS NOT PERMISSIBLE UNDER THE PROVISIONS OF LAW. THE FINANCIAL STATEMENTS OF RFZC WAS SIGNED BY SHRI ND IN THE CAPACITY OF MANAGER NOT AS THE MANAGING DIRECTOR. THUS IT SHOWS THAT THE DIRECTOR OF RFZC IS A PUPPET OF RUBAMIN LTD. THERE WAS AN EMAIL BY ND FOR CHANGING THE SALARY IN THE GROUP AS A WHOLE BUT SUCH EMAIL DOES NOT CONTAIN ANY INFORMATION ABOUT THE EMPLOYEES WORKING FOR RFZC. THIS EMAIL IS PLACED ON PAGE 13 OF THE PAPER BOOK 3 FZC. IN OTHER WORDS THE SALARIES OF THE COMPANIES IN DRC WERE REVISED FROM INDIA. THE ROLE OF ND WAS DESIGNED BY THE HR HEAD BASED IN INDIA AS EVIDENT FROM THE EMAIL PLACED ON PAGE 58 OF THE PAPER BOOK 3-FZC. THIS EMAIL SUGGEST THAT ND THE MANAGING DIRECTOR OF RFZC IS NOT WORKING INDEPENDENTLY. AS PER THE EMAIL WRITTEN BY SD TO ND DESIGNING THE SOP FOR RFZC PAYMENT AT BARODA OFFICE WHICH IS PLACED ON PAGES 62 OF THE PAPER BOOK 3-FZC. AS PER THE EMAIL THE PAYMENT ADVICE TO BE MADE AT DRC OFFICE BY ROA, FIRST WILL BE APPROVED BY ND AND IT WILL FURTHER BE AUTHORISED BY SD UPTO $10,000 AND THE PAYMENT BEYOND $10,000/- HAS TO BE AUTHORISED BY AD. THUS IT APPEARS THAT THERE WAS A COMPLETE CONTROL OF RUBAMIN LTD ON THE BANKING OF RFZC. C. OTHER CONTENTIONS I. HE ALSO SUBMITTED THAT ND WAS EARLIER AN EMPLOYEE OF THE ASSESSEE COMPANY UPTO THE YEAR 2006 AND DRAWING SALARY. HOWEVER, IN THE YEAR 2007 HE WAS SHIFTED TO DRC AFTER TAKING THE CHARGE AS DIRECTOR IN RFZC. ND IS ALSO A SHAREHOLDER IN RFZC HOLDING 10% OF THE EQUITY SHARE WHICH WERE ALLOTTED BY THE COMPANY IN THE FORM OF SWEAT EQUITY SHARES. AS SUCH, THE INVESTMENT MADE BY ND WAS WITHOUT ANY CONSIDERATION. THUS SHRI ND WAS ACTING AS DIRECTOR AND REPRESENTING HIMSELF AS SHAREHOLDER ON PAPERS ONLY. OTHERWISE, HE WAS WORKING UNDER THE SUPERVISION OF AD IN THE CAPACITY OF THE MANAGER. THIS FACT CAN BE VERIFIED FROM THE REMAND REPORT OF THE IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 33 AO PLACED ON PAGES 148 OF THE PAPER BOOK -4 RUB. THEREFORE IT CANNOT BE SAID THAT SHRI ND WAS ACTING IN THE CAPACITY OF INDEPENDENT DIRECTOR. FURTHERMORE, SHRI ND HAS SIGNED THE FINANCIAL STATEMENTS IN THE CAPACITY OF THE MANAGER ONLY. THIS FACT CAN BE VERIFIED FROM THE FINANCIAL STATEMENTS OF RFZC WHICH ARE PLACED ON PAGES 57 OF THE PAPER BOOK 1-GEN FOR A.Y. 2008-09. II. THERE WERE BANKING FACILITIES AVAILABLE IN DRC. THIS FACT CAN BE VERIFIED FROM THE REPORT OF THE INTERNATIONAL MONITORING FUND WHICH IS PLACED ON PAGES 118 TO 146 OF THE PAPER BOOK 4-RUB. ACCORDINGLY THE CONTENTION OF THE LEARNED AR THAT THERE WAS LACK OF BANKING FACILITIES IS NOT TENABLE. III. IT WAS EXPLAINED BY THE LEARNED AR THAT THERE IS NOT AVAILABLE LIBERALISED EXCHANGE SYSTEM IN INDIA. FOR EXAMPLE, THE DRC IS PURCHASING THE GOODS FROM TANZANIA AND THE PAYMENT WAS DIRECTLY MADE BY RFZC TO TANZANIA ON BEHALF OF DRC. THIS 3 RD PARTY PAYMENT WAS NOT POSSIBLE FROM INDIA AS THERE ARE CERTAIN RESTRICTIONS BY THE RBI. HOWEVER, THE LEARNED DR SUBMITTED THAT SHRI AD IN HIS STATEMENT RECORDED UNDER SECTION 132(4) DATED 20 TH APRIL 2013 VIDE QUESTION NO. 22 HAS ADMITTED TO HAVE SUPPLIED PLANT AND MACHINERY IS AND ITS CONSUMABLES TO DRC COMPANIES. THE PAYMENT FOR THE SAME WAS RECEIVED FROM RFZC ACCOUNT UP TO JULY 2010 AND THEREAFTER FROM THE BANK ACCOUNTS OF THE COMPANIES IN DRC WHICH WERE OPENED IN UAE. ACCORDINGLY, IT WAS CONTENDED BY THE LEARNED DR THAT THE ARGUMENT OF THE LEARNED AR FOR THE LIBERALISED EXCHANGE SYSTEM NOT AVAILABLE IN DRC IS NOT TENABLE. IT IS FOR THE TWO REASONS THAT FIRSTLY IT WAS RECEIVING THE MONEY FROM RFZC UAE WHICH IS A 3 RD PARTY AND SECONDLY THE BANK ACCOUNT OF DRC COMPANY WAS IN OPERATION IN UAE. IV. THERE WAS THE PURCHASE CONTRACT ATTACHED ON PAGES 58 TO 65 OF THE PAPER BOOK 4-RUB BETWEEN RFZC AND THE PARTY NAMELY TRAFIGURA BEHEER WHEREIN THE DATE AND THE NAME OF THE PERSON WHO HAS IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 34 SIGNED THE CONTRACT ON BEHALF OF RFZC WAS NOT APPEARING. LIKEWISE, IN THE AGREEMENT THERE WAS CLEARLY MENTIONED THAT IN THE EVENT OF ANY CHANGE IN THE ORGANISATION, CONTROL OR MANAGEMENT, SHAREHOLDING ETC., THERE WILL NOT BE ANY CHANGED IN THE CONTRACT. IN OTHER WORDS THE CONTENTS AND THE CLAUSES APPEARING IN THE CONTRACT SHALL REMAIN CONTINUE IN FULL FORCE AND EFFECT. THE CONDITIONS IN THE AGREEMENT SUGGESTS THAT THERE WAS NO CONTROL OF SHRI NAVEEN DALMIA IN THE COMPANY NAMELY RFZC UAE. V. AS PER IMF REPORT, THE BANKING SYSTEM WAS ESTABLISHED LONG AGO IN DRC, THEREFORE THE CONTENTION OF THE ASSESSEE FOR HAVING POOR BANKING FACILITY IN DRC IS NOT ACCEPTABLE. FURTHERMORE, THE SUBSIDIARY COMPANIES OF THE ASSESSEE BASED IN DRC WERE ALREADY FUNCTIONING THEREIN WITH THE EXISTING BANKING FACILITY. VI. THERE WERE A LOT OF EMAILS EXCHANGE BETWEEN THE GROUP WITH RESPECT TO THE CAPITAL RESTRUCTURING, BANK BORROWINGS, EVALUATION OF THE BALANCE SHEETS, COST CUTTINGS, STRATEGY, BUDGETS, TREASURY FUNCTIONS, PROCESSING UNIT IN DRC AND FOR ALL THE GROUP COMPANY IS WITH SHRI AD. IN MANY EMAILS THERE WAS THE DISCUSSION ABOUT RFZC WITHIN THE DIRECTORS OF RUBAMIN LTD BUT WITHOUT INVOLVING THE MANAGEMENT OF RFZC. ALL THESE EMAILS SUGGEST THAT THE ENTIRE ACTIVITIES OF THE GROUP WERE CONTROLLED AND MANAGED BY SHRI AD WHO IS BASED IN INDIA VII. THE APPOINTMENT LETTER DATED 23 RD MARCH 2009 OF SHRI RAJESH AGARWAL AS VICE PRESIDENT COMMERCIAL FOR RUBAMIN SPRL WAS ISSUED BY THE HR HEAD OF RUBAMIN LTD. ACCORDINGLY THE LEARNED DR CONTENDED THAT THE APPOINTMENTS OF THE EMPLOYEES OF DRC COMPANIES AND RFZC WAS MADE IN INDIA. VIII. THERE WAS A TARGET FIXED FOR SHRI ND FOR THE FINANCIAL YEAR 2010-11 AND ON ACHIEVING SUCH TARGETS THERE WAS THE INCENTIVE PROPOSED FOR HIM. ACCORDINGLY IT WAS CONTENDED THAT THE DIRECTORS OF DRC AND RFZC WERE ACTING AS THE PUPPET. IX. LIKEWISE THERE WAS AN EMAIL WRITTEN BY AD TO SHRI RAJESH AGGARWAL (RA) ALONG WITH TO SHRI NAVIN DALMIA (ND) AND SHRI AJAY AGGARWAL IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 35 (AA) IN CC, WHEREIN IT WAS DIRECTED THAT THE HEDGING ACTIVITY WITH RESPECT TO THE COPPER WILL BE CONTROLLED ONLY BY AD AND NOBODY ELSE. IF SUCH POLICY IS NOT ADHERED TO 100% THEN IT WILL BE CONSIDERED A GROSS INDISCIPLINE. SUCH EMAIL REFLECTS THAT THAT THE AFFAIRS WERE CONTROLLED ONLY BY SHRI AD. X. SIMILARLY THERE WAS AN EMAIL WRITTEN BY AD TO ND AND ALSO TO MARKED CC TO AJAY AGARWAL AND RAJESH OF WHEREIN IT WAS DIRECTED TO HOLD THE BOARD MEETINGS WITH RESPECT TO DRC OPERATIONS. THE COPY OF THE EMAIL IS PLACED ON PAGE 75 PAPER BOOK 3- FZC. XI. THE ASSESSEE WAS PROCURING GALVANISES FROM UAE BUT THE SAME WAS ROUTED THROUGH RFZC. THIS CAN BE VERIFIED FROM THE EMAIL PLACED ON PAGE 166 OF THE PAPER BOOK 3-FZC. THERE WAS ANOTHER EMAIL PLACED ON PAGE 167 OF THE PAPER BOOK 3-FZC WHEREIN IT WAS MENTIONED THAT ALL THE PROFITS ARE BOOKED AT RFZC WHEREAS THE LOSSES ARE BOOKED AT DRC. AS PER THE LEARNED DR THE TRANSACTIONS WERE MANIPULATED IN SUCH A WAY TO SHOW MORE PROFIT AT RFZC. XII. THE BOOKS OF ACCOUNTS OF RFZC WERE MAINTAINED IN INDIA IN THE FINANCIAL YEAR 2008-09 AS EVIDENT FROM THE EMAIL PLACED ON PAGE 172 OF PAPER BOOK 3-FZC. XIII. FZC BEING TRADING COMPANY DOES NOT REQUIRE ANY MANPOWER SUCH AS SAMPLER, GEOLOGIST, SHIFTING CHARGE, SECURITY OFFICER, FITTER, ELECTRICIAN ET CETERA. HOWEVER, RFZC HAS SHOWN SUCH EMPLOYEES IN ITS BOOKS OF ACCOUNTS BUT ACTUALLY ALL OF THEM WERE WORKING FOR THE COMPANY WHICH IS BASED IN THE DRC EXCEPT ONE EMPLOYEE NAMELY SHRI PILLAI PRESANNA KUMAR RAMAN IN THE ASSESSMENT YEAR 2008-09, 10-11. BUT IN THE ASSESSMENT YEAR 2009-10, 2011-12, 2012-13, 13-14, 14- 15 THERE WAS NO EMPLOYEE IN RFZC. AS PER THE LEARNED DR IT WAS NOT POSSIBLE THAT THERE IS NO NEED OF ANY EMPLOYEE IN RFZC DESPITE HAVING TURNOVER OF FEW HUNDRED CRORES OF RUPEES IN INDIAN CURRENCY. 45. THE SUM AND THE SUBSTANCE OF THE ARGUMENTS ADVANCED BY THE LEARNED DR WAS THAT THE WHOLE PURPOSE OF CREATING THE RFZC WAS TO DIVERT PROFIT WHICH IS EVIDENT IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 36 FROM THE UNDISPUTED FACT THAT NO OPERATION CARRIED OUT AT RFZC IN ACTUAL SENSE AND WHATEVER PAPER TRANSACTIONS HAS BEEN SHOWN IN THE FINANCIAL STATEMENTS OF RFZC WERE MANAGED AND CONTROLLED FROM INDIA. ACCORDINGLY, THE LEARNED DR URGED BEFORE US TO TREAT THE EXISTENCE OF RFZC AS A PAPER/ SHELL COMPANY. 46. THE LEARNED DR IN VIEW OF THE ABOVE FURTHER CONTENDED THAT ONCE IT IS ESTABLISHED THAT RFZC IS A PAPER COMPANY THEN IT IS NECESSARY TO LIFT THE CORPORATE VEIL AND ADD THE INCOME OF RFZC TO THE TOTAL INCOME OF THE ASSESSEE BEING A HOLDING COMPANY WHICH IS MAKING THE INVESTMENT AND CONTROLLING ITS AFFAIRS. THE LEARNED DR IN SUPPORT OF HIS CONTENTION RELIED ON VARIOUS JUDGEMENT OF HONBLE COURTS AND FILED A CASE LAW PAPER BOOK TO THIS EFFECT WHICH IS AVAILABLE ON RECORD. 47. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE CASE ON HAND, THE REVENUE HAS TREATED THE SUBSIDIARY COMPANY NAMELY RFZC (RFZC) LOCATED IN UAE A SHELL/PAPER COMPANY. AS PER THE REVENUE, THE COMPANY RFZC WAS INCORPORATED BY THE ASSESSEE FOR DIVERTING ITS PROFIT BY USING THE COLOURABLE DEVICE. THE COMPANY BASED IN UAE IS FREE FROM ANY TAX LIABILITY. 48. IN OTHER WORDS, THE COMPANY NAMELY RFZC WAS SITUATED IN A TAX-FREE ZONE AND THE ASSESSEE WAS DIVERTING ITS INCOME TO SUCH COMPANY WITH THE MOTIVE TO AVOID THE TAX. THE NECESSARY FACTS ARISING FROM THE ORDER OF THE AUTHORITIES BELOW HAVE ALREADY BEEN ELABORATED IN THE PRECEDING PARAGRAPH. THEREFORE WE NOT INCLINED TO REPEAT THE SAME FOR THE SAKE OF BREVITY AND CONVENIENCE. 49. THE 1 ST ISSUE THAT ARISES BEFORE US FOR OUR ADJUDICATION SO AS TO WHETHER THE COMPANY NAMELY RFZC LOCATED IN UAE WAS A PAPER COMPANY. ON PERUSAL OF THE FINANCIAL STATEMENTS OF THE COMPANY AS ON 31 MARCH 2011, WE NOTE THAT IT IS ENGAGED IN TRADING ACTIVITY AND HAS SHOWN TURNOVER IN AED 19,13,10,114/- (APPROX 229 CRORES IN INDIAN CURRENCY). IT HAS ALSO SHOWN RECEIVABLES, PAYABLES, LOANS FROM THE BANKS, ADMINISTRATIVE EXPENSES IN THE FINANCIAL STATEMENTS. THUS IF WE SEE THE FINANCIAL STATEMENTS, IT IS TRANSPIRED THAT THE COMPANY (RFZC) IN DISPUTE IS CARRYING OUT ITS BUSINESS ACTIVITIES. BUT ON PERUSAL OF THE RECORDS AS HIGHLIGHTED BY THE AUTHORITIES BELOW, CERTAIN CRUCIAL FACTS EMERGE WHICH REQUIRE ATTENTION. THESE FACTS ARE DETAILED AS UNDER: IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 37 I. IT (RFZC) HAS 90 EMPLOYEES AS CLAIMED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. IT IMPLIES THAT THE SALARY TO THESE EMPLOYEES IS PAID BY THE RFZC WHICH IS LOCATED IN UAE. HOWEVER, NONE OF THE EMPLOYEE IS BASED IN UAE, RATHER ALL OF THEM ARE BASED IN DRC. IT WAS CLAIMED THAT THESE EMPLOYEES ARE WORKING FOR RFZC SITTING IN DRC EXCEPT ONE. THIS FACT PREVAILS RIGHT FROM THE INCEPTION OF THE COMPANY AND UP TO THE YEAR UNDER CONSIDERATION I.E. THE EMPLOYEES OF RFZC ARE DISCHARGING THEIR FUNCTIONS/DUTIES FOR THE COMPANY FROM THE DRC. THUS IT APPEARS VERY SURPRISING THAT HOW THE RFZC IS MANAGING ITS AFFAIRS THROUGH THE EMPLOYEES LOCATED IN DRC DESPITE HAVING SUCH A HUGE TURNOVER OF AED 19,13,10,114/-( RS. 229 CRORE APPROXIMATELY (1AED= 12/- RS. IN INDIAN CURRENCY). II. LIKEWISE, ON PERUSAL OF THE FINANCIAL STATEMENT OF RFZC, WE NOTE THAT THERE IS NOT EVEN A COMPUTER SHOWN THEREIN WHICH WAS VERY ESSENTIAL AT LEAST FOR GENERATING THE SALES BILLS. THUS, IT APPEARS EVEN THE SALES BILL OF RFZC HAVE BEEN ISSUED FROM THE DRC AS THE DIRECTORS OF THE COMPANY ARE BASED THEREIN. III. THE SALES BILLS HAVE BEEN AUTHORISED BY THE PERSON BASED IN DRC. BUT THERE WAS NO DOCUMENT FILED SUGGESTING THAT SUCH PERSON HAS VISITED TO RFZC AT UAE. THE COPY OF THE PASSPORT WAS NOT AVAILABLE ON RECORD. FURTHERMORE, THE SALES BILLS HAVE BEEN ISSUED ON CONTINUOUS BASIS THROUGHOUT THE YEAR BUT THE CONCERN OFFICER/ RFZC WAS NOT AVAILABLE IN UAE THROUGHOUT THE YEAR. IV. INDEED, THE COMPANY REGISTERED IN DRC IS PRODUCING COBALT AND COPPER CONCENTRATE WHICH IS SUPPLIED DIRECTLY TO ULTIMATE CUSTOMERS BASED IN CHINA AND INDIA. BUT FOR THE PURPOSE OF BILLING, THE COMPANY RFZC AT UAE HAS BEEN USED FOR GENERATING THE INVOICES IN THE NAME OF CUSTOMERS AT CHINA AND INDIA. THUS FROM THE MODUS OPERANDI EMPLOYED, IT IS EMERGED THAT NO ACTIVITY IS CARRIED OUT IN UAE EXCEPT SHOWING SO CALLED SALE AND PURCHASE ON PAPERS IN RFZC. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 38 V. THERE WAS NO TELEPHONE/INTERNET CONNECTION UP TO THE YEAR 2010 WHICH IS SIGNIFICANT ENOUGH TO ESTABLISH THAT THE OFFICE OF RFZC WAS NOT FUNCTIONAL PROPERLY AT ALL. VI. THE EMPLOYEES ENGAGED BY THE RFZC, WERE RESIDING IN DRC WHO WERE PERFORMING DIFFERENT FUNCTIONS SUCH AS FITTER, ELECTRICIAN, GEOLOGIST, CHEMIST, OPERATOR, SUPERVISOR, SHIFT IN CHARGE, SAMPLER ETC SO ON SO FORTH. IT IS VERY SURPRISING A TRADING COMPANY IS KEEPING SUCH KIND OF PERSONS. THUS WHAT APPEARS THAT SUCH EMPLOYEES ARE WORKING FOR THE DRC COMPANIES AND NOT FOR RFZC. VII. IT IS ALSO DIFFICULT TO UNDERSTAND THAT HOW RFZC IS OPERATING ITS BANK ACCOUNTS FOR THE REASON THAT NONE OF THE EMPLOYEE EXCEPT ONE IS BASED IN UAE. THUS IT IS TRANSPIRED THAT RFZC HAS AVAILED INTERNET BANKING FACILITY AND ITS DIRECTORS ARE USING THE SAME SITTINGS FROM DRC/ OR FROM ANYWHERE ELSE. VIII. ON PERUSAL OF THE BALANCE SHEET OF RFZC FOR THE YEAR UNDER CONSIDERATION, IT IS SEEN THAT IT HAS FIXED ASSETS WORTH OF AED 4749/- EQUIVALENT IN INDIAN CURRENCY RS. 56,988/- (1AED = 12/- RS. APPROX) ONLY. AGAIN IT IS SURPRISING THAT A COMPANY OPERATING AT SUCH A BIG SCALE SHOWING A TURNOVER WORTH OF RS. 229 CRORE HAS FIXED ASSETS OF NEGLIGIBLE VALUE. A QUESTION ALSO COMES TO OUR MIND THAT THE COMPANY, RFZC, BEING A TRADING COMPANY DOES NOT REQUIRE ANY FIXED ASSETS. IN OTHER WORDS IT IS JUST BUYING THE GOODS FROM ITS WHOLLY OWNED SUBSIDIARY COMPANIES BASED IN DRC AND SUPPLYING THEM ONLY TO TWO CUSTOMERS NAMELY M/S TRAFIGURA AND TO THE ASSESSEE. THE MOST OF THE SALES IS TO THE CUSTOMER NAMELY TARFIGURA BASED IN CHINA. THEREFORE SUCH COMPANY DOES NOT NEED ANY BIG INFRASTRUCTURE BEING TRADING COMPANY. BUT THE CORRESPONDING QUESTION THAT NEEDS TO BE ADDRESSED IS THAT WHY RFZC IS HIRING SO MANY EMPLOYEES OF DIFFERENT CALIBRE SUCH AS ELECTRICIAN, FITTER DISCUSSED ABOVE FOR PERFORMING ITS TRADING FUNCTION. IX. IT IS ALSO SEEN THAT THERE WAS NO BOARD MEETING CONDUCTED IN RFZC DURING THE YEAR UNDER CONSIDERATION. GENERALLY THE BOARD OF DIRECTORS MEET AT REGULAR INTERVALS TO DISCUSS THE AFFAIRS OF THE COMPANY. HOWEVER, IN THE ABSENCE OF SUCH MEETING, THE CONTROVERSY ARISES HOW THE DECISIONS ARE TAKEN BY THE DIRECTORS OF THE RFZC WITH RESPECT TO DIFFERENT AFFAIRS SUCH AS OPERATIONS, IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 39 FINANCIALS, BANKING FACILITIES, HR DUTIES ETC. ON THE CONTRARY, THE AUTHORITIES BELOW HAVE POINTED OUT IN THEIR ORDERS BASED ON THE EMAILS AND DOCUMENTS FOUND DURING THE SEARCH UNDER SECTION 132 OF THE ACT WHERE VARIOUS AFFAIRS OF THE COMPANY WERE DISCUSSED WHICH HAVE BEEN ELABORATED IN THE PRECEDING PARAGRAPH THAT RFZC IS A PAPER COMPANY AND ITS AFFAIRS ARE CONTROLLED AND MANAGED FROM INDIA. HOWEVER, FOR THE READY REFERENCE, SUCH AFFAIRS CAN BE CATEGORISED AS UNDER: A. CAPITAL AND DEBT RESTRUCTURING FOR THE FINANCE B. PAYMENT AUTHORIZATION SOP C. DECLARATION OF DIVIDEND D. BOARD RESOLUTION PASSES FOR DECLARATION OF DIVIDEND E. APPOINTMENT OF EMPLOYEES F. HEDGING POLICY OF COPPER G. BOOKS OF ACCOUNTS MAINTAIN IN INDIA H. SALE CONTRACT BETWEEN RFZC AND ITS CUSTOMER I. BUSINESS STRATEGY PLAN J. SUPPLY CONTRACT AGREEMENT K. SALARY CHART OF EMPLOYEE BASED IN DRC X. IT WAS SEEN THAT THE BOOKS OF ACCOUNTS WERE MAINTAINED BY SHRI PRADEEP BUT HE WAS NOT RESIDING IN UAE. THUS, A DOUBT ARISES ABOUT THE MAINTENANCE OF THE BOOKS OF ACCOUNTS WHETHER SUCH BOOKS OF ACCOUNTS WERE MAINTAINED AT THE OFFICE OF RFZC OR ELSEWHERE. TO OUR UNDERSTANDING, THESE BOOKS OF ACCOUNTS WERE NOT MAINTAINED AT THE OFFICE OF RFZC IN UAE AS THE ASSESSEE FAILED TO SUBSTANTIATE ITS CONTENTION BASED ON THE DOCUMENTARY EVIDENCE. XI. ON ANALYSING THE FINANCIAL STATEMENTS OF ALL THE COMPANIES OF THE GROUP, IT IS SEEN THAT THE GROUP BASED IN DRC AND IN INDIA ARE ONLY INCURRING LOSSES WHEREAS COMPANY BASED IN UAE IS GENERATING HUGE PROFIT WHICH IS SITUATED IN TAX FREE ZONE. AGAIN THIS APPEARS TO BE AN ABNORMAL SITUATION. IN ALL THE YEARS RIGHT FROM THE ASSESSMENT YEAR 2008-09 UP TO THE ASSESSMENT YEAR IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 40 2013-14 THERE WERE ONLY LOSSES IN DRC-BASED COMPANIES AND INDIAN-BASED COMPANIES EXCEPT IN ONE YEAR (AY 2013-14) WHERE AN AMOUNT OF PROFIT OF RS. 2.15 CRORE WAS SHOWN BY THE ASSESSEE BUT THAT TOO ON ACCOUNT OF THE REVERSAL OF THE EXPENSES CLAIMED BY IT FOR THE FRAUD COMMITTED BY THE EMPLOYEE OF THE ASSESSEE. XII. IT IS ALSO AVAILABLE ON RECORD THAT THE CUSTOMER OF RFZC HAS WRITTEN AN EMAIL DATED 24 TH FEBRUARY 2009 TO THE DIRECTOR, SHRI AD OF RUBAMIN LTD WITH REGARD TO THE PURCHASE OF MATERIAL COBALT CONCENTRATE FROM RFZC. THIS APPEARS BIT ABNORMAL WHY THE CONSUMER OF RFZC SHALL RAISE THE QUERY TO THE RUBAMIN LTD IN INDIA INSTEAD OF RFZC XIII. IT WAS ALSO FOUND THAT CFO OF RFZC HAS ALSO WRITTEN AN EMAIL DATED 03-04- 2009 TO THE DIRECTOR OF RUBAMIN LTD NAMELY SHRI AD ABOUT THE PROFIT ON SALE OF COPPER PRODUCTS. 50. FROM THE ABOVE, IT IS TRANSPIRED THAT THERE WAS NOT ANY MAJOR ACTIVITY CARRIED OUT BY THE RFZC EXCEPT ON PAPERS. IT IS NOT OUT OF THE PLACE TO MENTION THAT THE ASSESSEE COMPANY BEING A PARENT/HOLDING COMPANY HAS TO KEEP A TRACK OF ITS SUBSIDIARIES. THE ACT OF KEEPING SUCH TRACK CAN BE REFERRED AS SHAREHOLDERS FUNCTIONS AND NOTHING WRONG IN THIS. THE HONBLE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDING B.V VS. UNION OF INDIA REPORTED IN 17 TAXMANN.COM 202 HAS ALSO HELD AS UNDER: HOLDING STRUCTURES ARE RECOGNIZED INCORPORATE AS WELL AS TAX LAWS. SPECIAL PURPOSE VEHICLES (SPVS) AND HOLDING COMPANIES HAVE A PLACE IN LEGAL STRUCTURES IN INDIA, BE IT IN COMPANY LAW, TAKEOVER CODE UNDER SEBI OR EVEN UNDER THE INCOME-TAX LAW. WHEN IT COMES TO TAXATION OF A HOLDING STRUCTURE, AT THE THRESHOLD, THE BURDEN IS ON THE REVENUE TO ALLEGEAND ESTABLISH ABUSE, IN THE SENSE OF TAX AVOIDANCE IN THE CREATION AND/OR USE OF SUCH STRUCTURE(S). A PARENT COMPANY EXERCISES SHAREHOLDER'S INFLUENCE ON ITS SUBSIDIARIES DOES NOT GENERALLY IMPLY THAT THE SUBSIDIARIESARE TO BE DEEMED RESIDENTS OF THE STATE IN WHICH THE PARENT COMPANY RESIDES. 51. HOWEVER CONSIDERING THE FACTS IN TOTALITY AS ELABORATED IN THE PRECEDING PARAGRAPH, THE KINDS OF EMAILS AND THE DOCUMENTS FOUND DURING THE SEARCH AND THE OTHER CIRCUMSTANTIAL EVIDENCES STRONGLY SUGGEST THAT THE ASSESSEE BEING A HOLDING IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 41 COMPANY WAS NOT COLLECTING THE INFORMATION FROM THE SUBSIDIARY FOR RECORD PURPOSES OR TO KEEP THE TRACK IN THE MANNER OF SHAREHOLDERS FUNCTION. RATHER IT IS SEEMED THAT MR. AD PROMOTER AND MD OF ASSESSEE IS FORMULATING AND DECIDING THE STRATEGIES BE IT FINANCIAL OR HEDGING OF ITS SUBSIDIARY COMPANIES. THEREFORE IT IS EMERGED THAT NEITHER ANY EFFECTIVE OPERATIONS ARE CARRIED OUT AT RFZC NOR ANY DECISION WERE TAKEN. THE COMPANY RFZC WAS ONLY USED FOR THE PURPOSE OF ROUTING THE TRANSACTIONS ON PAPERS. IN THE LIGHT OF ABOVE DISCUSSION, CAN THE RUBMIN RFZC BE CATEGORIZED AS A PAPER/ SHELL COMPANY? 52. NOW IT BECOMES IMPORTANT TO UNDERSTAND SHELL OR PAPER COMPANY. IN THIS REGARD WE NOTE THAT THE SHELL /PAPER COMPANY HAS NOT BEEN DEFINED UNDER THE ACT OR IN ANY OTHER ACT APPLICABLE FOR THE TIME BEING IN IN INDIA. HOWEVER, WE FIND THAT THE ORGANIZATION FOR ECONOMIC CO-OPERATION AND ECONOMICS DEVELOPMENT (IN SHORT OECD) HAS DEFINED SHELL COMPANIES AS A SHELL COMPANY IS A FIRM THAT DOES NOT CONDUCT ANY OPERATIONS IN THE ECONOMY (OTHER THAN IN A PASS-THROUGH CAPACITY), BUT IT IS FORMALLY REGISTERED, INCORPORATED, OR LEGALLY ORGANIZED IN THE ECONOMY. 53. SIMILARLY, THE U.S. SECURITIES AND EXCHANGE COMMISSION DEFINES A 'SHELL' COMPANY AS FOLLOWS: SHELL COMPANY: THE TERM SHELL COMPANY MEANS A REGISTRANT, OTHER THAN AN ASSET-BACKED ISSUER AS DEFINED IN ITEM 1101(B) OF REGULATION AB ( 229.1101(B) OF THIS CHAPTER), THAT HAS: (1) NO OR NOMINAL OPERATIONS; AND (2) EITHER: (I) NO OR NOMINAL ASSETS; (II) ASSETS CONSISTING SOLELY OF CASH AND CASH EQUIVALENTS; OR (III) ASSETS CONSISTING OF ANY AMOUNT OF CASH AND CASH EQUIVALENTS AND NOMINAL OTHER ASSETS 53.1 RECENTLY THE HONBLE HIGH COURT OF GUWAHATI IN ITS JUDGMENT IN THE CASE OF ASSAM CO. INDIA LTD VS. UNION OF INDIA REPORTED IN [2019] 103 TAXMANN.COM 160 (GAUHATI) ALSO REFERRED THE SHELL COMPANIES AS DETAILED UNDER: COMPANY HAVING ONLY NOMINAL EXISTENCE I.E. IT EXISTS ONLY ON PAPER WITHOUT HAVING ANY OFFICE AND EMPLOYEE. SUCH COMPANY IS A CORPORATE ENTITY WITHOUT HAVING ACTIVE BUSINESS OPERATION OR SIGNIFICANT ASSETS. SUCH COMPANY MAY BE USED AS DELIBERATE FINANCIAL ARRANGEMENT PROVIDING SERVICE AS A TOOL OR VEHICLE OF OTHERS WITHOUT ITSELF HAVING ANY SIGNIFICANT ASSETS OR OPERATION; IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 42 54. FROM THE ABOVE IT IS TRANSPIRED THAT, A SHELL COMPANY IS A COMPANY THAT EXISTS ONLY ON PAPER. IT DOES NOT HAVE ANY ACTUAL ACTIVE BUSINESS OPERATIONS NOR ANY SIGNIFICANT NUMBER OF ASSETS. THESE COMPANIES DO NOT ENGAGE IN ANY ECONOMIC ACTIVITIES BUT HAVE SOME CORPORATE LEGAL PERSONALITY. 55. WE ALSO NOTE THAT SOME OF THE SHELL OR PAPER COMPANIES HAVE BEEN USED FOR ILLEGAL ACTIVITIES SUCH AS TAX EVASION, MONEY LAUNDERING AND IN BLACK MONEY ACTIVITIES. IN ORDER TO CURB THIS PRACTICE OF SHELL OR PAPER COMPANIES, THE GOVERNMENT OF INDIA CONSTITUTED A TASKFORCE HEADED BY REVENUE SECRETARY OF MINISTRY OF CORPORATE AFFAIRS WHICH INCLUDES REPRESENTATIVE FROM FINANCIAL SERVICES, SFIO, CBDT, RBI, SEBI, CBEC, CBI, ED, FIU-IND, DG GSTI, AND DG-CEIBS. BY THEIR EFFORTS THERE WERE THOUSANDS OF SHELL OR PAPER COMPANIES IDENTIFIED WHO WERE INDULGED INTO THE ILLEGAL ACTIVITIES AND ACCORDINGLY ACTION HAVE TAKEN AGAINST THOSE COMPANIES UNDER RESPECTIVE LAWS. BUT THE EXISTENCE OF SHELL COMPANY IS NOT PROHIBITED OR BEING SHELL / PAPER COMPANY IS NOT ILLEGAL UNLESS AND UNTIL IT ENGAGED ANY OF THE ANY ILLEGAL ACTIVITIES. THERE ARE INSTANCES WHERE SHELL OR PAPER COMPANIES HAVE BEEN USED AS SPECIAL PURPOSE VEHICLE OF BUSINESS UNDER THE FRAMEWORK OF LAW. 56. COMING TO THE ISSUE ON HAND WE NOTE THAT, INDEED THE RFZC WAS INCORPORATED AFTER DUE COMPLIANCE OF RBI AS WELL AS THE LOCAL LAWS OF UAE. HOWEVER THE APPROVAL OF RBI AND THE LOCAL LAWS OF UAE DO NOT DECIDE THE NATURE OF TRANSACTIONS. THE PURPOSE OF RBI IS TO APPROVE THE COMPANY WITHIN THE PROVISIONS OF RELEVANT LAW WHICH HAS NO ROLE TO PLAY WITH RESPECT TO THE PROVISIONS OF INCOME TAX ACT. ACCORDINGLY, IN VIEW OF THE ABOVE FACTS AND DEFINITIONS, WE HOLD THAT THE COMPANY NAMELY RFZC IS A SHELL OR PAPER COMPANY WHICH IS NOT DOING ANY BUSINESS ACTIVITY IN REALITY AND ONLY USED AS VEHICLE TO BOOKS SALES AND PROFIT AND THE EMPLOYEES COST WHICH IT HAS SHOWN BUT ACTUALLY, IT IS WORKING FOR DRC COMPANIES. THUS, WE ALSO HOLD THAT THE APPROVAL GIVEN BY THE RBI WILL NOT HELP TO THE ASSESSEE INSOFAR HOLDING THE RFZC AS A PAPER COMPANY. 57. BEFORE PARTING, IT WAS ALSO ARGUED THAT THE EXISTENCE OF THE RFZC WAS ACCEPTED BY THE TPO IN THE EARLIER YEAR. HOWEVER IT PERTINENT TO NOTE THAT IN EARLIER IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 43 ASSESSMENT YEARS, THERE WAS NOT ANY SEARCH OR SURVEY CARRIED OUT. INDEED IN THOSE ASSESSMENT YEARS, THE ASSESSMENT WAS COMPLETED BASED ON THE INFORMATION FURNISHED IN THE RETURN AND BOOKS OF ACCOUNT SUBMITTED ALONG WITH RETURN OF INCOME. NOW THERE WAS A SEARCH ACTION UNDER SECTION 132 OF THE ACT CARRIED OUT AT THE PREMISES OF THE ASSESSEE AND NEW FACTS EMERGED AND IN VIEW OF THE NEW FACTS THE REVENUE CHANGED ITS STAND. THEREFORE WE ARE OF THE VIEW THAT THE LEARNED ARS CONTENTION TO THIS EXTENT IS NOT MAINTAINABLE. 58. THE SECOND CONTROVERSY ARISES AS TO WHETHER IT WAS NECESSARY FOR THE ASSESSEE TO ESTABLISH A COMPANY FOR CARRYING OUT ITS BUSINESS ACTIVITIES IN DRC. IN THIS CONNECTION WE NOTE THAT THE ASSESSEE IN ITS SUBMISSION BEFORE THE AO VIDE LETTER DATED 16 TH DECEMBER 2016 AND 20 TH DECEMBER 2016 HAS ALSO SUBMITTED THAT THE COMPANY IN UAE WAS INCORPORATED FOR THE REASON THAT THERE WAS POLITICAL AND ECONOMIC DISTURBANCE IN DRC VIZ A VIZ BANKING FACILITY WAS VERY POOR. THE SUBMISSION OF THE ASSESSEE BEFORE THE AO READS AS UNDER: 2 BACKGROUND OF SETTING UP OF RUBAMIN FZC AS AN ENTITY 2.1 IT WOULD BE WORTHWHILE TO TAKE YOUR KIND OFFICE THROUGH THE HISTORICAL BACKGROUND OF SETTING UP RUBAMIN FZC. RUBAMIN LIMITED IS IN THE BUSINESS OF PROCESSING METALS AND INTER ALIA IT HAS A COBALT REFINERY AND THE SAID PLANT WAS SITUATED IN INDIA (IN HALOL, NEAR VADODARA). THE COMPANY WAS ONE OF THE LARGEST MANUFACTURER OF COBALT METAL IN INDIA. TILL THE YEAR 2003-04, THE COMPANY WAS PROCURING COBALT CONCENTRATE (THE MAIN RAW-MATERIAL FOR MANUFACTURE OF COBALT METAL) FROM CUBA. DURING SOME TIME AFTER 2002-03, UNCERTAINTIES STARTED DEVELOPING IN SUPPLIES OF COBALT CONCENTRATES FROM CUBA. ACCORDINGLY, THE COMPANY HAD TO SCOUT FOR ALTERNATIVE LOCATIONS FROM SOURCING COBALT CONCENTRATE. IT LOCATED DEMOCRATIC REPUBLIC OF CONGO (DRC) AS AN IDEAL PLACE FROM WHERE THE COBALT CONCENTRATE COULD BE IMPORTED. FURTHER, THE COMPANY DID PRELIMINARY SURVEY OF MARKETS IN DRC AND CAME TO CONCLUSION THAT FOR ENSURING THAT THERE IS A REGULARITY OF SUPPLIES FROM DRC, IT IS ESSENTIAL THAT A PERMANENT SET UP IS KEPT AT DRC FOR SOURCING AND PROCESSING COBALT CONCENTRATE AND IMPORT INTO INDIA. IT IS WITH THIS ASPECT IN MIND THAT THE COMPANY DECIDED TO SET UP A SUBSIDIARY IN DRC. 2.2 THE FEASIBILITY STUDIES CARRIED OUT BY THE COMPANY ALSO SUGGESTED THAT IT WOULD BE DIFFICULT LO ACHIEVE LONG TERM SUSTAINABILITY OF PRESENCE IN DRC, UNLESS THE SUBSIDIARY IS ABLE TO LEVERAGE ITS POSITION IN DRC BY DOING BUSINESS OF SUPPLYING MATERIAL SOURCED FROM DRC TO THE WORLD MARKET (OTHER THAN INDIA) AND ESPECIALLY CHINA. IT MAY BE WORTHWHILE TO MENTION THAT PRESENTLY, THE SUBSIDIARIES IN DRC DOES NOT SUPPLY ANY MATERIAL TO THE COMPANY AND ITS ENTIRE BUSINESS IS EITHER WITHIN DRC OR TO COUNTRIES OUTSIDE INDIA. IT WAS THEREFORE CONSIDERED ESSENTIAL TO MAKE THE IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 44 STRUCTURE SUCH THAT IT IS POSSIBLE TO DO THE BUSINESS INTERNATIONALLY IN A MOST EFFICIENT MANNER. 2.3 HAVING TAKEN THE DECISION TO SET UP A SUBSIDIARY IN DRC, THE COMPANY FACED ANOTHER PROBLEM. DRC WAS FRAUGHT WITH POLITICAL AND ECONOMIC UNCERTAINTIES, FURTHER, DHL DID NOT HAVE APPROPRIATE BANKING SYSTEM TO SUPPORT INTERNATIONAL BUSINESS. IT WAS EXTREMELY DIFFICULT TO CARRY ON BUSINESS INTERNATIONALLY DIRECTLY THROUGH DRC AND IT WAS ESSENTIAL THAT A THIRD COMPANY IS SET UP. FURTHER, IT WAS ALSO NOT POSSIBLE TO SET UP SUCH COMPANY IN INDIA, AS INDIAN REGULATIONS WOULD NOT PERMIT THE MANNER OF DOING BUSINESS IN DRC AND ONLY LIBERALIZED EXCHANGE CONTROL REQUIREMENTS (WHICH UAE HAD) WOULD ENABLE CARRYING ON SUCH BUSINESS. IT WAS WITH THIS ASPECT IN MIND THAT IN THE YEAR 2004-05 (I.E. ABOUT 4 YEARS PRIOR THE FIRST YEAR UNDER YOUR ASSESSMENT), THAT THE COMPANY SET UP RUBAMIN FZC. 2.4 IT MAY BE WORTHWHILE FOR YOU TO NOTE THAT AT THE TIME WHEN THE COMPANY HAD SET UP THIS STRUCTURE, THE RESERVE BANK OF INDIA, DID NOT ENCOURAGE THE SYSTEM OF STEP DOWN SUBSIDIARIES AND ENCOURAGED ONLY THE DIRECT SUBSIDIARIES. THE INTERMITTENT HOLDING OR TRADING COMPANIES WERE SUBJECTED TO SPECIFIC APPROVAL AND ONLY WHERE THE COMPANY WHICH HAD A GENUINE CASE WOULD GET SUCH APPROVAL ON A CASE TO CASE BASIS. FOR YOUR READY REFERENCE, WE GIVE IN ANNEXURE - 1, THE MASTER CIRCULAR 2 / 2003 DATED JULY I, 2003 ISSUED BY THE RESERVE BANK OF INDIA. YOUR ATTENTION IS INVITED TO PARA B-L, WHICH SPECIFICALLY PROVIDES THAT THE SETTING UP INVESTMENT UNDER A TWO TIER STRUCTURE WOULD REQUIRE SPECIFIC APPROVAL OF THE RESERVE BANK OF INDIA. 2.5 IT IS WITH THIS RESTRICTION, THE COMPANY MADE A SPECIFIC APPLICATION TO THE RBI REQUESTING IT TO GRANT SPECIFIC APPROVAL FOR SETTING UP THE UAE SUBSIDIARY AND THEN IN TURN SET UP THE DRC SUBSIDIARY. WE REQUEST YOU TO KINDLY GO THROUGH THE SAID APPLICATION WHICH IS ENCLOSED MARKED AS ANNEXURE 2 TO THIS LETTER. IT MAY BE WORTHWHILE TO HAVE A LOOK AT THE FORWARDING LETTER OF THE APPLICATION, AN EXTRACT THEREOF IS REPRODUCED HEREIN BELOW FOR YOUR KIND REFERENCE AND CONSIDERATION, JUSTIFYING THE SETTING UP OF THE SUBSIDIARY IN UAE AND THEN A STEP DOWN SUBSIDIARY IN DRC.THE REASON WHY WE HAVE POINTED OUT THE ABOVE IS TO CONVINCE YOUR KIND OFFICE THAT THE OBJECTIVES OF SETTING UP RUBAMIN FZC AS STATED IN THIS SUBMISSION IS NOT THE ONE WHICH HAVE BEEN INVENTED BY US IN VIEW OF YOUR SHOW CAUSE NOTICE BUT WAS GIVEN TO RBI AT THE TIME OF INCEPTION, WITHOUT EVEN AN IOTA OF THOUGHT THAT SUCH AN ISSUE WOULD EVER BE RAISED WHERE OUR VERY OBJECTIVE OF SETTING UP THE RUBAMIN FZC WOULD BE CHALLENGED IT MAY BE WORTHWHILE TO MENTION THAT ORIGINALLY SUBSIDIARY IN UAE WAS SET UP AS A WHOLLY OWNED SUBSIDIARY WITH RUBAMIN LIMITED AS THE SOLE SHAREHOLDER AND ACCORDINGLY, AS PER THE RULES OF UAE, IT WAS SET UP AS A RUBAMIN FREE ZONE ENTERPRISE (FZE). HOWEVER, SUBSEQUENTLY, 10 % OF THE SHARES OF THE SAID ENTITY WAS GRANTED TO ITS MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER MR. NAVINDALMIA AND ACCORDINGLY, IT WAS CONVERTED TO RUBAMIN FREE ZONE COMPANY (FZC). 2.6 SUFFICE IT WOULD BE FOR US TO STATE THAT RBI, WHICH IS AWARE ABOUT THE INTERNATIONAL SCENARIO, THE NECESSITIES FOR SETTING UP COMPANIES OUTSIDE INDIA AND THE SPECIFIC ISSUES OF DOING BUSINESS IN AFRICAN REGION, UNDERSTOOD OF OUR DIFFICULTIES AND APPROVED SETTING UP A TWO TIER STRUCTURE. RBL HAVING APPROVED THE SAID STRUCTURE, IT WOULD NOT BE APPROPRIATE FOR YOUR KIND OFFICE TO CONSIDER THE SAID APPROVAL AS A MERE TAX SAVING DEVICE OR A SHELL COMPANY OR A CONDUIT. IT IS SUBMITTED THAT SUCH AN ALLEGATION WOULD IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 45 NOT ONLY BE AN ALLEGATION ON THE COMPANY BUT ALSO ON THE RBL'S JUDGEMENT. IT IS SUBMITTED THAT YOUR CONCLUSIONS THAT SETTING UP RUBAMIN FZC IS WITHOUT ANY PURPOSE IS COMPLETELY CONTRARY TO THE FACTS OF THE ASSESSEE 'S CASE. 59. FROM THE ABOVE THE ARGUMENT OF THE LEARNED AR FOR THE ASSESSEE THAT THERE IS LOT OF POLITICAL AND ECONOMIC DISTURBANCE VIZ A VIZ POOR BANKING FACILITY APPEARS TO BE CORRECT. THIS FACT CAN BE FOUND OUT FROM THE SUBMISSION OF THE ASSESSEE VIDE LETTER DATED 16 TH DECEMBER 2016 AND 20 TH DECEMBER 2016 BEFORE THE AO WHICH HAS NOT BEEN CONTROVERTED. IT IS ALSO IMPORTANT TO NOTE THAT THE AO IN HIS ORDER HAS ALSO ADMITTED THE FACT REGARDING THE POOR BANKING FACILITY AND THEREFORE HE WAS OF THE OPINION THAT THE ASSESSEE COULD HAVE APPROACHED TO DURBAN, SOUTH AFRICAN COUNTRY OR TANZANIA WHERE BETTER BANKING FACILITIES WERE AVAILABLE. THUS A CONJOINT READING ESTABLISHES THE FACT THAT THE BANKING FACILITY IN DRC WAS POOR. THUS TO COPE UP WITH THE UNCERTAINTY PREVAILING IN DRC AND SAFEGUARD ITS BUSINESS AND FINANCIAL INTEREST THE ASSESSEE HAS TO ROUT THE TRANSACTION THROUGH THIRD PARTY OR INTERMEDIARY. AT THE SAME TIME LIBERALIZED EXCHANGE FOR THIRD PARTY PAYMENT WERE NOT AVAILABLE IN INDIA FOR THE TYPE OF TRANSACTION IT (RFZC) WAS CARRYING OUT I.E. EXPORTING GOODS DIRECTLY FROM DRC TO ULTIMATE CUSTOMER IN THIRD COUNTRY BUT ROUTING THE BILL THROUGH RFZ TO FINAL CUSTOMER. IN OTHER WORDS, AT THAT TIME IT WAS NOT POSSIBLE FROM INDIA TO EXPORT THE GOODS DIRECTLY FROM DRC TO THIRD COUNTRY BUT ISSUE BILL FROM INDIA AND RECEIVE THE REMITTANCE AGAINST SUCH EXPORT FROM DRC IN INDIA. 60. WITHOUT PREJUDICE TO THE ABOVE, THE QUESTION ALSO ARISES WHETHER THE PAPER COMPANY AS DISCUSSED ABOVE IS ENGAGED IN ANY TAX EVASION. ANY COMPANY FALLING WITHIN THE DEFINITION OF PAPER/SHELL COMPANY IN THE MANNER AS DISCUSSED ABOVE DOES NOT MEAN THAT IT IS ENGAGED IN THE ACTIVITY WHICH IS ILLEGAL IN NATURE. IN OTHER WORDS THE FORMATION OF THE PAPER COMPANY IS NOT PROHIBITED. THESE COMPANIES CAN BE CREATED FOR MULTIPURPOSE. FOR EXAMPLE, A COMPANY NAMELY XYZ LTD ENGAGED IN THE MANUFACTURING ACTIVITY, REQUIRES DIFFERENT KIND OF MANPOWER I.E. QUALIFIED, SEMI- QUALIFIED AND SKILLED/UNSKILLED, LABOURS ETC. ON REGULAR BASIS. FOR THIS PURPOSE, M/S XYZ LTD INCORPORATES ANOTHER COMPANY UNDER THE NAME AND STYLE OF M/S XYZ RECRUITMENT LTD. THE MAIN PURPOSE OF XYZ RECRUITMENT LTD IS TO HIRE THE EMPLOYEES AS PER THE NEED OF XYZ LTD. IN-FACT, M/S XYZ RECRUITMENT LTD DOES NOT WORK FOR ANY IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 46 OTHER 3 RD PARTY. THUS THERE WOULD NOT BE ANY COMMERCIAL ACTIVITY, IN SUCH XYZ RECRUITMENT LTD. ACCORDINGLY, XYZ RECRUITMENT LTD CAN BE CATEGORISED AS A PAPER COMPANY WITHIN THE DEFINITION AS DISCUSSED ABOVE. BUT ITS ACTIVITIES ARE NOT ILLEGAL IN NATURE AND THEREFORE THERE WILL NOT BE ANY CONSEQUENCES OF TAX LIABILITY. IN OTHER WORDS THE EXISTENCE OF THE PAPER COMPANIES CANNOT BE DENIED. IN PRACTICAL SITUATIONS, IN MANY ORGANISATION THE DIFFERENT COMPANIES WHICH CARRIES OUT THE TRANSACTIONS ON PAPERS ONLY BUT FOR NUMEROUS REASONS. A COMPANY IN ORDER TO AVOID ITS REPUTATION DOES NOT DEAL DIRECTLY WITH THE PARTICULAR COMPANY BUT DEALS INDIRECTLY THROUGH A COMPANY WHICH IS CREATED ONLY FOR THE LIMITED PURPOSE OF ROUTING THE TRANSACTIONS. TO OUR UNDERSTANDING, SUCH COMPANIES DO NOT VIOLATE ANY PROVISIONS OF LAW AND THEREFORE NOTHING ADVERSE CAN BE DRAWN AGAINST SUCH COMPANIES UNTIL AND UNLESS THE TRANSACTIONS OF THE PAPER COMPANIES WERE VIOLATING THE PROVISIONS OF LAW. IN THE LIGHT OF THE ABOVE DISCUSSION, WE HAVE TO SEE WHETHER RFZC CONTRAVENES THE PROVISIONS OF LAW BY USING THE DUBIOUS METHOD IN ORDER TO AVOID THE TAX LIABILITY. IN THIS CONNECTION, WE FIND THAT THERE WAS NO ALLEGATION OF THE REVENUE THAT THERE WAS ANY VIOLATION OF LAW EXCEPT TO HOLD THAT THE ASSESSEE BY USING THE COLOURABLE DEVICE WAS DIVERTING PROFIT TO RFZC. THE ALLEGATION OF USING THE COLOURABLE DEVICE OF THE REVENUE WAS BASED ON THE REASONING THAT THE AFFAIRS OF RFZC WERE CONTROLLED AND MANAGED BY THE ASSESSEE. FROM THE ALLEGATION, WHAT IS INFERRED IS THIS THAT CONTROL AND THE MANAGEMENT OF THE AFFAIRS OF RFZC WAS BASED IN INDIA. HOWEVER, WE NOTE THAT THE REVENUE HAS NOT INVOKED THE PROVISIONS OF SECTION 6 OF THE ACT WHICH READS AS UNDER: 6. FOR THE PURPOSES OF THIS ACT, (3) A COMPANY IS SAID TO BE A RESIDENT IN INDIA IN ANY PREVIOUS YEAR, IF (I) IT IS AN INDIAN COMPANY; OR (II) ITS PLACE OF EFFECTIVE MANAGEMENT, IN THAT YEAR, IS IN INDIA. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE 'PLACE OF EFFECTIVE MANAGEMENT' MEANS A PLACE WHERE KEY MANAGEMENT AND COMMERCIAL DECISIONS THAT ARE NECESSARY FOR THE CONDUCT OF BUSINESS OF AN ENTITY AS A WHOLE ARE, IN SUBSTANCE MADE. 61. THE ABOVE PROVISIONS REQUIRES THAT A COMPANY CAN BE RESIDENT IN INDIA IF IT IS AFFAIRS ARE CONTROLLED AND MANAGED WHOLLY AND EXCLUSIVELY IN INDIA. INDEED, CERTAIN DOCUMENTS AND EMAILS WERE FOUND BY THE REVENUE DURING THE SEARCH PROCEEDINGS, IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 47 BUT THOSE WERE NOT SUFFICIENT ENOUGH TO DRAW ANY INFERENCE THAT THE AFFAIRS WERE CONTROLLED AND MANAGED WHOLLY AND EXCLUSIVELY IN INDIA. THUS, THE REVENUE HAS NOT INVOKED THE PROVISIONS OF SECTION 6 OF THE ACT. IT WAS ALLEGED BY THE REVENUE THAT RFZC HAS BEEN USED AS THE COLOURABLE DEVICE FOR DIVERTING THE PROFIT. HOWEVER, WE FIND THAT THERE WAS NO VIOLATION OF ANY PROVISIONS OF THE LAW LEADING TO DRAW THE INFERENCE THE ASSESSEE HAS ACTED IN A MANNER WHICH WAS PROHIBITED UNDER THE PROVISIONS OF LAW. ANY TRANSACTION WHICH IS WITHIN THE FOUR CORNERS OF THE LAW CANNOT BE TERMED AS COLOURABLE DEVICE MERELY ON THE REASONING THAT THE ASSESSEE IS ABLE TO SAVE TAX LIABILITY. 62. THE INCOME TAX ACT HAS BEEN AMENDED BY INCORPORATING THE PROVISIONS OF POEM, GAAR FOR BRINGING SUCH TRANSACTIONS UNDER THE NET OF TAX. HOWEVER, THE PROVISIONS ARE NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION. THEREFORE, WE ARE OF THE VIEW THAT UNTIL AND UNLESS THERE IS ANY VIOLATION OF THE PROVISIONS OF LAW, IT CANNOT BE ALLEGED THAT THE ASSESSEE BY ADOPTING THE COLOURABLE DEVICE HAS DIVERTED THE PROFIT. 63. THE THIRD ASPECT/QUESTION ARISES WHETHER THE PROFIT SHOWN BY THE RFZC BELONGS TO THE ASSESSEE. ADMITTEDLY THE PROFIT EARN BY RFZC WAS PREDOMINANTLY ON ACCOUNT OF THE IMPORT FROM THE DRC WHICH WAS SOLD TO ONE PARTY BASED IN CHINA. THUS THE TRANSACTION WAS AMONG THE PARTIES BASED OUTSIDE INDIA. ACCORDINGLY, WE ARE OF THE VIEW THAT SUCH PROFIT CANNOT BE ATTRIBUTED TO THE ASSESSEE MERELY ON THE REASONING THAT THE ASSESSEE IS THE HOLDING COMPANY AS WELL AS IT WAS GETTING THE BENEFIT BY WAY OF DIVIDEND. THE SUBSTANCE OF THE TRANSACTION SHOWS THAT THE PROFIT WAS EITHER BELONGING TO THE DRC OR RFZC. EVEN THE EXISTENCE OF RFZC IS DENIED THEN SUCH PROFIT HAS TO BE ATTRIBUTED TO THE DRC. THERE WAS NO DOUBT RAISED BY THE REVENUE ON THE EXISTENCE OF THE DRC WHICH IMPLIES THAT THE COMPANIES ARE DRC WERE PROPERLY FUNCTIONING. THEREFORE THE PROFIT ATTRIBUTABLE TO DRC FOR THE REASONS AS DISCUSSED ABOVE CANNOT BE CLUBBED WITH THE ASSESSEE ON THE REASONING THAT THE ASSESSEE HAS DIVERTED THE PROFIT BY USING THE COLOURABLE DEVICE. IN EITHER SITUATION WHETHER THE PROFIT BELONGS TO RFZC OR THE DRC, THE POSITION OF THE ASSESSEE CANNOT BE ALTERED. IN OTHER WORDS THE ASSESSEE COMPANY CAN EARN FROM EITHER OF SUBSIDIARY COMPANIES IN THE FORM OF DIVIDEND ONLY WHICH IS ALSO A REALITY THAT THE ASSESSEE HAS TAKEN A DIVIDEND. IN A SITUATION OF HOLDING THE PROFIT OF RFZC ATTRIBUTABLE TO THE DRC IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 48 COMPANIES, THE ASSESSEE WOULD HAVE TAKEN THE DIVIDEND WHICH WOULD HAVE BEEN SUBJECT TO TAX ITS HANDS IN THE SAME MANNER AS THE DIVIDEND FROM RFZC IS TAXABLE. ACCORDINGLY WE HOLD THAT POSITION OF THE ASSESSEE IN EITHER CASE CANNOT BE DETRIMENTAL TO IT. 64. AS WE HAVE DECIDED THE ISSUE THAT PROFIT ATTRIBUTABLE TO RFZC BELONGS TO DRC COMPANIES, THEN THE QUESTION OF THE COLOURABLE DEVICE USED BY THE ASSESSEE FOR DIVERTING ITS PROFIT DOES NOT ARISE. 65. WE ARE ALSO CONSCIOUS TO THE FACT THAT THE PROFIT ATTRIBUTABLE TO RFZC WITH RESPECT TO THE TRANSACTIONS CARRIED OUT BY IT WITH THE COMPANY BASED IN CHINA NAMELY TRAFIGURA BEHEER BV BELONGS TO DRC COMPANIES. LIKEWISE, THE PROFIT ATTRIBUTABLE TO RFZC WITH RESPECT TO THE TRANSACTIONS CARRIED OUT BY IT WITH THE ASSESSEE COMPANY HAS ALREADY BEEN SUBJECT TO TRANSFER PRICING PROVISIONS. THEREFORE, NO INFERENCE CAN BE DRAWN THAT THE PROFIT OF THE ASSESSEE COMPANY GOT DIVERTED. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 66. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 8 AND 9 IS THAT THE LEARNED DRP ERRED IN CONFIRMING THE ORDER OF THE AO BY NOT ALLOWING THE DEDUCTION OF THE LOSS OF 1,50,87623/- FOR THE REASON THAT IT WAS NOT CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION. 67. THE LEARNED AR BEFORE US SUBMITTED AS UNDER: IF THE ASSESSEE SUCCEEDS IN GROUND NO. 4 TO 7 AND THE HONBLE BENCH HOLDS THAT PROFITS OF RUBAMIN FZC ARE NOT TO BE INCLUDED IN THE INCOME OF THE ASSESSEE, THEN IN SUCH CASE THE FRAUD LOSS INCURRED BY RUBAMIN FZC WOULD NOT BE ALLOWABLE TO THE ASSESSEE. HOWEVER, IF GROUNDS NO. 4 TO 7 ARE DECIDED AGAINST THE ASSESSEE, THEN FRAUD LOSS AMOUNTING TO RS. 1,50,87,623 INCURRED BY RUBAMIN FZC MUST BE ALLOWED TO THE ASSESSEE SINCE THE PROFITS OF RUBAMIN FZC WOULD THEN BE INCLUDED IN THE INCOME OF THE ASSESSE 68. IT IS A FACT ON RECORD THAT THE INCOME SHOWN BY RUBAMIN FZC HAS NOT BEEN HELD TO BE TAXABLE IN INDIA ALONG WITH THE PROFIT OF THE ASSESSEE IN THE GROUND RAISED BY THE ASSESSEE BEARING NOS. 4 TO 7 VIDE PARAGRAPH NO. 47 TO 65 OF THIS ORDER. ONCE, THE PROFIT OF RUBAMIN RZC IS NOT TAXABLE IN INDIA, THE QUESTION OF ALLOWING THE LOSS AS IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 49 CLAIMED BY THE ASSESSEE IN THE GROUND OF APPEAL AGAINST THE PROFIT OF THE ASSESSEE DOES NOT ARISE. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 69.THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 10 & 11 IS THAT THE AO HAS NOT FOLLOWED DIRECTION OF THE LEARNED DRP WITH RESPECT TO THE TRANSACTION CARRIED OUT BY THE ASSESSEE WITH ITS AE FOR THE PURCHASE OF COBALT. 70. AT THE OUTSET, THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE AO HAS ADHERED THE DIRECTION OF THE LEARNED DRP BY RECTIFYING ITS ORDER UNDER THE PROVISIONS OF SECTION 154 OF THE ACT. ACCORDINGLY THE LEARNED AR CONTENDED THAT THERE IS NO GRIEVANCE TO THE ASSESSEE NOW. CONSEQUENTLY, THE LEARNED AR SUBMITTED THAT HE HAS BEEN INSTRUCTED BY THE ASSESSEE NOT TO PRESS THIS GROUND OF APPEAL. HENCE, WE DISMISS THE SAME AS NOT PRESSED. 71. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 12 IS THAT THE LEARNED DRP ERRED IN CONFIRMING THE ORDER OF THE AO BY TREATING THE TRANSACTION OF CORPORATE GUARANTEE FURNISHED BY THE ASSESSEE TO ITS AE AS INTERNATIONAL TRANSACTION AND THEREBY MAKING AN ADDITION OF RS. 1,47,85,930/- BEING GUARANTEE COMMISSION. 72. THE ASSESSEE HAS FURNISHED CORPORATE GUARANTEE OF $ 1,35,50,000/- TO THE BANK IN CONNECTION WITH THE LOAN TAKEN BY ITS AE NAMELY RUBAMIN FZC. IT WAS CLAIMED BY THE ASSESSEE THAT IT HAS NEITHER INCURRED ANY COST NOR CHARGED ANY COMMISSION FROM ITS AE. AS PER THE ASSESSEE THE TRANSACTION OF FURNISHING THE CORPORATE GUARANTEE TO THE AE IS NOT AN INTERNATIONAL TRANSACTION. THEREFORE THE QUESTION OF CHARGING ANY COMMISSION FROM THE AE AT THE ARM LENGTH PRICE DOES NOT ARISE. 73. IN ADDITION TO THE ABOVE, THE ASSESSEE ALSO SUBMITTED THAT ITS AE IN UAE WAS ESTABLISHED BY IT (THE ASSESSEE) IN ORDER TO FACILITATE THE SUPPLY OF GOODS TO THE ASSESSEE. FOR THIS PURPOSE, THE ASSESSEE INITIALLY HAS PROVIDED ITS OWN FUNDS TO THE AE BUT LATER ON IT (THE ASSESSEE) HAS TAKEN ITS MONEY BACK FROM THE AE AFTER FURNISHING THE BANK GUARANTEE WITH RESPECT TO THE LOAN OBTAINED BY THE AE. AS PER THE ASSESSEE, THE FUND PROVIDED BY IT (THE ASSESSEE) WAS AN EXPENSIVE AFFAIR THAN ARRANGING THE LOAN FROM THE INTERNATIONAL BANK FOR THE AE AFTER FURNISHING THE CORPORATE GUARANTEE. THUS SUCH GUARANTEE WAS PROVIDED AS A MEASURE OF COMMERCIAL EXPEDIENCY. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 50 74. FURTHERMORE, THE TRANSACTION OF PROVIDING THE BANK GUARANTEE TO THE AE IS NOTHING BUT SHAREHOLDING ACTIVITIES. LIKEWISE, THE IMPUGNED TRANSACTION REPRESENTS THE QUASI CAPITAL TRANSACTION WHICH SHALL NOT BE REGARDED AS SERVICES TO THE AE FOR THE PURPOSE OF DETERMINING THE ALP. CONSEQUENTLY, IT HAS NO BEARING ON THE INCOME OF THE ASSESSEE. 75. AS PER THE ASSESSEE, THERE WAS NO COMMERCIAL OR FINANCIAL ELEMENT PRESENT IN THE TRANSACTIONS CARRIED OUT BY IT WITH AE BY WAY OF FURNISHING THE CORPORATE GUARANTEE IN PURSUANCE TO THE GUIDELINES ISSUED BY THE OECD. UNDER THE OECD GUIDELINES THE TERM INTERNATIONAL TRANSACTION HAS NOT BEEN USED IN THE CONTEXT OF CORPORATE GUARANTEE, RATHER IT REFERS TO COMMERCIAL OR FINANCIAL RELATIONS WHICH WAS NOT PRESENT IN THE IMPUGNED TRANSACTION. ACCORDINGLY THE ASSESSEE CONTENDED THAT THE ACTIVITY OF FURNISHING THE CORPORATE GUARANTEE TO THE AE CANNOT BE CATEGORIZED AS THE INTERNATIONAL TRANSACTION. 76. MOREOVER, THE CREDIT RATING OF THE AE WOULD HAVE REMAIN THE SAME I.E. BBB EVEN IN THE ABSENCE OF FURNISHING THE CORPORATE GUARANTEE BY THE ASSESSEE. THEREFORE IT CAN BE ASSUMED THAT THERE WAS NO RISK TRANSFER TO THE ASSESSEE FROM THE AE ON ACCOUNT OF FURNISHING SUCH CORPORATE GUARANTEE. THUS, IN SUCH A SITUATION THE QUESTION OF TAKING ANY COMPENSATION FROM THE AE IN THE FORM OF GUARANTEE FEE DOES NOT ARISE. 77. AS SUCH THE ASSESSEE CLAIMED THAT THE LOAN WAS PROVIDED TO THE AE FOR THE COMMERCIAL EXPEDIENCY. THEREFORE, NO ADJUSTMENT UNDER THE TP PROVISION IS REQUIRED TO BE MADE IN THE HANDS OF THE ASSESSEE. 78. HOWEVER, THE AO/TPO DISAGREED WITH THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT AS PER THE EXPLANATION TO SECTION 92B OF THE ACT, THE ACTIVITY OF FURNISHING THE CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION WHICH HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF THE ASSESSEE. THERE IS ALWAYS INHERENT COST TO THE ASSESSEE AND BENEFIT TO THE AE IN FURNISHING THE CORPORATE GUARANTEE TO THE AE. IT IS BECAUSE THE ASSESSEE BY FURNISHING THE CORPORATE GUARANTEE UNDERTAKES THE RISK. SINCE, THE CORPORATE GUARANTEE HAS BEEN FURNISHED IN CONNECTION WITH THE LOAN, THE SAME CANNOT BE ASSUMED/TREATED AS A TRANSACTION OF SHAREHOLDING ACTIVITY. AS IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 51 PER THE PARAGRAPH NO. 7.13 OF OECD GUIDELINES 2010, WHENEVER THE CREDIT RATING OF THE AE GOES HIGH DUE TO EXPLICIT GUARANTEE BY GROUP MEMBER, THEN SUCH TRANSACTION SHALL BE TREATED AS INTRAGROUP SERVICES. THE TPO FURTHER FOUND THAT AS PER REVISED SECTION D OF CHAPTER-1 OF ACTION PLAN 8 OF THE OECD BEPS PROJECT IF GROUP SYNERGY ARISES DUE TO INTRAGROUP ACTION THEN SUCH SYNERGY BENEFIT SHOULD BE SHARED BY THE GROUP IN THE PROPORTION OF THEIR CONTRIBUTION. SIMILARLY DUE TO EXTENSION OF EXPLICIT GUARANTEE BY THE GROUP MEMBER, THE BENEFIT ARISES TO AE, THEN SUCH BENEFIT SHOULD BE CHARGED BY THE MEMBER OF THE GROUP EXTENDING THE GUARANTEE. 79. IN VIEW OF THE ABOVE, THE TPO TREATED THE TRANSACTION OF FURNISHING THE CORPORATE GUARANTEE BY THE ASSESSEE TO THE AE AS INTERNATIONAL TRANSACTION AND ACCORDINGLY BENCHMARKED THE SAME TO DETERMINE THE ALP IN THE MANNER AS DETAILED BELOW: AS CLEARLY STATED ABOVE, THE BUSINESS RISK, FINANCIAL RISK DRIVERS, AND MANAGEMENT RELATED FACTORS ARE TAKEN INTO CONSIDERATION WHILE DETERMINING THE CREDIT RATING WITH CONSIDERABLE EMPHASIS ON EVALUATING BUSYNESS RISK AND MANAGEMENT RELATED FACTORS AS WELL. WHILE EVALUATING FINANCIAL RISKS, LARGE NUMBER OF FINANCIAL RATIOS INCLUDING OPERATING MARGINS, NET MARGINS, ROCE, TOTAL DEBT/OPBDITA, NET CASH ACCRUALS/TOTAL DEBT, NET WORKING CAPITAL/OPERATING INCOME, FUND FLOW FROM OPERATIONS/ INTEREST, FUND FLOW FROM OPERATIONS-TOTAL DEBT, RETAINED CASH FLOWS/TOTAL DEBT ETC. IN ADDITION, FOREIGN CURRENCY RELATED RISKS, TENURE MISMATCHES AND RISKS RELATING TO INTEREST RATES AND REFINANCING, ACCOUNTING QUALITY, FINANCIAL FLEXIBILITY, CONTINGENT LIABILITIES/OFF-BALANCE SHEET EXPOSURES ARE ALSO TAKEN INTO CONSIDERATION. EQUAL IMPORTANCE IS ALSO PLACED ON BUSINESS AND MANAGEMENT RELATED RISK FACTOR INCLUDING INDUSTRY RISK, COMPETITIVE POSITION* MANAGEMENT QUALITY AND NEW PROJECT RISK THUS, THE NET-WORTH IS ONLY ONE OUT OF LARGE NUMBER OF THE PARAMETERS TAKEN INTO CONSIDERATION WINK DETERMINING THE CREDIT RATING. THE ASSESSEE COMPANY IN ITS SUBMISSION HAS TAKEN A VERY MYOPIC VIEW IN CONCLUDING THAT THE CREDIT RATING OF THE AE IS EQUAL TO THAT OF THE ASSESSEE COMPANY ON THE BASIS OF NET-WORTH. IF THE CREDIT RATING OF THE AE WOULD HAVE INDEED BEEN SIMILAR TO THAT OF THE ASSESSOR COMPANY, THE BANKS WOULD NOT HAVE INSISTED FOR THE CORPORATE GUARANTEE FROM THE ASSESSEE COMPANY WHILE EXTENDING CREDIT TO THE AE, THE CREDIT RATING OF THE PARENT STRONGLY INFLUENCES THE CREDIT RATING OF ITS SUBSIDIARY. THE DOWNGRADING OF THE CREDIT RATING OF THE ASSESSEE COMPANY FROM AA LEVEL TO BBB IMPLIES THE DOWNGRADING OF THE AE RATING AS WELL. SINCE THE NET-WORTH OF THE AE HAS IMPROVED IN THE YEAR UNDER CONSIDERATION AS COMPARED TO THE EARLIER FINANCIAL YEARS, ITS CREDIT RATING IS TAKEN ONE NOTCH DOWN FROM THE CREDIT RATING OF THE ASSESSEE COMPANY IN PLACE OF TWO NOTCH DOWN AS ORIGINALLY PROPOSED IN THE SHOW-CAUSE DATED 10/10/16 ISSUED BY THIS OFFICE. SINCE THE CREDIT RATING OF THE ASSESSEE COMPANY IS DETERMINED AT BBB LEVEL BY THE ICRA, THE CREDIT RATING OF THE AE IS TAKEN AT ONE NOTCH DOWN AT BB LEVEL BY THIS OFFICE FOR THE YEAR UNDER CONSIDERATION. THE DIFFERENCE IN AVERAGE COUPON RATE BETWEEN THE BB AND BBB BONDS (I.E. RISK SPREAD) ISSUED DURING THE YEAR UNDER CONSIDERATION (AS DETERMINED FROM THE PUBLICLY AVAILABLE US BOND DATA AND MADE AVAILABLE TO THE ASSESSEE COMPANY ALONG WITH THE SHOW-CAUSE NOTICE), REPRESENTS THE LEVEL OF RISK BEING ADOPTED BY THE ASSESSEE COMPANY ON BEHALF OF ITS AE ON ACCOUNT OF ISSUING THE GUARANTEE. SUCH DIFFERENCE IN AVERAGE COUPON RATE IS COMPUTED AT 2.456%. ACCORDINGLY, THE GUARANTEE COMMISSION TO BE CHARGED BY THE ASSESSEE COMPANY FROM THE AE IS COMPUTED AT RS 1,47,85.930 @2.46%. THE UPWARD ADJUSTMENT OF RS 1,47,85,930 IS ACCORDINGLY PROPOSED ON , THIS ISSUE. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 52 80. AGGRIEVED ASSESSEE CARRIED THE MATTER TO THE LEARNED DRP WHO CONFIRMED THE ACTION OF THE TPO BY OBSERVING AS UNDER: 13.5 THE TRANSACTION RELATING TO THE PROVISION OF A GUARANTEE AND CONSEQUENTIAL CHARGING OF THE GUARANTEE COMMISSION FROM THE AE BY THE ASSESSEE CLEARLY FALLS WITHIN THE DEFINITION OF THE TERM INTERNATIONAL TRANSACTION U/S. 92B OF THE ACT. IT IS PERTINENT TO NOTE THAT THE DEFINITION INTERNATIONAL TRANSACTION HAS BEEN RETROSPECTIVELY AMENDED BY FINANCE ACT, 2012 TO INTER-ALIA GUARANTEE. THE ASSESSEE HAD INCURRED RISKS IN PROVIDING GUARANTEE TO THE AE AND ACCORDINGLY IT SHOULD HAVE BENCHMARKED THE TRANSACTIONS FOR DETERMINATION OF THE ARMS LENGTH PRICE. THE TPO THUS RIGHTLY PROCEEDED TO BENCHMARK OF THE IMPUGNED TRANSACTION. 13.12 WE FURTHER FIND THAT THE ASSESSEE WAS NOT CORRECT IN NOT BENCHMARKING THE TRANSACTION. THE ASSESSEE HAD INCURRED RISKS IN PROVIDING GUARANTEES TO THE AE AND ACCORDINGLY IT SHOULD HAVE BENCHMARKED THE TRANSACTIONS FOR DETERMINATION OF THE ARM'S LENGTH PRICE. THE TPO THUS RIGHTLY PROCEEDED TO BENCHMARK THE TRANSACTION. 13.13 THE APPROACH ADOPTED BY ASSESSEE OF EVALUATING ITS OWN CREDIT RATING AS SIMILAR TO THAT OF THE AE SUFFERS FROM SERIOUS DEFECT OF WRONG COMPARISON. THE COMPARISON SHOULD HAVE BEEN ( FOR INTEREST SAVING APPROACH) INTEREST RATES ON WHICH AE WITH SUCH CREDIT RATING WILL GET LOAN IN THAT MARKET WITH AND WITHOUT GUARANTEE. SUCH DATA BASE ARE AVAILABLE IN OPEN MARKET E.G. BLOOMBERG'S DATA. IMPLICIT-CREDIT SUPPORT CANNOT BE USED IN ARM'S LENGTH PRICE CALCULATION AND STAND ALONE CREDIT RATING OF AE WAS TO BE USED FOR THIS PURPOSE. THUS COMPUTATION WITH WRONG BASE AND COMPUTATION WITHOUT CONSIDERING DATABASE OF GUARANTEED AND NON-GUARANTEED LOANS IS J INCORRECT AND RIGHTLY REJECTED BY TPO. 13.14 THE CONTENTION OF THE ASSESSEE THAT THE CREDIT RATING OF THE AE AND EQUAL TO THAT OF THE ASSESSEE COMPANY ON THE BASIS OF NETWORKS DOES NOT IN ANY MANNER EXPLAIN THE FACT THAT IF THE CREDIT RATING OF THE AE WAS INDEED SIMILAR TO THAT OF THE ASSESSEE COMPANY, THE BANKS WOULD NOT HAVE INSISTED FOR THE CORPORATE GUARANTEE FOR THE ASSESSEE COMPANY WHILE EXTENDING CREDIT TO THE AE. THERE IS NO DOUBT ABOUT THE FACT THAT THE CREDIT RATING OF THE PARENT COMPANY HAS SUBSTANTIAL INFLUENCE ON THE CREDIT RATING OF ITS SUBSIDIARY. HENCE, THE DOWN GRADING OF THE CREDIT RATING OF THE ASSESSEE COMPANY FROM AA LEVEL TO BBB LEVEL IN FACT IMPLIES THE DOWN GRADING OF THE RATING OF THE AE AS WELL. 13.15 WE HAVE CONSIDERED THE FACTS THAT THE TPO HAS CONSIDERATELY TAKEN THE CREDIT RATING OF THE AE AS ONE NOTCH DOWN FROM THE CREDIT RATING OF THE ASSESSEE COMPANY IN PLACE OF TWO NOTCH DOWN AS ORIGINALLY PROPOSED IN HIS SHOW CAUSE NOTICE DULY CONSIDERING THE FACT THAT THE NET WORTH OF THE AE HAS IMPROVED IN THE YEAR UNDER CONSIDERATION AS COMPARED TO EARLIER FINANCIAL YEARS. THE CREDIT RATING OF THE AE WAS ACCORDINGLY TAKEN BY THE TPO AT BB LEVEL. THE DIFFERENCE IN AVERAGE COUPON RATE BETWEEN THE BB AND BBB BONDS (I.E. RISK SPREAD) ISSUED DURING THE YEAR UNDER CONSIDERATION, AS DETERMINED FROM THE PUBLICLY AVAILABLE US BOND DATA WHICH WAS F COMMUNICATED TO THE ASSESSEE COMPANY BY THE TPO VIDE THE SHOW CAUSE NOTICE WAS TAKEN AS ; REPRESENTING THE LEVEL OF RISK BEING ADOPTED BY THE ASSESSEE COMPANY ON BEHALF OF ITS AE ON ; ACCOUNT ISSUING THE GUARANTEE. THE APPROACH OF THE TPO IN IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 53 TAKING THE GUARANTEE AS PER SUCH DIFFERENCE IN AVERAGE COUPON RATE IS FOUND TO BE REASONABLE AND ACCEPTABLE IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. 13.16 WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE TPO IN THIS REGARD AND THEREFORE, THE OBJECTION OF THE ASSESSEE IS REJECTED. 81. BEING AGGRIEVED BY THE ORDER OF THE LEARNED DRP, THE ASSESSEE IS IN APPEAL BEFORE US. 82. THE LEARNED AR BEFORE US SUBMITTED AS UNDER: DURING THE COURSE OF THE HEARING BEFORE THE HONBLE BENCH, IN RESPECT OF TRANSFER PRICING ADJUSTMENT RELATING TO CORPORATE GUARANTEE, WE HAD RELIED ON THE DECISION OF HONBLE ITAT, AHD IN ASSESSEES OWN CASE FOR AY 2008-09 WHEREIN IT WAS HELD THAT PROVISION OF CORPORATE GUARANTEE IS NOT AN INTERNATIONAL TRANSACTION AND THE PROVISIONS OF SECTION 92 WOULD NOT APPLY. KINDLY REFER PARA 7 ON PG. NO. OTHERS-65 WHEREIN THE HONBLE ITAT HAS DELETED THE TRANSFER PRICING ADJUSTMENT RELATING TO CORPORATE GUARANTEE COMMISSION BY HOLDING THAT THE SAME IS NOT AN INTERNATIONAL TRANSACTION. HOWEVER, THE LD. CIT-DR HAS RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF PCIT V. REDINGTON (INDIA) LTD. [2021] 430 ITR 298 WHEREIN THE HIGH COURT HELD THAT CORPORATE GUARANTEE WOULD BE COVERED BY THE DEFINITION OF INTERNATIONAL TRANSACTION U/S 92B. WITHOUT PREJUDICE TO OUR RELIANCE ON DECISION OF HONBLE ITAT IN ASSESSEES OWN CASE FOR AY 2008-09, IF THE HONBLE BENCH IS INCLINED TO FOLLOW THE DECISION OF HONBLE MADRAS HIGH COURT IN CASE OF REDINGTON (SUPRA), WE REQUEST THE HONBLE BENCH TO DIRECT THE LD. TPO TO RESTRICT THE AMOUNT OF ADJUSTMENT TO 0.43% CONSIDERING THE DECISION OF HONBLE ITAT, MUMBAI IN THE CASE OF GREATSHIP (INDIA) LTD. V. DCIT [2021] 126 TAXMANN.COM 47 . THE ITAT, MUMBAI HELD AS UNDER: 10. INSOFAR THE ADEQUACY OF THE ALP OF THE CORPORATE GUARANTEE FEES DETERMINED BY THE ASSESSEE AT 0.43% OF THE AMOUNT OF LOAN IS CONCERNED, THE SAME, AS OBSERVED BY US HEREINABOVE IS THE AVERAGE OF THE GUARANTEE FEES THAT WAS PAID BY THE ASSESSEE TO VARIOUS BANKS FOR STANDING GUARANTEES ON ITS BEHALF FOR CERTAIN THIRD PARTIES. AS OBSERVED BY THE HON'BLE HIGH COURT IN THE CASE OF EVEREST KENTO CYLINDERS LTD. (SUPRA), HIGHER COMMISSION IS TO BE PAID FOR OBTAINING BANK GUARANTEE, AS THEY ARE EASILY ENCASHABLE IN THE EVENT OF DEFAULT AS IN COMPARISON TO CORPORATE GUARANTEE PROVIDED BY AN ASSESSEE COMPANY TO A BANK FOR FACILITATING RAISING OF LOAN BY ITS AE. ACCORDINGLY, WE ARE OF THE CONSIDERED VIEW THAT INSOFAR THE ADEQUACY OF THE ALP OF THE CORPORATE GUARANTEE FEES DETERMINED BY THE ASSESSEE AT 0.43% IS CONCERNED, THE SAME IN THE BACKDROP OF THE AFORESAID FACTS CANNOT BE CALLED IN QUESTION. APART FROM THAT, WE FIND THAT IT WAS ALSO THE CLAIM OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT KOTAK MAHINDRA BANK (AS PER ITS SANCTION LETTER) HAD EXPRESSED ITS WILLINGNESS TO GIVE GUARANTEE ON BEHALF OF THE AES AT A COMMISSION RATE OF 0.40% P.A/0.50% P.A. IN THE BACKDROP OF THE AFORESAID FACT, WE FIND SUBSTANTIAL FORCE IN THE CLAIM OF THE LD. A.R THAT THE AFORESAID CREDIT SANCTION LETTER TOO WOULD CONSTITUTE A CUP FOR BENCHMARKING THE TRANSACTION OF PROVIDING OF CORPORATE GUARANTEE BY THE ASSESSEE TO THE BANKS FOR FACILITATING RAISING OF LOANS BY ITS AES. BE THAT AS IT MAY, THE ADEQUACY OF THE ALP OF CORPORATE GUARANTEE FEE AT IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 54 0.43% CAN ALSO SAFELY BE GATHERED BY DRAWING SUPPORT FROM THE FOLLOWING JUDICIAL PRONOUNCEMENTS AS HAD BEEN RELIED UPON BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES AS WELL AS BEFORE US : PARTICULARS GUARANTEE COMMISSION RATE 1. EVEREST KENTO CYLINDER LTD. V. ACIT [2012] 34 CCH 0528 (MUM) [NOTE : ORDER OF TRIBUNAL UPHELD BY THE HON'BLE HIGH COURT OF BOMBAY : CIT V. EVEREST KENTO CYLINDER LTD. V. CIT [2015] 378 ITR 57 (BOM). 0.5% 2. RELIANCE INDUSTRIES LTD. V. ADDL. CIT (ITA NO. 4475/MUM/2007) 0.38% 3. ASIAN PAINTS LTD. V. ADDL. CIT [2014]149 ITD 511 (MUMBAI) 0.20% 4. ADITYA BIRLA MINACS WORLDWIDE LTD. V. JCIT [2016] 47 CCH 760 (MUM) 0.5% P.A 5. GODREJ HOUSEHOLD PRODUCTS LTD. V. ADDL. CIT 41 TAXMANN.COM 386 (MUM) 0.5 % P.A 6. NIMBUS COMMUNICATIONS LIMITED V. ADDL. CIT [2014] 149 ITD 0508 (MUMBAI) 0.5% P.A 7. HINDALCO INDUSTRIES LTD. V. ADDL. CIT (62 TAXMANN.COM 181)(MUM) 0.5% P.A 8. MANUGRAPH INDIA LTD. V. DCIT [2015] 43 CCH 348 (MUM) .. 0.5 P.A ACCORDINGLY, IN TERMS OF OUR AFORESAID OBSERVATIONS WE FIND NO REASON TO DISLODGE THE ALP OF CORPORATE GUARANTEE DETERMINED BY THE ASSESSEE AT 0.43% P.A BY ADOPTING INTERNAL CUP METHOD. IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS WE ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO THE DETERMINATION OF THE ALP OF THE CORPORATE GUARANTEE AT 2% P.A BY THE A.O/TPO. WE, THUS, UPHOLD THE ALP OF CORPORATE GUARANTEE AS DETERMINED BY THE ASSESSEE AT 0.43% P.A AND DIRECT THE A.O/TPO TO VACATE THE UPWARD TRANSFER PRICING ADJUSTMENT OF RS. 28,69,70,745/- MADE IN THE HANDS OF THE ASSESSEE. THE GROUNDS OF APPEAL NOS. 1 TO 7 ARE ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. (EMPHASIS SUPPLIED) THE HONBLE ITAT, MUMBAI HAS HELD THAT AFTER CONSIDERING THE ALL THE JUDICIAL PRECEDENTS ON THE ARMS LENGTH RATE FOR CORPORATE GUARANTEE COMMISSION, 0.43% IS THE APPROPRIATE ARMS LENGTH RATE FOR CORPORATE GUARANTEE COMMISSION AND THE SAME WOULD BE APPLICABLE IN THE PRESENT CASE AS WELL, IF THE TRANSACTION OF CORPORATE GUARANTEE IS HELD TO BE AN INTERNATIONAL TRANSACTION. CONSIDERING THE SAME, WE REQUEST THE HONBLE BENCH TO DIRECT THE LD. TPO TO APPLY THE RATE OF 0.43% FOR COMPUTING THE ADJUSTMENT IN RESPECT OF CORPORATE GUARANTEE COMMISSION. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 55 THE LD. CIT-DR HAS CONTENDED THAT IN THE CASE OF GREATSHIP (SUPRA) IS NOT APPLICABLE SINCE IN THAT CASE, THE ASSESSEE HAD DETERMINED THE ARMS LENGTH RATE AT 0.43% AND THE SAME WAS CONFIRMED BY THE ITAT. WE SUBMIT THAT THE LD. CIT-DR HAS NOT APPRECIATED THE FINDINGS OF HONBLE ITAT IN PROPER PERSPECTIVE. THE ITAT HAS CONSIDERED ALL THE JUDICIAL PRECEDENTS WHEREIN RATES RANGING FROM 0.2% TO 0.5% HAVE BEEN HELD TO BE ARMS LENGTH RATE AND THEREAFTER IT COME TO CONCLUSION THAT 0.43% IS THE ARMS LENGTH RATE AND THEREFORE THE CONTENTION RAISED BY THE LD. CIT-DR HAS NO RELEVANCE. HENCE, WE REQUEST THE HONBLE BENCH TO DIRECT THE LD. TPO TO CONSIDER THE RATE OF 0.43% FOR COMPUTING THE ADJUSTMENT FOR CORPORATE GUARANTEE COMMISSION. 83. ON THE OTHER HAND THE LEARNED DR BEFORE US SUBMITTED AS UNDER: THE ASSESSEE HAS ALWAYS CONTENDED THAT THE TRANSACTION OF GIVING CORPORATE GUARANTEE IS NOT AN INTERNATIONAL TRANSACTION. IT IS ALSO A FACT THAT THE ONUS IS ON THE ASSESSEE TO DETERMINE THAT ALL ITS TRANSACTIONS WITH ITS AES ARE AT ALP. IN THIS CASE, THE ASSESSEE HAS FAILED TO DISCHARGE THE PRIMARY ONUS CAST ON IT BY THE STATUTE. IN THE CASE OF GREATSHIP INDIA CITED AND RELIED UPON BY THE ASSESSEE AS REPRODUCED HEREINABOVE, THE ITAT DID NOT FIND FAULT WITH THE METHODOLOGY ADOPTED. THE HONBLE ITAT STATED WE ARE OF THE CONSIDERED VIEW THAT INSOFAR THE ADEQUACY OF THE ALP OF THE CORPORATE GUARANTEE FEES DETERMINED BY THE ASSESSEE AT 0.43% IS CONCERNED, THE SAME IN THE BACKDROP OF THE AFORESAID FACTS CANNOT BE CALLED IN QUESTION. IT IS TO BE OBSERVED HERE THAT THE VALUE OF 0.43% IS ARRIVED AT AFTER TAKING INTO ACCOUNT THE FACTS OF THAT PARTICULAR CASE. THE FACTS IN THE CASE OF THE ASSESSEE RUBAMIN ARE COMPLETELY DIFFERENT. THE ARMS LENGTH PRICE OF ANY TRANSACTION IS DEPENDENT ON THE FACTS AND CIRCUMSTANCES THAT AFFECT THAT TRANSACTION. THEREFORE, THIS CASE HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE AT ALL. THE ASSESSEE HAS SUBMITTED WITHOUT PREJUDICE BASIS BEFORE THE DRP THAT THE RATE OF 0.50% SHOULD BE ADOPTED FOR BENCHMARKING THIS TRANSACTION. THEREFORE, THE STAND OF THE ASSESSEE IS NOT CONSISTENT AT ALL. CONSIDERING THE SAME, IT IS EARNESTLY REQUESTED THAT THE VALUE DETERMINED BY THE HONBLE DRP IS APPROPRIATE IN THIS CASE AND SHOULD BE CONFIRMED OR IT MAY KINDLY BE SET ASIDE FOR DETERMINATION TO THE FILE OF THE TPO AFRESH BY DIRECTING THE ASSESSEE TO SUBMIT THE ALP OF THIS TRANSACTION FIRST BASED ON THE FAR ANALYSIS AND ITS ANALYSIS BY THE TPO TO DETERMINE THE ALP BASED ON THE FACTS OF THIS CASE 84. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS ON RECORD. AT THE OUTSET WE NOTE THAT THE FACT OF THE ISSUE ON HAND HAS BEEN ELABORATED IN PREVIOUS PARAGRAPH, THEREFORE WE ARE NOT INCLINED TO REPEAT THE SAME FOR THE SAKE OF BREVITY. HENCE WE PROCEED TO ADJUDICATE THE ISSUE ACCORDINGLY. 85. THE PROVISIONS OF SECTION 92B OF THE ACT DEFINES THE PARAMETERS OF WHAT CONSTITUTES AN INTERNATIONAL TRANSACTION. ALTHOUGH THE AMBIT OF INTERNATIONAL TRANSACTION WAS WIDE ENOUGH, YET DUE TO JUDICIAL INTERPRETATION, CERTAIN CLASSES OF TRANSACTIONS WERE BEING LEFT OUT OF THE TRANSFER PRICING NET. TO TACKLE THE SAME, BY THE FINANCE ACT OF 2012 AN EXPLANATION TO SECTION 92B[2] OF THE ACT WAS BROUGHT ON IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 56 THE STATUTE WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 2002. THE EXPLANATION IS CLARIFICATORY IN NATURE AND ADDED CERTAIN CATEGORIES OF TRANSACTIONS, INTER ALIA, THE TRANSACTION AS SPECIFIED UNDER CLAUSE (C) OF EXPLANATION (I) TO SECTION 92B OF THE ACT WITHIN THE AMBIT OF INTERNATIONAL TRANSACTIONS WHICH IS REPRODUCED AS UNDER: [ EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT ( I ) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE ( A ) *********** ( B ) ************* ( C ) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-TERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS; 86. IT CAN BE SEEN THAT THE GUARANTEE WAS INCLUDED WITHIN THE AMBIT OF INTERNATIONAL TRANSACTION VIDE THE FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT. THUS THERE REMAINS NO AMBIGUITY TO THE FACT THAT CORPORATE GUARANTEE EXTENDED BY THE ASSESSEE TO ITS AE IS AN INTERNATIONAL TRANSACTION AND THEREFORE THE SAME HAS TO BE BENCHMARKED AT THE ARM LENGTH PRICE. HOWEVER, WE NOTE THAT THE DIFFERENT BENCHES OF THE ITAT HAVE TAKEN DIFFERENT VIEW. SOME OF THEM HELD THAT THE TRANSACTION OF CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION WHEREAS SOME OF THEM HELD THAT THE TRANSACTION OF CORPORATE GUARANTEE IS OUTSIDE THE PURVIEW OF THE INTERNATIONAL TRANSACTION INCLUDING THE AHMEDABAD TRIBUNAL IN THE CASE OF MICRO INK LTD. VS. ADDL. CIT REPORTED IN [2015] 63 TAXMANN.COM 353, WHEREIN IT WAS HELD THAT THE CORPORATE GUARANTEE IS NOT INTERNATIONAL TRANSACTION. FURTHER IN THE OWN CASE OF THE ASSESSEE CORRESPONDING TO A.Y. 2008-09 BEARING ITA NO. 1402/AHD/2013, THE ITAT ALLOWED THE APPEAL OF THE ASSESSEE BY FOLLOWING THE ORDER IN CASE MICRO INK LTD (SUPRA). AT THE TIME OF HEARING, THE LEARNED AR HEAVY RELIED ON THIS ORDER OF THE TRIBUNAL. 87. HOWEVER WE FIND THAT THE LEARNED DR BEFORE US HAS BROUGHT THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN CASE OF PCIT V. REDINGTON (INDIA) LTD. [2021] 430 ITR 298 WHERE THE HONBLE COURT HELD THAT THE CORPORATE GUARANTEE EXTENDED TO THE AE IS AN INTERNATIONAL TRANSACTION AND NEEDS TO BE BENCHMARKED. THE RELEVANT FINDING OF THE HONBLE COURT IS REPRODUCED HERE UNDER: 75. THE CONCEPT OF BANK GUARANTEES AND CORPORATE GUARANTEES WAS EXPLAINED IN THE DECISION OF THE HYDERABAD TRIBUNAL IN THE CASE OF PROLIFICS CORPORATION LIMITED. IN THE SAID CASE, THE IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 57 REVENUE CONTENDED THAT THE TRANSACTION OF PROVIDING CORPORATE GUARANTEE IS COVERED BY THE DEFINITION OF INTERNATIONAL TRANSACTION AFTER RETROSPECTIVE AMENDMENT MADE BY FINANCE ACT, 2012. THE ASSESSEE ARGUED THAT THE CORPORATE GUARANTEE IS AN ADDITIONAL GUARANTEE, PROVIDED BY THE PARENT COMPANY. IT DOES NOT INVOLVE ANY COST OF RISK TO THE SHAREHOLDERS. FURTHER, THE RETROSPECTIVE AMENDMENT OF SECTION 92B DOES NOT ENLARGE THE SCOPE OF THE TERM 'INTERNATIONAL TRANSACTION' TO INCLUDE THE CORPORATE GUARANTEE IN THE NATURE PROVIDED BY THE ASSESSEE THEREIN. THE TRIBUNAL HELD THAT IN CASE OF DEFAULT, GUARANTOR HAS TO FULFILL THE LIABILITY AND THEREFORE, THERE IS ALWAYS AN INHERENT RISK IN PROVIDING GUARANTEES AND THAT MAY BE A REASON THAT FINANCE PROVIDER INSIST ON NON-CHARGING ANY COMMISSION FROM ASSOCIATED ENTERPRISE AS A COMMERCIAL PRINCIPLE. FURTHER, IT HAS BEEN OBSERVED THAT THIS POSITION INDICATES THAT PROVISION OF GUARANTEE ALWAYS INVOLVES RISK AND THERE IS A SERVICE PROVIDED TO THE ASSOCIATE ENTERPRISE IN INCREASING ITS CREDITWORTHINESS IN OBTAINING LOANS IN THE MARKET, BE FROM FINANCIAL INSTITUTIONS OR FROM OTHERS. THERE MAY NOT BE IMMEDIATE CHARGE ON P & L ACCOUNT, BUT INHERENT RISK CANNOT BE RULED OUT IN PROVIDING GUARANTEES. ULTIMATELY, THE TRIBUNAL UPHELD THE ADJUSTMENTS MADE ON GUARANTEE COMMISSIONS BOTH ON THE GUARANTEES PROVIDED BY THE BANK DIRECTLY AND ALSO ON THE GUARANTEE PROVIDED TO THE ERSTWHILE SHAREHOLDERS FOR ASSURING THE PAYMENT OF ASSOCIATE ENTERPRISE. 76. IN THE LIGHT OF THE ABOVE DECISIONS, WE HOLD THAT THE TRIBUNAL COMMITTED AN ERROR IN DELETING THE ADDITIONS MADE AGAINST CORPORATE AND BANK GUARANTEE AND RESTORE THE ORDER PASSED BY THE DRP. 88. THUS, IN THE LIGHT OF THE DECISION OF HIGHER JUDICIAL AUTHORITY, WE HOLD THAT THE ISSUE IN THE CASE OF THE ASSESSEE IS NO LONGER A COVERED ISSUE. IT IS FOR THE REASON THAT, THE ITAT ON THE EARLIER OCCASION IN THE OWN CASE OF THE ASSESSEE AFTER MAKING A REFERENCE TO THE ORDER OF THE COORDINATE BENCH IN THE CASE OF MICRO INK LTD (SUPRA) HAS HELD THAT THE CORPORATE GUARANTEE WAS NOT THE INTERNATIONAL TRANSACTION REQUIRING TO BE BENCHMARKED AT THE ARM LENGTH PRICE AS THE ASSESSEE HAS NOT CHARGED ANY COMMISSION FROM THE AE. HOWEVER, THE RULING IN THE OWN CASE OF THE ASSESSEE HAS BEEN OVERRULED BY THE HONBLE MADRAS HIGH COURT AS DISCUSSED ABOVE. ACCORDINGLY WE HOLD THAT THE ASSESSEE CANNOT TAKE THE BENEFIT OF THE ORDER OF THE ITAT IN ITS OWN CASE. 90. THE NEXT ASPECTS ARISES FOR THE DETERMINATION OF THE ALP OF THE IMPUGNED INTERNATIONAL TRANSACTION. THE TPO IN THE CASE ON HAND HAS ADOPTED THE BASIS OF CREDIT RATING OF THE ASSESSEE AND AE AND ACCORDINGLY CALCULATED THE AVERAGE COUPON RATE DIFFERENCE BASED ON SUCH RATING AS PER THE DATA AVAILABLE FOR US BOND. THE RELEVANT FINDING OF THE TPO/AO READS AS UNDER: SINCE THE CREDIT RATING OF THE ASSESSEE COMPANY IS DETERMINED AT BBB LEVEL BY THE 1CRA, THE CREDIT RATING OF THE AE IS TAKEN AT ONE NOTCH DOWN AT BB LEVEL BY THIS OFFICE FOR THE YEAR UNDER CONSIDERATION. THE DIFFERENCE IN AVERAGE COUPON RATE BETWEEN THE BB AND BBB BONDS (I.E. RISK SPREAD) ISSUED DURING THE YEAR UNDER CONSIDERATION (AS DETERMINED FROM THE PUBLICLY AVAILABLE US BOND DATA AND MADE AVAILABLE TO THE ASSESSEE COMPANY ALONG WITH THE SHOW- IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 58 CAUSE NOTICE), REPRESENTS THE LEVEL OF RISK BEING ADOPTED BY THE ASSESSEE COMPANY ON BEHALF OF ITS AE ON ACCOUNT AT ISSUING THE GUARANTEE. SUCH DIFFERENCE IN AVERAGE COUPON RATE IS COMPUTED AT 2.456%. 91. FROM THE ABOVE, IT IS REVEALED THAT THE AO HAS TAKEN THE DIFFERENCE IN AVERAGE COUPON RATE BETWEEN THE BB AND BBB BONDS IN US MARKET FOR WORKING OUT THE BANK GUARANTEE COMMISSION. IN OUR VIEW, THE BASIS ADOPTED BY THE AO IS NOT PROPER FOR THE REASON THAT THE US MARKET RATE DOES NOT PROVIDE ANY BASIS THAT THE ASSESSEE SHOULD HAVE CHARGED COMMISSION FROM ITS AE ON FURNISHING THE CORPORATE GUARANTEE. ACCORDINGLY, IT IS NOT ACCEPTABLE. FURTHERMORE, WE NOTE THAT MUMBAI TRIBUNAL IN THE CASE OF GREATSHIP (INDIA) LTD. VS. DCIT REPORTED IN [2021] 126 TAXMANN.COM 47 AFTER CONSIDERING THE PLETHORA OF ORDERS HAS REACHED TO THE CONCLUSION THAT WHAT THE ASSESSEE WOULD HAVE PAID THE GUARANTEE COMMISSION, HAD IT OBTAINED GUARANTEE FROM THE BANK. THAT RATE OF COMMISSION SHOULD BE APPLIED TO DETERMINE THE ALP. THE RELEVANT EXTRACT OF THE ORDER HAS ALREADY BEEN REPRODUCED IN THE SUBMISSION OF THE LEARNED AR FOR THE ASSESSEE. IN THE ORDER OF THE MUMBAI ITAT IN THE CASE OF GREATSHIP (INDIA) LTD. SUPRA, VARIOUS JUDGEMENTS WERE REFERRED THEREIN AND IN ALL THOSE JUDGEMENTS AVERAGE RATE OF COMMISSION WAS RANGING FROM 0.2 TO 0.5 PERCENT. THUS WE ARE OF THE VIEW THAT THE JUSTICE WILL BE SERVED TO THE ASSESSEE AND THE REVENUE IF THE ADDITION IS RESTRICTED TO 0.5% OF THE GUARANTEE AMOUNT. WE ACCORDINGLY HOLD SO. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 92. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 13 AND 14 IS THAT THE LEARNED DRP ERRED IN CONFIRMING THE ORDER OF THE AO BY TREATING THE SALES TAX SUBSIDY OF RS. 1,71,68,570/- AS REVENUE RECEIPT CHARGEABLE TO TAX. ALTERNATIVELY, IF IT IS TREATED AS REVENUE RECEIPT THEN THE AMOUNT OF DEDUCTION UNDER SECTION 80IB OF THE ACT SHOULD BE ENHANCED BY THE CORRESPONDING AMOUNT. 93. THE ASSESSEE IN THE YEAR HAS CLAIMED SALES TAX SUBSIDY OF RS. 1,71,68,570/- WHICH WAS ADJUSTED AGAINST THE SALE TAX LIABILITY IN THE RETURN FILED UNDER SALE TAX ACT. AS PER THE ASSESSEE SUCH SALE TAX SUBSIDY IS CAPITAL IN NATURE AND NOT CHARGEABLE TO TAX. HOWEVER, THE AO FOUND THAT THE SUBSIDY GRANTED TO THE ASSESSEE IS TO INCREASE THE PROFITABILITY OF THE ASSESSEE. THEREFORE, THE SAME SHOULD BE TREATED AS REVENUE IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 59 RECEIPT. THUS THE AO MADE THE ADDITION OF RS. 1,71,68,570/- BEING SALES TAX SUBSIDY TO THE TOTAL INCOME OF THE ASSESSEE. 94. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED DRP. THE ASSESSEE BEFORE LEARNED DRP SUBMITTED THAT SUBSIDY WAS PROVIDED BY THE AUTHORITY IN ORDER TO RAPID INDUSTRIALIZATION IN BACKWARD AREA. THEREFORE SUCH SUBSIDY SHOULD BE CONSIDERED AS CAPITAL RECEIPT. 95. THE ASSESSEE MADE ALTERNATIVE CLAIM THAT IF SUBSIDY HELD AS REVENUE RECEIPT THEN IT SHOULD BE ALLOWED DEDUCTION UNDER SECTION 80IB IN VIEW CBDT CIRCULAR BEARING NO. 39/2016. THE ASSESSEE FURTHER SUBMITTED THAT THE HONBLE ITAT IN ITS OWN CASE FOR A.Y. 2007-08 ALLOWED ITS ALTERNATIVE CLAIM. 96. HOWEVER, THE LEARNED DRP HELD THAT THE SUBSIDY AS REVENUE RECEIPT. NEVERTHELESS, THE LD. DRP ALLOWED THE ASSESSEES ALTERNATE CLAIM BY OBSERVING AS UNDER: 15.2 AS REGARDS ISSUE OF TREATMENT OF SALES TAX SUBSIDY AS CAPITAL RECEIPT, THE ISSUE IS COVERED BY ITAT, AHMEDABAD JUDGMENT IN CASE OF ASSESSEE ITSELF WHERE THE ITAT HAS HELD THAT IT IS REVENUE RECEIPT. ACCORDINGLY, THE ASSESSEE'S OBJECTION THAT IT SHOULD BE TREATED AS CAPITAL RECEIPT IS LIABLE TO BE REJECTED. 15.3 AS REGARDS ALTERNATIVE CLAIM OF DEDUCTION U/S. 80-IB, THE ASSESSEE HAS PLACED RELIANCE ON THE CBDT CIRCULAR 39/2016, WHEREIN THE CBDT HAS, AFTER RELYING UPON THE DECISION OF SUPREME COURT IN CASE OF MEGHALAYA STEELS LIMITED, CLARIFIED THAT SUBSIDIES OF POWER, TRANSPORT AND INTEREST GIVEN BY THE GOVERNMENT OF THE INDUSTRIAL UNDERTAKING ARE RECEIPTS WHICH HAVE BEEN REIMBURSED FOR ELEMENTS OF COSTS RELATING TO MANUFACTURE / SALE OF PRODUCTS. THUS, THERE IS DIRECT NEXUS BETWEEN PROFITS AND GAINS OF THE UNDERTAKING / BUSINESS AND REIMBURSEMENT OF SUCH BUSINESS SUBSIDIES AND SUCH SUBSIDIES ARE PART OF THE PROFITS AND GAINS OF BUSINESS DERIVED FROM THE INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION U/S. 80-IB / 80-IC. 15.4 IN CASE OF THE ASSESSEE, THE SALES TAX INCENTIVE IS ACTUALLY A CARVED OUT AMOUNT OF SALE CONSIDERATION FOR THE PURPOSE OF TAX AND THUS RELYING ON THE CBDT CIRCULAR AND SUPREME COURT DECISION IN CASE OF MEGHALAYA STEELS LIMITED, THERE IS DIRECT NEXUS BETWEEN PROFITS AND GAINS OF THE UNDERTAKING / BUSINESS AND THE SUBSIDY AND SUCH SUBSIDY IS PART OF THE PROFITS AND GAINS OF BUSINESS DERIVED FROM THE INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION U/S. 80-IB / 80-IC. ACCORDINGLY, THE PANEL DIRECTS THE AO TO GRANT DEDUCTION U/S. 80-IB IN RESPECT OF DAMAN UNIT AFTER DUE VERIFICATION. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 60 97. BEING AGGRIEVED BY THE DIRECTION OF LEARNED DRP THE ASSESSEE IS IN APPEAL BEFORE US. 98. THE LEARNED AR BEFORE US SUBMITTED AS UNDER: IT IS SUBMITTED THAT IDENTICAL ISSUE WAS INVOLVED IN ASSESSEES OWN CASE FOR AY 2008-09 WHEREIN THE HONBLE ITAT HAS DECIDED THE ISSUE AGAINST THE ASSESSEE. IF THE ISSUE IS DECIDED AGAINST THE ASSESSEE, WE REQUEST THE HONBLE BENCH TO ALLOW DEDUCTION U/S 80IB ON THE SAID INCOME. KINDLY REFER PARA 8 ON PG. NO. OTHERS-65-66 WHEREIN FINDINGS OF HONBLE ITAT ARE REPRODUCED. HOWEVER, IT MAY BE NOTED THAT RECENTLY HONBLE SUPREME COURT IN THE RECENT CASE CIT V. SHREE BALAJI ALLOYS [2017] 80 TAXMANN.COM 239 HELD AS UNDER: SECTION 4 OF THE INCOME-TAX ACT, 1961 - INCOME - CAPITAL OR REVENUE RECEIPTS (SUBSIDY) - EXCISE REFUND AND INTEREST SUBSIDY RECEIVED BY ASSESSEE IN PURSUANCE OF INDUSTRIAL POLICY OF GOVERNMENT FOR STATE WOULD BE CAPITAL RECEIPT [ASSESSMENT YEAR 2005-06] [IN FAVOUR OF ASSESSEE] CONSIDERING THE ABOVE DECISION OF HONBLE APEX COURT, WE REQUEST THE HONBLE BENCH TO DIRECT THE LD. AO TO DELETE THE ADDITION MADE IN THE CASE OF THE ASSESSEE 99. ON THE OTHER HAND THE LEARNED DR BEFORE US SUBMITTED THAT THE ISSUE HAS BEEN HELD AGAINST THE ASSESSEE BY THIS ITAT IN OWN CASE OF THE ASSESSEE FOR THE A.Y. 2007-08 AND 2008-09 WHICH WAS ALSO NOT OBJECTED BY THE ASSESSEE. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 100. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT, THE ISSUE OF SALES TAX SUBSIDY HAS ALREADY BEEN DECIDED BY THIS TRIBUNAL IN OWN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08 IN ITA NOS. 664, 665 &795/AHD/2012 AND ALSO FOLLOWED IN A.Y. 2008-08 IN ITA NOS. 1402/AHD/2013. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 10. APROPOS ASSESSEES OTHER ISSUE PERTAINING TO CLAIM OF SALES TAX EXEMPTION/SUBSIDY AS CAPITAL IN NATURE HAS FAIRLY CONSIDERED 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 ALLOWABILITY OF DEDUCTION U/S. 80IB ON THE AMOUNT OF SALES TAX SUBSIDY, THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE ISSUE IN QUESTION IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF CIT VS. M/S. SHREE BALAJI ALLOYS IN CIVIL APPEAL NO.10061 OF 2011 AND CIT VS. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 61 MEGHALAYA STEEL LTD, 383 ITR 217. THE LD. DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE ASSESSING OFFICER. THE GROUND OF SALES TAX SUBSIDY BEING REVENUE IN NATURE IS COVERED AGAINST THE ASSESSEE BY 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 ASSESSEES INDUSTRIAL UNDERTAKING; CONSEQUENTLY, DEDUCTION U/S.80IB IS TO BE ALLOWED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE HONBLE SUPREME COURT JUDGMENTS IN THE CASE OF M/S. SHREE BALAJI ALLOYS & M/S. MEGHALAYA STEEL LTD (SUPRA), THIS GROUND OF THE ASSESSEE IS ALLOWED. 101. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE IMPUGNED RECEIPT OF SALES TAX SUBSIDY IS A REVENUE RECEIPT WHICH IS CHARGEABLE TO TAX. 102. BEFORE PARTING, IN THIS CONNECTION, WE NOTE THAT THE LEARNED DRP HAS ALREADY GIVEN A DIRECTION TO ALLOW THE DEDUCTION UNDER SECTION 80IB OF THE ACT FOR THE AMOUNT OF SALE TAX SUBSIDY BUT AFTER VERIFICATION. WE FIND THAT THE DIRECTION GIVEN BY THE LEARNED DRP IS CLEAR AND WITHOUT ANY AMBIGUITY. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE THE DIRECTION OF THE LEARNED DRP. THUS THE ALTERNATE CONTENTION OF THE ASSESSEE IS ALLOWED. HENCE THE AGROUND OF APPEAL OF THE ASSESSEE, IN TERMS OF ABOVE, IS ALLOWED. 103. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 15 TO 17 IS THAT THE LEARNED DRP ERRED IN CONFIRMING THE ORDER OF THE AO BY ADDING THE DIFFERENCE BETWEEN THE JANTRI VALUE AND THE SALE CONSIDERATION UNDER THE PROVISIONS OF SECTION 50C OF THE ACT. 104. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS SOLD THREE PIECES OF LAND AT A CERTAIN VALUE WHICH WAS TAKEN AS SALE CONSIDERATION FOR THE PURPOSE OF COMPUTING THE CAPITAL GAIN. HOWEVER THE AO FOUND THAT THE SALE CONSIDERATION SHOWN BY THE ASSESSEE IS LESS THAN THE AMOUNT OF JANTRI VALUE. ACCORDINGLY, HE WAS OF THE VIEW THAT THE AMOUNT OF JANTRI VALUE SHOULD BE TAKEN AS THE SALE CONSIDERATION. CONSEQUENTLY, HE MADE THE ADDITION OF RS. 1,45,65,207/- BEING THE DIFFERENCE IN THE JANTRI VALUE AND THE SALES VALUE SHOWN BY THE ASSESSEE UNDER THE PROVISIONS OF SECTION 50C OF THE ACT UNDER THE HEAD CAPITAL GAIN TO THE TOTAL INCOME OF THE ASSESSEE. 105. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED DRP WHO CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: 17.2 THIS IS AN ADMITTED FACT THAT THE STAMP VALUATION ADOPTED BY THE VALUATION AUTHORITY HAS NOT BEEN CHALLENGED. THE ASSESSEE HAS ARGUED THAT THE ACTUAL VALUE OF THE PROPERTY MAY BE IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 62 LOW BECAUSE OF VARIOUS OTHER ATTRIBUTES, CHARGES, ENCUMBRANCES, LIMITATION AND CONDITION IS NOT ACCEPTABLE. IF ANY SUCH LIMITATION WAS THE REASON FOR ACTUAL VALUE OF PROPERTY BEEN LOWER THAN THE REGISTRATION VALUE, IT IS EXPECTED THAT THE VALUE OF REGISTRATION WOULD BE CHALLENGED. OTHERWISE ALSO ASSESSEE COULD NOT DEMONSTRATE THAT THE PROPERTY HAD ANY SUCH ATTRIBUTE WHICH WOULD HAVE RESULTED INTO DEDUCTION OF ITS MARKET VALUE. 17.3 IT IS ALSO SUBMITTED BY THE ASSESSEE THAT IT HAS OBJECTED TO ADOPTION OF STAMP DUTY VALUE BEFORE THE AO, HOWEVER, THE AO HAS FAILED TO MAKE REFERENCE TO THE DVO IN ACCORDANCE WITH SECTION 50C(2). THE ABOVE ARGUMENT OF THE ASSESSEE IS NOT TENABLE BECAUSE SECTION 50C(2) CLEARLY PROVIDES THAT IN CIRCUMSTANCES FULFILLING CONDITIONS OF SECTION 50C(2) ALSO, THE ASSESSING OFFICER MAY REFER THE VALUATION OF THE CAPITAL ASSET TO THE VALUATION OFFICER. THE SECTION USES THE WORDS 'MAY' INSTEAD OF 'SHALL' AND THEREFORE REFERENCE TO DVO IS OPTIONAL ON PART OF AO AND NON-REFERENCE TO DVO IS NOT FATAL TO THE PROCEEDINGS. AS DISCUSSED ABOVE, THE ASSESSEE DID NOT GIVE ANY COGENT REASON/EVIDENCE TO SHOW WHY THAT THE MARKET VALUE OF THE PROPERTY WAS LOWER THAN THE REGISTRATION VALUE, WHICH COULD HAVE BEEN PRIMA FACIE ACCEPTABLE TO THE AO FOR RESORTING TO PROVISIONS OF SECTION 50C(2) OF THE I.T. ACT FOR REFERRING THE VALUATION TO THE VALUATION OFFICER. IF IT WAS INTENTION OF THE LEGISLATURE TO MAKE THE REFERENCE TO VALUATION OFFICER MANDATORY, EVEN WITHOUT EXISTENCE OF ANY COGENT REASONS AS TO WHY THE MARKET VALUE OF THE PROPERTY SHOULD BE LESS THAN THE REGISTRATION VALUE THE WORD USED IN THE ABOVE SECTION WOULD HAVE BEEN 'SHALL OR NOT MAY'. 17.4 REFERRING TO THE PROVISO TO SUB-SECTION (1) OF SECTION 50C, WHICH SAYS THAT IF THE DATE OF AGREEMENT & DATE OF REGISTRATION OF PROPERTY ARE DIFFERENT, THE REGISTRATION VALUE ASSESSABLE ON THE DATE OF AGREEMENT SHALL BE TAKEN AS SEEMED CONSIDERATION. THE ASSESSEE ALSO ARGUED WITH REGARD TO DIFFERENCE IN DATES OF THE TRANSACTION AND THE DATE ON WHICH THE STAMP DUTY WAS PAID. THE PROVISO WAS INTRODUCED FROM 01.04.2016 AND WAS NOT APPLICABLE IN THE A.Y. IN QUESTION. OTHERWISE ALSO, WE HAVE NOTED THAT THE DIFFERENCE IN THE DATES OF AGREEMENT AND REGISTRATION WAS LESS THAN TWO MONTHS. MOREOVER THE ASSESSEE HAS NOT PROVIDED ANY EVIDENCE TO DEMONSTRATE THAT DIFFERENCE IN DATES COULD HAVE RESULTED IN DIFFERENT STAMP DUTY VALUE BECAUSE THERE WAS ANY | REVISION OF CIRCLE RATES DURING THIS INTERVENING PERIOD. WE ARE THEREFORE NOT INCLINED TO ACCEPT THE ASSESSEE'S OBJECTION IN THIS REGARD. 17.5 FROM THE DETAILS SUBMITTED, THE PANEL ALSO OBSERVED THAT THE VALUE CONSIDERED FOR STAMP DUTY PURPOSE IN CASE OF LAND AT DABHASA WAS RS. 45,71, 429 WHEREAS THE TRANSACTION WAS CARRIED OUT AT RS. 12,16,970, WHICH INDICATES THAT THE TRANSACTION VALUE WAS SIGNIFICANTLY LOWER THAN THE STAMP DUTY VALUE. 17.6 THE PROVISION OF SECTION 50C SIMPLY REQUIRES THE AO TO SUBSTITUTE STAMP DUTY VALUE IN CASE WHERE THE SAME IS HIGHER THAN THE ACTUAL CONSIDERATION RECEIVED BY THE ASSESSEE. WITH REGARD TO THE ASSESSEE'S RELIANCE ON THE DECISION ON KP VARGHESE REPORTED IN 131 ITR 597 (SC), THE PANEL OBSERVES THAT THE SAID DECISION WAS RENDERED IN ABSENCE OF DEEMING / PRESUMPTIVE PROVISION LIKE SECTION 50C AND HENCE AFTER INTRODUCTION OF SECTION 50C, THE SAME IS NOT APPLICABLE. 17.7 IN VIEW OF ABOVE FACTUAL AND LEGAL POSITION, THE OBJECTION OF ASSESSEE IN RESPECT OF ADDITIONS MADE U/S 50C OF THE I.T. ACT ARE REJECTED. THE ORDER OF AO ON THIS ACCOUNT DOES NOT REQUIRE ANY INTERFERENCE. 106. BEING AGGRIEVED BY THE DIRECTION OF THE LEARNED DRP THE ASSESSEE IN IS IN APPEAL BEFORE US. 107. THE LEARNED AR BEFORE US SUBMITTED AS UNDER: IT IS SUBMITTED THAT SIMILAR ISSUE WAS INVOLVED IN ASSESSEE;S OWN CASE FOR AY 2008-09 WHEREIN THE HONBLE ITAT HAS DIRECTED THE LD. AO TO REFER THE VALUATION TO THE DVO. KINDLY REFER PARA 9-10 ON PG. NO. OTHERS-66-70 WHEREIN FINDINGS OF HONBLE ITAT ARE REPRODUCED. CONSIDERING THE SAME, WE REQUEST THE HONBLE BENCH TO GIVE APPROPRIATE DIRECTIONS. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 63 108. ON THE OTHER HAND THE LEARNED DR ALSO AGREED WITH CONTENTION OF THE LEARNED AR TO REMIT THE ISSUE TO THE FILE OF THE AO FOR FRESH VERIFICATION/ADJUDICATION. 109. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT THE IDENTICAL ISSUE WAS RAISED BY THE ASSESSEE IN ITS OWN CASE IN THE ASSESSMENT YEAR 2008-09 BEARING ITA NO. 1348 & 1402/AHD/13 WHICH WAS SET ASIDE BY THE ITAT VIDE ORDER DATED 25 TH JANUARY 2018. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 10. WE HAVE HEARD RIVAL CONTENTIONS REITERATING BOTH PARTIES RESPECTIVE STANDS. THERE CAN BE HARDLY ANY DISPUTE ABOUT THE FACT THAT THE ASSESSEE HAS IN FACT SOLD THE RELEVANT CAPITAL ASSETS TO ITS SISTER CONCERN. THE ISSUE BEFORE US IS THAT OF ITS FAIR MARKET VALUE. BOTH THE LOWER AUTHORITIES HAVE ADMITTEDLY INVOKED SECTION 50C OF THE ACT IN ADOPTING STAMP PRICE OF THE RELEVANT CAPITAL ASSET TO BE ITS FAIR MARKET VALUE AS AGAINST THE ASSESSEES STAND THAT THE REPORTED SALE PRICE WAS IN FACT ITS MARKET PRICE. IT HAS THEREFORE COME ON RECORD THAT NEITHER THE ASSESSING OFFICER NOR THE CIT(A) HAVE MADE SECTION 50C(2) REFERENCE TO THE DVO FOR DETERMINATION OF THE ABOVE CAPITAL ASSETS FAIR MARKET PRICE. HONBLE CALCUTTA HIGH COURTS JUDGMENT IN (2015) 372 ITR 83 (CAL.) SUNIL KUMAR AGARWAL VS. CIT HOLDS THAT SUCH A REFERENCE IS MANDATORY EVEN IF AN ASSESSEE DOES NOT MAKE THE RELEVANT PRAYER. WE RATHER NOTICE THAT THE CIT(A) JUSTIFIES THE ASSESSING OFFICERS ACTION IN NOT MAKING ANY SUCH REFERENCE. THE SAME ADMITTEDLY GOES TO THE WELL SETTLED LAW HEREINABOVE THAT THE IMPUGNED ADDITION IS NOT TO BE MADE WITHOUT A NECESSARY REFERENCE UNDER THE RELEVANT STATUTORY PROVISION. WE ACCORDINGLY RESTORE THE INSTANT ISSUE BACK TO THE ASSESSING OFFICER FOR PROCEEDINGS AFRESH AS PER LAW AFTER AFFORDING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSEES INSTANT GROUND IS TREATED AS ACCEPTED FOR STATISTICAL PURPOSES. ITS MAIN APPEAL ITA NO.1402/AHD/2013 IS PARTLY ACCEPTED. 110. THE FACTS OF THE CASE ON HAND ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE. THEREFORE RESPECTFULLY FOLLOWING THE SAME, WE DO NOT WANT TO DEVIATE FROM THE FINDING OF THE ITAT IN THE OWN CASE OF THE ASSESSEE AS DISCUSSED ABOVE. CONSEQUENTLY, THE GROUND OF APPEAL OF THE ASSESSEE IS SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS PER THE PROVISIONS OF LAW AND AFTER GIVING THE REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR THE STATISTICAL PURPOSES. 111. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NUMBER 18 TO 21 IS EITHER CONSEQUENTIAL OR PREMATURE TO DECIDE. THUS SAME IS DISMISSED BEING CONSEQUENTIAL AND PREMATURE. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 64 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR THE STATISTICAL PURPOSES. COMING TO THE IT(SS)A NO. 21/AHD/2018 AN APPEAL BY THE ASSESSEE FOR THE AY 2012-13. 112. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. VALIDITY OF THE ASSESSMENT ORDER: 1 THE ASSESSMENT ORDER PASSED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX- CENTRAL CIRCLE-2, VADODARA ('THE AO') IS INVALID AND VOID-AB-INITIO AS IT IS BARRED BY TIME. 2 THE ASSESSMENT ORDER PASSED BY THE LEARNED AO IS INVALID AND VOID-AB-INITIO AS IT IS NOT PASSED IN ACCORDANCE WITH THE DIRECTION GIVEN BY THE LEARNED DISPUTE RESOLUTION PANEL-2, MUMBAI ('THE DRP'). NO INCRIMINATING MATERIAL FOUND: 3 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW IN MAKING ADDITIONS IN THE ASSESSMENT U/S 153 A OF THE INCOME TAX ACT, 1961 ('THE ACT'), DESPITE THE FACT THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE SEARCH. ADDITION IN RESPECT OF RUBAMIN LTD.: 4 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW IN TAXING THE PROFIT OF SUBSIDIARY COMPANY OF THE APPELLANT VIZ. RUBAMIN FZC SITUATED IN UAE, IN THE HANDS OF THE APPELLANT. 5 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW BY MAKING ADDITION OF RS. 38,39,47,216 BY WAY OF TAXING THE PROFIT OF RUBMAIN FZC IN THE HANDS OF THE ASSESSEE BY HOLDING RUBAMIN FZC AS A COLOURABLE DEVICE/SHELL ENTITY CREATED SOLELY FOR THE PURPOSE OF SHIFTING OF THE APELLANT'S PROFIT OUT OF INDIA WITHOUT ANY BASIS. 6 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW BY TAXING THE PROFIT EARNED BY RUBAMIN FZC FROM AN ACTIVITY WHICH HAS NO NEXUS WITH INDIA AND THUS THE AO HAS CLEARLY EXCEEDED HIS JURISDICTION. 7 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW IN RELYING ON THE DOCUMENTS AND PAPERS WHICH ARE WHOLLY IRRELEVANT FOR THE YEAR UNDER CONSIDERATION AND ALSO FOR COMING TO THE ALLEGED CONCLUSION. DISALLOWANCE OF FRAUD LOSS INCURRED BY RUBAMIA LTD. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 65 8 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW BY NOT ALLOWING DEDUCTION OF RS. 71,35,142 IN RESPECT OF FRAUD LOSS INCURRED BY RUBAMIN FZC BY HOLDING THAT SUCH LOSS IS NOT CRYSTALLISED DURING THE AY 2012-13. IN THE FACTS AND CIRCUMSTANCES, IF THE PROFITS OF RUBAMIN FZC ARE TO BE INCLUDED IN THE HANDS OF RUBAMIN LIMITED, THE SAID AMOUNT REPRESENTS LOSS INCURRED IN THE COURSE OF BUSINESS BY WAY OF FRAUD CONDUCTED BY THE EMPLOYEE AND ALLOWABLE U/S. 28 / 37(1) OF THE ACT. 9 THE APPELLATE SUBMITS THAT IF THE SAID LOSS IS NOT ALLOWED ON THE GROUNDS THAT IT IS NOT CRYSTALLISED DURING AY 2012-13, A DIRECTION MAY PLEASE BE ISSUED TO THE AO IN THE YEAR IN WHICH IT IS CRYSTALLISED. TRANSFER PRICING ADJUSTMENT: 10 THE LEARNED AO ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE DRP BY MAKING TRANSFER PRICING ADDITION FOR PURCHASE OF COBALT OF RS. 52,88,360 FROM RUBAMIN FZC U/S 92 OF THE ACT, WHERE THE DRP HAS SPECIFICALLY DELETED THE SAID ADDITION IN ITS DIRECTIONS. 11 THE LEARNED AO ERRED IN FACT AND IN LAW IN NOT FOLLOWING THE DIRECTIONS OF THE DRP BY MAKING ADDITION ON ACCOUNT OF TRANSFER PRICING IN RESPECT OF CORPORATE GUARANTEE COMMISSION OF RS. 52,88,360 TO THE TOTAL INCOME OF THE ASSESSEE U/S 92 OF THE ACT, WHERE THE DRP HAS SPECIFICALLY DIRECTED TO MAKE THE TRANSFER PRICING ADDITION ONLY ON A PROTECTIVE BASIS. DOUBLE TAXATION INCOME DOUBLE TAXATION OF INCOME 12 THE LEARNED AO AS WELL AS DRP HAS ERRED IN NOT REDUCING THE DIVIDEND OF RS.11,48,43,167 RECEIVED FROM RUBAMIN FZC AND INCLUDED IN THE RETURNED INCOME DESPITE THE FACT THAT ENTIRE PROFIT OF RUBAMIN FZC HAS BEEN INCLUDED BY THE AO IN THE TOTAL INCOME OF THE ASSESSEE AND THEREBY TAXING THE SAME INCOME TWICE IN THE HANDS OF ASSESSEE. 13 THE LEARNED AO ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE DRP TO INCLUDE THE AMOUNT OF DIVIDEND RECEIVED FROM RUBAMIN FZC ON PROTECTIVE BASIS ONLY. * NON-CONSIDERATION OF REVISED RETURN OF INCOME 14 THE LEARNED AO AS WELL THE LEARNED DRP HAS ERRED IN FACT AND IN LAW BY NOT CONSIDERING THE RETURN INCOME AS PER REVISED RETURN OF INCOME FILED 139(5) R.W.S.!53A OF THE ACT FOR THE PURPOSE OF MAKING AN ASSESSMENT. OTHER GROUNDS: 15 THE LEARNED AO ERRED IN FACT AND IN LAW IN REPEATING AN ADDITION OF RS. 1.45,65,207 U/S 50C OF THE ACT, DESPITE THE FACT THAT SAID ADDITION WAS ALREADY MADE IN AY 2011-12. 16 THE LEARNED AO ERRED IN FACT AND IN LAW IN MAKING AN ADDITION OF RS. 1,45,65,207 U/S 50C OF THE ACT DESPITE THE FACT THAT NO TRANSFER OF CAPITAL ASSET WAS MADE IN THE YEAR UNDER CONSIDERATION. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 66 17. THE LEARNED AO ERRED IN FACT IN LAW IN LEVYING INTEREST U/S.234B OF THE ACT. 18. THE LEARNED AO ERRED IN FACT AND IN LAW IN INITIATING PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT. 19. YOUR APPELLANT CRAVES A RIGHT TO ADD TO OR AMEND, ALTER, SUBSTITUTE, DELETE OR WITHDRAW ALL OR ANY GROUND OF APPEAL. 113. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1 AND 2 IS THAT THE LEARNED DRP ERRED IN HOLDING THE VALIDITY OF ASSESSMENT ORDER AS THE SAME IS BARED BY LIMITATION. 114. AT THE OUTSET WE NOTE THAT THE ISSUES RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL FOR THE AY 2012-13 ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS. 1 AND 2 OF ITSSA NO. 20/AHD/2018 FOR THE ASSESSMENT YEAR 2011-12. THEREFORE, THE FINDINGS GIVEN IN ITSSA NO. 20/AHD/2018 SHALL ALSO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. AY 2012-13. THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT 2011-12 HAS BEEN DECIDED BY US VIDE PARAGRAPH NOS. 47 TO 65 OF THIS ORDER AGAINST THE ASSESSEE. THE LEARNED AR AND THE DR ALSO AGREED THAT WHATEVER WILL BE THE FINDINGS FOR THE ASSESSMENT YEAR 2011-12 SHALL ALSO BE APPLIED FOR THE YEAR UNDER CONSIDERATION I.E. AY 2012-13. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE DISMISSED. 115. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NUMBER 3 IS THAT THE LEARNED DRP ERRED IN HOLDING THE ASSESSMENT UNDER SECTION 153A AS VALID WITHOUT BEING ANY INCRIMINATING MATERIAL FOUND. 116. THE LEARNED AR AT THE TIME OF HEARING BEFORE US SUBMITTED THAT HE WAS DIRECTED BY THE APPELLANT ASSESSEE NOT TO PRESS THIS GROUND. ACCORDINGLY WE DISMISS THE SAME BEING NOT PRESSED. 117. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 4 TO 7 OF ITS APPEAL IS THAT THE LEARNED DRP ERRED IN CONFIRMING THE ORDER OF THE AO/TPO BY SUSTAINING THE ADDITION OF RS. 38,39,47,216/- ONLY BY HOLDING THAT THE PROFIT EARNED BY ITS AE, M/S RUBAMIN FZC LOCATED AT SHARJAH UAE BELONGS TO THE ASSESSEE. 118. AT THE OUTSET WE NOTE THAT THE ISSUES RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL FOR THE AY 2012-13 ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 67 GROUND NOS. 4 TO 7 OF ITSSA NO. 20/AHD/2018 FOR THE ASSESSMENT YEAR 2011-12. THEREFORE, THE FINDINGS GIVEN IN ITSSA NO. 20/AHD/2018 SHALL ALSO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. AY 2012-13. THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT 2011-12 HAS BEEN DECIDED BY US VIDE PARAGRAPH NOS. 47 TO 65 OF THIS ORDER IN FAVOUR THE ASSESSEE. THE LEARNED AR AND THE DR ALSO AGREED THAT WHATEVER WILL BE THE FINDINGS FOR THE ASSESSMENT YEAR 2011-12 SHALL ALSO BE APPLIED FOR THE YEAR UNDER CONSIDERATION I.E. AY 2012-13. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE ALLOWED. 119. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 8 AND 9 IS THAT THE LEARNED DRP ERRED IN CONFIRMING THE ORDER OF THE AO BY NOT ALLOWING THE DEDUCTION OF THE LOSS OF 71,35,142/- FOR THE REASON THAT IT WAS NOT CRYSTALLISED THE UNDER CONSIDERATION. 120. AT THE OUTSET WE NOTE THAT THE ISSUES RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL FOR THE AY 2012-13 ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS. 8 AND 9 OF ITSSA NO. 20/AHD/2018 FOR THE ASSESSMENT YEAR 2011-12. THEREFORE, THE FINDINGS GIVEN IN ITSSA NO. 20/AHD/2018 SHALL ALSO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. AY 2012-13. THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT 2011-12 HAS BEEN DECIDED BY US VIDE PARAGRAPH NOS. 68 OF THIS ORDER AGAINST THE ASSESSEE. THE LEARNED AR AND THE DR ALSO AGREED THAT WHATEVER WILL BE THE FINDINGS FOR THE ASSESSMENT YEAR 2011-12 SHALL ALSO BE APPLIED FOR THE YEAR UNDER CONSIDERATION I.E. AY 2012-13. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE DISMISSED. 121. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 10 AND 11 IS THAT THE LEARNED DRP ERRED IN CONFIRMING THE ORDER OF THE AO BY TREATING THE TRANSACTION OF BANK GUARANTEE FURNISHED BY THE ASSESSEE TO ITS AE AS INTERNATIONAL TRANSACTION AND THEREFORE MAKING AN ADDITION OF RS. 52,88360/- BEING GUARANTEE COMMISSION. 122. AT THE OUTSET WE NOTE THAT THE ISSUES RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL FOR THE AY 2012-13 ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN GROUND NO12 OF ITSSA NO. 20/AHD/2018 FOR THE ASSESSMENT YEAR 2011-12. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 68 THEREFORE, THE FINDINGS GIVEN IN ITSSA NO. 20/AHD/2018 SHALL ALSO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. AY 2012-13. THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT 2011-12 HAS BEEN DECIDED BY US VIDE PARAGRAPH NOS. 84 TO 91 OF THIS ORDER PARTLY IN FAVOUR OF THE ASSESSEE. THE LEARNED AR AND THE DR ALSO AGREED THAT WHATEVER WILL BE THE FINDINGS FOR THE ASSESSMENT YEAR 2011-12 SHALL ALSO BE APPLIED FOR THE YEAR UNDER CONSIDERATION I.E. AY 2012-13. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE PARTLY ALLOWED. 123. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 12 AND 13 IS THAT THE LEARNED DRP ERRED IN NOT REDUCING THE DIVIDEND INCOME OF RS. 11,48,43,167/- RECEIVED FROM RUBAMIN FZC IN THE EVENT PROFIT OF RUBAMIN FZC MERGED WITH ASSESSEES INCOME. 124. THE LEARNED AR BEFORE US SUBMITTED AS UNDER: IF THE ASSESSEE SUCCEEDS IN GROUND NO. 4 TO 7 AND THE HONBLE BENCH HOLDS THAT PROFITS OF RUBAMIN FZC ARE NOT TO BE INCLUDED IN THE INCOME OF THE ASSESSEE, THEN IN SUCH CASE THE NO DEDUCTION OF DIVIDEND INCOME WOULD BE ALLOWED. HOWEVER, IF GROUNDS NO. 4 TO 7 ARE DECIDED AGAINST THE ASSESSEE, THEN DIVIDEND INCOME AMOUNTING TO RS. 11,48,43,167 RECEIVED FROM RUBAMIN FZC AND INCLUDED IN THE TOTAL INCOME MUST BE DEDUCTED FROM THE TOTAL INCOME OF THE ASSESSEE SINCE THE ENTIRE PROFITS OF RUBAMIN FZC WOULD BE INCLUDED IN THE INCOME OF THE ASSESSEE AND IT WOULD RESULT IN DOUBLE TAXATION OF THE SAME INCOME. 125. IT IS A FACT ON RECORD THAT THE INCOME SHOWN BY RUBAMIN FZC HAS NOT BEEN HELD TO BE TAXABLE IN INDIA ALONG WITH THE PROFIT OF THE ASSESSEE IN THE GROUND RAISED BY THE ASSESSEE BEARING NOS. 4 TO 7 VIDE PARAGRAPH NO. 47 TO 65 OF THIS ORDER. ONCE, THE PROFIT OF RUBAMIN RZC IS NOT TAXABLE IN INDIA, THE QUESTION OF REDUCING THE DIVIDEND INCOME AS CLAIMED BY THE ASSESSEE IN THE GROUND OF APPEAL AGAINST THE PROFIT OF THE ASSESSEE DOES NOT ARISE. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 126. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NUMBER 14 IS THAT THE AO AS WELL AS LEARNED DRP ERRED IN NOT CONSIDERING THE INCOME AS PER THE REVISED RETURN. 126. THE LEARNED AR FOR THE ASSESSEE BEFORE US SUBMITTED AS UNDER: IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 69 THE LD. AO WHILE COMPUTING THE TOTAL INCOME HAS NOT CONSIDERED THE INCOME AS PER REVISED RETURN OF INCOME. HENCE, WE REQUEST THE HONBLE BENCH TO DIRECT THE LD. AO TO CONSIDER THE TOTAL INCOME AS PER REVISED RETURN OF INCOME WHILE COMPUTING THE ASSESSED INCOME. 127. AT THE OUTSET WE NOTE THAT THE RETURN OF INCOME CAN BE REVISED UNDER THE ACT IF IT HAS BEEN DONE WITHIN TIME LIMIT AS PER THE PROVISION OF THE ACT. THEN IT IS THE DUTY OF REVENUE AUTHORITY TO CONSIDER THE INCOME AS PER THE REVISED RETURN. ACCORDINGLY WE DIRECT THE AO TO CONSIDER THE INCOME AS PER REVISED RETURN IF THE SAME IS FILED WITHIN THE FRAMEWORK OF LAW. HENCE THE GROUND OF ASSESSEE IS ALLOWED IN TERMS OF ABOVE FOR THE STATISTICAL PURPOSES. 128. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 15 AND 16 IS THAT THE AO ERRED IN MAKING THE ADDITION UNDER SECTION 50C FOR RS. 1,45,65,207/- WHICH HAS BEEN ALREADY MADE IN A.Y. 2011. AND FURTHER ERRED IN NOT FOLLOWING THE DIRECTION OF DRP. 129. AT THE OUTSET, THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE AO HAS ADHERED THE DIRECTION OF THE LEARNED DRP BY RECTIFYING ITS ORDER UNDER THE PROVISIONS OF SECTION 154 OF THE ACT. ACCORDINGLY THE LEARNED AR CONTENDED THAT THERE IS NO GRIEVANCE TO THE ASSESSEE NOW. CONSEQUENTLY, THE LEARNED AR SUBMITTED THAT HE HAS BEEN INSTRUCTED BY THE ASSESSEE NOT TO PRESS THIS GROUND OF APPEAL. HENCE, WE DISMISS THE SAME AS NOT PRESSED. 130. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 17, 18 AND 19 ARE EITHER CONSEQUENTIAL, PREMATURE OR GENERAL IN NATURE. HENCE THE SAME IS DISMISSED AS INFRUCTUOUS. 131. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. COMING TO THE IT(SS)A NO. 22/AHD/2018 AN APPEAL BY THE ASSESSEE FOR A.Y. 2013-14. 132. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: VALIDITY OF THE ASSESSMENT ORDER: IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 70 1 THE ASSESSMENT ORDER PASSED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX- CENTRAL CIRCLE-2, VADODARA ('THE AO') IS INVALID AND VOID-AB-INITIO AS IT IS BARRED BY TIME. 2 THE ASSESSMENT ORDER PASSED BY THE LEARNED AO IS INVALID AND VOID-AB-INITIO AS IT IS NOT PASSED IN ACCORDANCE WITH THE DIRECTION GIVEN BY THE LEARNED DISPUTE RESOLUTION PANEL-2, MUMBAI ('THE DRP'). NO INCRIMINATING MATERIAL FOUND: 3 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW IN MAKING ADDITIONS IN THE ASSESSMENT U/S 153 A OF THE INCOME TAX ACT, 1961 ('THE ACT'), DESPITE THE FACT THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE SEARCH. ADDITION IN RESPECT OF RUBAMIN LTD.: 4 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW IN TAXING THE PROFIT OF SUBSIDIARY COMPANY OF THE APPELLANT VIZ. RUBAMIN FZC SITUATED IN UAE, IN THE HANDS OF THE APPELLANT. 5 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW BY MAKING ADDITION OF RS. 46,72,89,465 BY WAY OF TAXING THE PROFIT OF RUBMAIN FZC IN THE HANDS OF THE ASSESSEE BY HOLDING RUBAMIN FZC AS A COLOURABLE DEVICE/SHELL ENTITY CREATED SOLELY FOR THE PURPOSE OF SHIFTING OF THE APELLANT'S PROFIT OUT OF INDIA WITHOUT ANY BASIS. 6 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW BY TAXING THE PROFIT EARNED BY RUBAMIN FZC FROM AN ACTIVITY WHICH HAS NO NEXUS WITH INDIA AND THUS THE AO HAS CLEARLY EXCEEDED HIS JURISDICTION. 7 THE LEARNED AO AS WELL AS THE LEARNED DRP ERRED IN FACT AND IN LAW IN RELYING ON THE DOCUMENTS AND PAPERS WHICH ARE WHOLLY IRRELEVANT FOR THE YEAR UNDER CONSIDERATION AND ALSO FOR COMING TO THE ALLEGED CONCLUSION. TRANSFER PRICING ADJUSTMENT: 8 THE LEARNED AO ERRED IN FACT AND IN LAW IN NOT FOLLOWING THE DIRECTIONS OF THE DRP BY MAKING ADDITION ON ACCOUNT OF TRANSFER PRICING IN RESPECT OF CORPORATE GUARANTEE COMMISSION OF RS. 19,49,160 TO THE TOTAL INCOME OF THE ASSESSEE U/S 92 OF THE ACT, WHERE THE DRP HAS SPECIFICALLY DIRECTED TO MAKE THE TRANSFER PRICING ADDITION ONLY ON A PROTECTIVE BASIS. 9 THE LEARNED AO ERRED IN FACT AND IN LAW IN MAKING ADDITION ON ACCOUNT OF TRANSFER PRICING IN RESPECT OF CORPORATE GUARANTEE COMMISSION OF RS. 19,49,160 TO THE TOTAL INCOME OF THE ASSESSEE U/S 92 OF THE ACT. DOUBLE TAXATION OF INCOME 10 THE LEARNED AO AS WELL AS DRP HAS ERRED IN NOT REDUCING THE DIVIDEND OF RS.24,55,09,656 RECEIVED FROM RUBAMIN FZC AND INCLUDED IN THE RETURNED INCOME DESPITE THE IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 71 FACT THAT ENTIRE PROFIT OF RUBAMIN FZC HAS BEEN INCLUDED BY THE AO IN THE TOTAL INCOME OF THE ASSESSEE AND THEREBY TAXING THE SAME INCOME TWICE IN THE HANDS OF ASSESSEE. 11. THE LEARNED AO ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE DRP TO INCLUDE THE AMOUNT OF DIVIDEND RECEIVED FROM RUBAMIN FZC ON PROTECTIVE BASIS ONLY. NON-CONSIDERATION OF REVISED RETURN OF INCOME 12 THE LEARNED AO AS WELL THE LEARNED DRP HAS ERRED IN FACT AND IN LAW BY NOT CONSIDERING THE RETURN INCOME AS PER REVISED RETURN OF INCOME FILED 139(5) R.W.S.L53A OF THE ACT FOR THE PURPOSE OF MAKING AN ASSESSMENT. DISALLOWANCE OF FRAUD LOSS: 13 THE LEARNED AO AS WELL THE LEARNED DRP HAS ERRED IN FACT AND IN LAW IN DISALLOWING FRAUD LOSS CLAIM AMOUNTING TO RS. 4,80.08,326 IN THE YEAR UNDER CONSIDERATION. 14 THE LEARNED AO AS WELL THE LEARNED DRP HAS ERRED IN FACT AND IN LAW IN DISALLOWING FRAUD LOSS CLAIM ON THE GROUND THAT THE FRAUD LOSS DID NOT CRYSTALLIZE DURING THE YEAR UNDER CONSIDERATION. 15 THE LEARNED AO AS WELL THE LEARNED DRP HAS ERRED IN FACT AND IN LAW IN NOT APPRECIATING THE FACT THAT THE FRAUD WAS DETECTED IN THE YEAR UNDER CONSIDERATION. OTHER GROUNDS: 16 THE LEARNED AO ERRED IN FACT AND IN LAW IN CHARGING INTEREST U/S 234B OF THE ACT. 17 THE LEARNED AO ERRED IN FACT AND IN LAW IN CHARGING INTEREST U/S 234C OF THE ACT. 18 THE LEARNED AO ERRED IN FACT AND IN LAW IN INITIATING PENALTY PROCEEDINGS U/S 271(I)(C) OF THE ACT. 133. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1 AND 2 IS THAT THE LEARNED DRP ERRED IN HOLDING THE VALIDITY OF ASSESSMENT ORDER AS THE SAME IS BARED BY LIMITATION. 134. AT THE OUTSET WE NOTE THAT THE ISSUES RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL FOR THE AY 2013-14 ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS. 1 AND 2 OF ITSSA NO. 20/AHD/2018 FOR THE ASSESSMENT YEAR 2011-12. THEREFORE, THE FINDINGS GIVEN IN ITSSA NO. 20/AHD/2018 SHALL ALSO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. AY 2013-14. THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT 2011-12 HAS BEEN DECIDED BY US VIDE PARAGRAPH NOS. 3 OF THIS ORDER AGAINST THE ASSESSEE. THE LEARNED AR AND THE DR ALSO AGREED THAT WHATEVER WILL BE THE FINDINGS FOR THE ASSESSMENT YEAR 2011-12 SHALL ALSO BE APPLIED FOR THE YEAR UNDER CONSIDERATION I.E. AY 2013-14. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE DISMISSED. 135. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NUMBER 3 IS THAT THE LEARNED DRP ERRED IN HOLDING THE ASSESSMENT UNDER SECTION 153A AS VALID WITHOUT BEING ANY INCRIMINATING MATERIAL FOUND. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 72 136. THE LEARNED AR AT THE TIME OF HEARING BEFORE US SUBMITTED THAT HE WAS DIRECTED BY THE APPELLANT ASSESSEE NOT TO PRESS THIS GROUND. ACCORDINGLY WE DISMISS THE SAME BEING NOT PRESSED. 137. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 4 TO 7 OF ITS APPEAL IS THAT THE LEARNED DRP ERRED IN CONFIRMING THE ORDER OF THE AO/TPO BY SUSTAINING THE ADDITION OF RS. 46,72,89,465/- ONLY BY HOLDING THAT THE PROFIT EARNED BY ITS AE, M/S RUBAMIN FZC LOCATED AT SHARJAH UAE BELONGS TO THE ASSESSEE. 138. AT THE OUTSET WE NOTE THAT THE ISSUES RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL FOR THE AY 2013-14 ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS. 4 TO 7 OF ITSSA NO. 20/AHD/2018 FOR THE ASSESSMENT YEAR 2011-12. THEREFORE, THE FINDINGS GIVEN IN ITSSA NO. 20/AHD/2018 SHALL ALSO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. AY 2013-14. THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT 2011-12 HAS BEEN DECIDED BY US VIDE PARAGRAPH NOS. 47 TO 65 OF THIS ORDER IN FAVOUR THE ASSESSEE. THE LEARNED AR AND THE DR ALSO AGREED THAT WHATEVER WILL BE THE FINDINGS FOR THE ASSESSMENT YEAR 2011-12 SHALL ALSO BE APPLIED FOR THE YEAR UNDER CONSIDERATION I.E. AY 2013-14. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE ALLOWED. 139. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 8 AND 9 IS THAT THE LEARNED DRP ERRED IN CONFIRMING THE ORDER OF THE AO BY TREATING THE TRANSACTION OF BANK GUARANTEE FURNISHED BY THE ASSESSEE TO ITS AE AS INTERNATIONAL TRANSACTION AND THEREFORE MAKING AN ADDITION OF RS. 19,49,160/- BEING GUARANTEE COMMISSION. 140. AT THE OUTSET WE NOTE THAT THE ISSUES RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL FOR THE AY 2013-14 ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN GROUND NO 12 OF ITSSA NO. 20/AHD/2018 FOR THE ASSESSMENT YEAR 2011-12. THEREFORE, THE FINDINGS GIVEN IN ITSSA NO. 20/AHD/2018 SHALL ALSO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. AY 2013-14. THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT 2011-12 HAS BEEN DECIDED BY US VIDE PARAGRAPH NOS. 84 TO 91 OF THIS ORDER PARTLY IN FAVOUR OF THE ASSESSEE. THE LEARNED AR AND THE DR ALSO AGREED THAT WHATEVER WILL BE THE FINDINGS FOR THE ASSESSMENT YEAR 2011-12 SHALL ALSO BE APPLIED IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 73 FOR THE YEAR UNDER CONSIDERATION I.E. AY 2013-14. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE PARTLY ALLOWED. 141. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 10 AND 11 IS THAT THE LEARNED DRP ERRED IN NOT REDUCING THE DIVIDEND INCOME OF RS. 24,55,09,656/- RECEIVED FROM RUBAMIN FZC IN THE EVENT PROFIT OF RUBAMIN FZC MERGED WITH ASSESSEES INCOME. 142. AT THE OUTSET WE NOTE THAT THE ISSUES RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL FOR THE AY 2013-14 ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN GROUND NO 12 AND 13 OF ITSSA NO. 21/AHD/2018 FOR THE ASSESSMENT YEAR 2012-13. THEREFORE, THE FINDINGS GIVEN IN ITSSA NO. 21/AHD/2018 SHALL ALSO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. AY 2013-14. THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT 2012-13 HAS BEEN DECIDED BY US VIDE PARAGRAPH NOS. 125 OF THIS ORDER AGAINST THE ASSESSEE. THE LEARNED AR AND THE DR ALSO AGREED THAT WHATEVER WILL BE THE FINDINGS FOR THE ASSESSMENT YEAR 2012-13 SHALL ALSO BE APPLIED FOR THE YEAR UNDER CONSIDERATION I.E. AY 2013-14. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE DISMISSED. 143. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NUMBER 12 IS THAT THE AO AS WELL AS LEARNED DRP ERRED IN NOT CONSIDERING THE INCOME AS PER THE REVISED RETURN. 144. THE LEARNED AR FOR THE ASSESSEE BEFORE US SUBMITTED AS UNDER: THE LD. AO WHILE COMPUTING THE TOTAL INCOME HAS NOT CONSIDERED THE INCOME AS PER REVISED RETURN OF INCOME. HENCE, WE REQUEST THE HONBLE BENCH TO DIRECT THE LD. AO TO CONSIDER THE TOTAL INCOME AS PER REVISED RETURN OF INCOME WHILE COMPUTING THE ASSESSED INCOME. 145. AT THE OUTSET WE NOTE THAT THE RETURN OF INCOME CAN BE REVISED UNDER THE ACT IF IT HAS BEEN DONE WITHIN TIME LIMIT AS PER THE PROVISION OF THE ACT. THEN IT IS THE DUTY OF REVENUE AUTHORITY TO CONSIDER THE INCOME AS PER THE REVISED RETURN. ACCORDINGLY WE DIRECT THE AO TO CONSIDER THE INCOME AS PER REVISED RETURN IF THE SAME IS FILED WITHIN THE FRAMEWORK OF LAW. HENCE THE GROUND OF ASSESSEE IS ALLOWED IN TERMS OF ABOVE FOR THE STATISTICAL PURPOSES. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 74 146. THE ISSUE RAISED BY THE ASSESSEE IN GROUND 13 TO 15 IS THAT THE LEARNED DRP ERRED IN NOT ALLOWING THE LOSS OF RS. 4,80,08,326/- OCCURRED DUE TO FRAUD ON REASON THAT THE SAME NOT CRYSTALLIZED IN THE CURRENT YEAR. 147. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS CLAIMED LOSS OF RS. 4,80,08,326/- ON ACCOUNT OF THE FRAUD COMMITTED BY THE THEN CFO OF THE COMPANY NAMELY SHRI AJAY AGARWAL. AS PER THE ASSESSEE, SUCH FRAUD WAS COMMITTED BY CFO IN DIFFERENT ASSESSMENT YEARS INCLUDING THE YEAR UNDER CONSIDERATION. THE DETAILS OF THE SAME STAND AS UNDER: ASSESSMENT YEAR NICOMET GLENCORE TENKE TOTAL 2009-10 2,97,87,621 - - 2,97,87,621 2010-11 30,00,000 - - 30,00,000 2012-13 - 1,73,18,524 - 1,73,18,524 2013-14 - - 1,07,89,802 1,07,89,802 12,12,379 GROSS AMOUNT 6,21,08,326 AMOUNT RECOVERED 1,41,00,000 NET FRAUD LOSS 4,80,08,326 148. THE FRAUD WAS COMMITTED BY THE CFO BY TRANSFERRING THE FUND FROM THE COMPANYS BANK ACCOUNT TO HIS PERSONAL ACCOUNT BY FABRICATING THE TRANSACTIONS WITH THE SUPPLIERS OF THE COMPANY. IN OTHER WORDS, SUCH PAYMENT WAS CLAIMED AS DEDUCTION BY THE ASSESSEE IN THE RESPECTIVE YEARS AS DISCUSSED ABOVE. 149. AS PER THE ASSESSEE, THE LOSS ON ACCOUNT OF THE FRAUD WAS DETECTED BY IT IN THE MONTH OF NOVEMBER 2012. ACCORDINGLY, THE ASSESSEE BY WAY OF FILING THE LETTER WITHDREW ITS CLAIM MADE BY IT IN THE RESPECTIVE ASSESSMENT YEARS WHICH WAS SHOWN AS PAYMENT TO THE SUPPLIERS AGAINST THE PURCHASES/SETTLEMENT EXPENSES. THE AO CONSEQUENTLY DISALLOWED THE CLAIM OF THE ASSESSEE IN THE RESPECTIVE ASSESSMENT YEARS AS DISCUSSED ABOVE. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 75 150. HOWEVER, THE ASSESSEE CLAIMED SUCH LOSS OF RS. 4,80,08,326/- IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF THE FRAUD COMMITTED BY THE CFO ON THE REASONING THAT IT WAS DETECTED IN THE YEAR UNDER CONSIDERATION. 151. NEVERTHELESS, THE AO DISALLOWED THE LOSS CLAIMED BY THE ASSESSEE ON THE REASONING THAT SUCH LOSS ON ACCOUNT OF THE FRAUD WAS COMMITTED IN THE EARLIER YEARS. THEREFORE, THE SAME CANNOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. 152. THE AO ALSO REJECTED THE CLAIM OF THE ASSESSEE ON THE REASONING THAT THERE WAS NO DOCUMENTARY EVIDENCE FURNISHED BY THE ASSESSEE WITH RESPECT TO THE LOSS INCURRED ON ACCOUNT OF THE FRAUD COMMITTED BY THE THEN CFO EXCEPT THE COPY OF THE FIR. IN VIEW OF THE ABOVE THE AO DISALLOWED THE LOSS AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 153. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED DRP WHO ADMITTED THE FACT THAT THE LOSS ON ACCOUNT OF THE FRAUD HAS ACTUALLY BEEN OCCURRED TO THE ASSESSEE. INDEED, THE LOSS WAS DETECTED IN THE YEAR UNDER CONSIDERATION BUT THE FIR WAS LODGED IN THE SUBSEQUENT ASSESSMENT YEAR I.E. 2014-15 WHICH EVIDENCES THE FACT THAT SUCH LOSS WAS CRYSTALLIZED IN THE ASSESSMENT YEAR 2014-15. LIKEWISE, PART OF THE AMOUNT OF THE LOSS INCURRED BY THE ASSESSEE WAS ALSO REALIZED IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE LEARNED DRP CONCLUDED THAT THOUGH THE LOSS WAS DETECTED IN THE YEAR UNDER CONSIDERATION BUT CRYSTALLIZED IN THE SUBSEQUENT ASSESSMENT YEAR. THEREFORE THE IMPUGNED LOSS CANT BE ALLOWED AS DEDUCTION IN THE UNDER CONSIDERATION AND DIRECTED THE AO TO ALLOW THE IMPUGNED LOSS TO THE ASSESSEE AS DEDUCTION IN THE SUBSEQUENT ASSESSMENT YEAR. 154. BEING AGGRIEVED BY THE ORDER OF THE LEARNED DRP, THE ASSESSEE IS IN APPEAL BEFORE US. 155. THE LEARNED AR BEFORE US SUBMITTED AS UNDER: IT IS SUBMITTED THAT FRAUD LOSS MUST BE ALLOWED IN THE YEAR IN WHICH THE FRAUD IS DETECTED. THE ASSESSEE HAD RELIED UPON CIRCULAR NO. 35D (XLVII-20) [F. NO. 10/48/65-IT(AI)]. THE CIRCULAR IS REPRODUCED AS UNDER: BUSINESS INCOME SECTIONS 29, IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 76 A REFERENCE IS INVITED TO THE INSTRUCTIONS ON THE ABOVE SUBJECT CONTAINED IN BOARD'S CIRCULAR NO. 25 OF 1939 AND CIRCULAR NO. 13 OF 1944. IN THESE CIRCULARS IT WAS CLARIFIED THAT LOSSES ARISING DUE TO EMBEZZLEMENT OF EMPLOYEES OR DUE TO NEGLIGENCE OF EMPLOYEES SHOULD BE ALLOWED IF THE LOSS TOOK PLACE IN THE NORMAL COURSE OF BUSINESS AND THE AMOUNT INVOLVED WAS NECESSARILY KEPT FOR THE PURPOSE OF THE BUSINESS IN THE PLACE FROM WHICH IT WAS LOST. SINCE THE ABOVE CIRCULARS WERE ISSUED, THE SUPREME COURT HAS FURTHER CONSIDERED THE MATTER AND LAID DOWN THE LAW IN THIS REGARD IN THE FOLLOWING TWO CASES : (1) BADRI DAS DAGA VS. CIT (1958) 34 ITR 10 (SC) : TC 14R.202. (2) ASSOCIATED BANKING CORPORATION OF INDIA LTD. VS. CIT (1965) 56 ITR 1 (SC) : TC 14R.211 IN THE FIRST CASE, THE SUPREME COURT HAS AFFIRMED THE VIEW THAT THE LOSS RESULTING FROM EMBEZZLEMENT BY AN EMPLOYEE OR AGENT OF A BUSINESS IS ADMISSIBLE AS A DEDUCTION UNDER S. 10(1) OF THE IT ACT, 1922 (CORRESPONDING TO S. 28 OF THE IT ACT, 1961) IF IT ARISES OUT OF THE CARRYING ON OF THE BUSINESS AND IS INCIDENTAL TO IT. IN THE SECOND CASE THE DECISION IS THAT LOSS MUST BE DEEMED TO HAVE ARISEN ONLY WHEN THE EMPLOYER COMES TO KNOW ABOUT IT AND REALISES THAT THE AMOUNTS EMBEZZLED CANNOT BE RECOVERED. 2. IN THE LIGHT OF THE ABOVE DECISIONS OF THE SUPREME COURT, THE LEGAL POSITION NOW IS THAT LOSS BY EMBEZZLEMENT BY EMPLOYEES SHOULD BE RELATED AS INCIDENTAL TO A BUSINESS AND THIS LOSS SHOULD BE ALLOWED AS DEDUCTION IN THE YEAR IN WHICH IT IS DISCOVERED. ON PERUSAL OF THE ABOVE, YOUR KIND OFFICE WILL NOTICE THAT THE CBDT CIRCULAR CLARIFIES THAT THE LOSS BY EMBEZZLEMENT BY EMPLOYEES WOULD BE ALLOWED AS DEDUCTION IN THE YEAR IN WHICH THE FRAUD IS DISCOVERED. IN THE CASE OF THE ASSESSEE, THE FRAUD WAS DISCOVERED IN NOVEMBER, 2012 I.E. AY 2013-14, HENCE THE LOSS ON ACCOUNT OF THE FRAUD SHALL BE ALLOWED AS DEDUCTION IN THE YEAR UNDER CONSIDERATION. ONCE IT IS ESTABLISHED THAT LOSS HAS BEEN OCCASIONED BY EMBEZZLEMENT OF AN EMPLOYEE THE SAME SHOULD BE TREATED AS INCIDENTAL TO A BUSINESS AND THIS LOSS SHOULD BE ALLOWED AS DEDUCTION IN THE YEAR IN WHICH IT IS DISCOVERED AND THE BIFURCATION OF THE SAME AS BETWEEN WHAT WAS IRRETRIEVABLY LOSS AND WHAT WAS POSSIBLE OF RECOVERY IS THEREFORE UNNECESSARY AS WAS HELD IN THE CASE OF DINESH MILLS LTD. V. CIT [2002] 254 ITR 673 (GUJ.). THE OBSERVATIONS MADE BY THE HONBLE PUNJAB HIGH COURT IN THE CASE OF PUNJAB STEEL STOCKHOLDERS SYNDICATE LTD. V. CIT [1980] 125 ITR 519 ARE RELEVANT IN THIS RESPECT : 'IF AN EMBEZZLEMENT IS PROVED BY AN ASSESSEE, THE SAME CAN BE CLAIMED AS BUSINESS LOSS. EMBEZZLEMENT IS A CRIMINAL OFFENCE, AND IF, IN A GIVEN CASE, CRIMINAL PROCEEDINGS HAVE BEEN LAUNCHED, IT MAY BE ONE OF THE RELEVANT PIECES OF EVIDENCE FOR PROVING THE LOSS BUT THE CULMINATION OF SUCH PROCEEDINGS IN THE CONVICTION OF THE ACCUSED IS NOT NECESSARY TO PROVE THE LOSS. IF AN ASSESSEE IS ABLE TO PLACE RELEVANT MATERIAL BEFORE THE AUTHORITIES FOR PROVING THE LOSS IRRESPECTIVE OF THE FACT WHETHER THE ACCUSED CHARGED WITH IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 77 EMBEZZLEMENT HAS BEEN CONVICTED OR NOT, THE AUTHORITIES CANNOT REFUSE TO CONSIDER THE MATERIAL ON THE GROUND THAT THE CONVICTION OF THE PERSON ACCUSED OF EMBEZZLEMENT HAS NOT BEEN RECORDED. IN A GIVEN CASE, EVEN IF THE PERSON, WHO IS ACCUSED OF EMBEZZLEMENT, IS ACQUITTED, STILL, IF PROPER EVIDENCE IS LED BEFORE THE AUTHORITIES, THE AUTHORITIES ARE BOUND TO CONSIDER THE MATERIAL WITH A VIEW TO FIND OUT IF THE LOSS IS PROVED OR NOT. IT IS NOT NECESSARY FOR THE ASSESSEE TO PROVE THAT THE EMBEZZLEMENT WAS DONE BY A PARTICULAR EMPLOYEE. IF THE LOSS BY WAY OF EMBEZZLEMENT IS PROVED, THE ASSESSEE IS ENTITLED TO CLAIM SET OFF. IF THE LOSS IS NOT KNOWN, AND IT COMES TO BE KNOWN DURING A PARTICULAR ASSESSMENT YEAR, THE ADJUSTMENT CAN BE CLAIMED IN THE ASSESSMENT YEAR WHEN IT CAME TO BE KNOWN .' ON THE PERUSAL OF THE ABOVE, IT IS SUBMITTED THAT THE FRAUD LOSS INCURRED BY THE ASSESSEE IS ALLOWABLE IN THE YEAR IN WHICH IT IS DETECTED, THAT IS IN AY 2013-14. HENCE, WE REQUEST THE HONBLE BENCH TO DIRECT THE LD. AO TO ALLOW THE DEDUCTION IN RESPECT OF THE FRAUD LOSS IN THE YEAR UNDER CONSIDERATION I.E. AY 2013-14. WITHOUT PREJUDICE TO ABOVE , IN CASE THE HONBLE BENCH IS NOT INCLINED TO ALLOW THE DEDUCTION THE YEAR UNDER CONSIDERATION, THEN WE REQUEST THE HONBLE BENCH TO DIRECT THE LD. AO TO ALLOW THE DEDUCTION FOR FRAUD LOSS IN AY 2014-15. 156. ON THE OTHER HAND THE LEARNED DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AO BY FILING THE WRITTEN SUBMISSION WHICH ARE AVAILABLE ON RECORD. 157. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THERE IS NO DISPUTE AS TO THE FACT THAT THE LOSS IN QUESTION WAS DETECTED BY THE ASSESSEE IN THE MONTH OF NOVEMBER 2012 AS WELL AS LAST PAYMENT WAS RECEIVED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION AFTER PUTTING THE EFFORTS FOR THE RECOVERY. FOR THIS PURPOSE, WE REFER TO THE RELEVANT FINDING OF THE LEARNED DRP WHICH IS REPRODUCED AS UNDER: IN THE CASE UNDER CONSIDERATION, AFTER DETECTION OF FRAUD BY THE ASSESSEE IT WAS MAKING EFFORTS TO RECOVER THIS AMOUNT AND THE LAST PAYMENT WAS RECEIVED BY THE ASSESSEE DURING THE FINANCIAL YEAR 2012-13. THE FIR WAS FINALLY FILED ONLY ON 22 JUNE 2013 AND THUS THE ACTUAL LOSS WAS CRYSTALLISED IN FY 2013-14 158. THE ABOVE FINDINGS OF THE LEARNED DRP WAS NOT IN DISPUTE. IT IMPLIES THAT THE FINDING OF THE LEARNED DRP HAS REACHED TO ITS FINALITY AS FAR AS THE FACTS OF THE CASE DISCUSSED HEAR-IN ABOVE. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 78 159. NOW THE CONTROVERSY ARISES FOR OUR ADJUDICATION WHETHER THE IMPUGNED LOSS WAS CRYSTALLISED IN THE YEAR UNDER CONSIDERATION OR IN THE SUBSEQUENT YEAR SO AS TO ALLOW THE DEDUCTION TO THE ASSESSEE. THERE IS NO DISPUTE THAT THE IMPUGNED LOSS IS INCIDENTAL TO BUSINESS CARRIED ON BY THE ASSESSEE AND THEREFORE THE SAME IS ELIGIBLE FOR DEDUCTION. ONLY DISPUTE REMAINS TO BE RESOLVED THE YEAR IN WHICH SUCH LOSS SHOULD BE ALLOWED AS DEDUCTION TO THE ASSESSEE. THE LEARNED DRP IN HIS ORDER HAS MADE THE REFERENCE TO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ASSOCIATED BANKING CORPORATION OF INDIA LTD. VS. CIT REPORTED IN 56 ITR 1 WHEREIN IT WAS HELD AS UNDER: THAT CONCLUSION WAS BASED ON EVIDENCE AND THE LOSS MUST, IN THE CIRCUMSTANCES OF THE CASE, BE DEEMED TO HAVE OCCURRED TO THE BANK AFTER THE LIQUIDATOR CAME TO KNOW ABOUT THE EMBEZZLEMENTS AND CAME TO KNOW THAT THE AMOUNTS EMBEZZLED COULD NOT BE RECOVERED. 160. THE LEARNED DRP IN ITS ORDER HAS RECORDED THE FINDING THAT THE LAST PAYMENT WAS RECEIVED BY THE ASSESSEE AGAINST THE RECOVERY OF THE IMPUGNED LOSS IN THE FINANCIAL YEAR UNDER CONSIDERATION. THIS FINDING OF THE LEARNED DRP IMPLIES THAT THERE WAS NO RECOVERY TO THE ASSESSEE AFTER THE RECOVERY OF THE AMOUNT AS DISCUSSED ABOVE. THUS IT IS INFERRED THAT THE LAST RECOVERY WAS MADE BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. THUS THE BALANCE AMOUNT AFTER THE LAST RECOVERY WAS NOT RECOVERABLE. TO THIS EFFECT, THE ASSESSEE ALSO DERIVED ITS SATISFACTION WHICH IS DISCERNIBLE FROM THE FACT OF CLAIMING THE DEDUCTION OF THE LOSS AS DISCUSSED ABOVE. 161. THE TERM WHEN ASSESSEE COMES TO KNOW THAT THE AMOUNT IS NOT RECOVERABLE IS A VERY SUBJECTIVE TERM AND THEREFORE NO PRINCIPLES CAN BE LAID DOWN TO THIS EFFECTS AS IT DEPENDS UPON THE FACTS WHICH MAY VARY CASE TO CASE. IT IS THE DECISION ONLY OF THE ASSESSEE TO ARRIVE AT THE SATISFACTION THAT THE AMOUNT IS NOT RECOVERABLE AND THEREFORE THE ASSESSEE HAS TO RESORT TO THE OTHER OPTIONS SUCH AS FILING THE POLICE COMPLAINT. ONCE THE ASSESSEE HAS DEBITED THE IMPUGNED LOSS IN THE BOOKS OF ACCOUNTS, IT IS SUFFICIENT ENOUGH TO HOLD THAT THE AMOUNT IS NOT RECOVERABLE. THE RECOVERY OF THE AMOUNT CANNOT BE LINKED WITH THE FINDING OF THE FIR. IN OTHER WORDS, THE ACT OF FILING THE FIR CANNOT BE A CRITERIA/CONDITION TO ARRIVE AT THE CONCLUSION THAT THE AMOUNT IS NOT RECOVERABLE. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 79 162. WE ALSO NOTE THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DINESH MILLS LTD. V. COMMISSIONER OF INCOME-TAX REPORTED IN 254 ITR 673 WHEREIN IT WAS HELD AS UNDER: IT WAS TO BE HELD THAT THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION OF LOSS DURING THE YEAR UNDER CONSIDERATION AS THAT WAS THE YEAR IN WHICH THE LOSS ON ACCOUNT OF EMBEZZLEMENT WAS, IN FACT, DISCOVERED. 163. THE ABOVE JUDGEMENT OF THE HONBLE GUJARAT HIGH COURT MANDATES THE LOSS ON ACCOUNT OF FRAUD SHOULD BE ALLOWED AS DEDUCTION IN THE YEAR IN WHICH IT WAS DISCOVERED. ADMITTEDLY, THE LOSS WAS DISCOVERED IN THE YEAR UNDER CONSIDERATION. 164. THE EXPRESSION DETECTION AND DISCOVERY HAVE DIFFERENT AND DISTINCT IMPLICATIONS IN LAW. THE EXPRESSION 'DISCOVERY' HAS TO BE INTERPRETED SO AS TO MEAN THAT LOSS MUST BE DEEMED TO HAVE ARISEN ONLY WHEN THE ASSESSEE COMES TO KNOW ABOUT IT AND REALIZES THAT THE AMOUNT EMBEZZLED CANNOT BE RECOVERED AND NOT MERELY FROM THE DATE OF ACQUIRING KNOWLEDGE IN WHICH THAT EMBEZZLEMENT HAS TAKEN PLACE. IN THE PRESENT CASE, THE LD. DRP HAS GIVEN FINDING THAT LAST AMOUNT WAS RECEIVED IN THE FINANCIAL YEAR UNDER CONSIDERATION WHICH IMPLIES THAT THE BALANCE AMOUNT IS NOT RECOVERABLE. ACCORDINGLY IT CAN BE INFERRED THAT, SUCH LOSS IS ELIGIBLE FOR DEDUCTION AS IT WAS DISCOVERED TO THE ASSESSEE THAT THE AMOUNT OF LOSS WAS NOT RECOVERABLE. ACCORDINGLY WE SET ASIDE THE FINDING OF THE LEARNED DRP AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 165. THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS. 16 TO 19 ARE EITHER CONSEQUENTIAL OR PREMATURE TO DECIDE. THUS THE SAME ARE DISMISSED. 166, IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. COMING TO THE 1291/AHD/2018 AN APPEAL BY THE ASSESSEE FOR A.Y. 2014- 15. 167. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: ALL THE GROUNDS OF APPEAL IN THIS APPEAL ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. ERRONEOUS CHARACTERIZATION OF RUBAMIN FZC AS 'SHELL ENTITY': 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-13. AHMEDABAD [THE CIT(A)] ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF' THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2, BARODA ['THE AO'| IN MAKING ADDITION OF RS. 48.63.67,250 TO THE RETURNED INCOME OF THE APPELLANT. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 80 2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN MAKING ADDITION OF RS.48.63.67,250 IN RESPECT OF PROFIT OF RUBAMIN FZC BY SOLELY RELYING UPON THE ORDER OF THE HON'BLE DISPUTE RESOLUTION PANCL-2. MUMBAI ('THE DRP') RELATING TO AY 2013-14 & THEREBY MAKING ADDITION OF RS.48.63.67.250 IN RESPECT OF PROFIT OF RUBAMIN FZC ' DESPITE THE FACT THAT THE FINDINGS OF THE DRP RELATING TO AY 2013-14 IN RESPECT OF ADDITION OF PROFITS OF RUBAMIN FZC, ARE NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION. 3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AT) THAT THERE IS NO MATERIAL DI (TERENCE ON THE FACTS OF THE CASE OF THE APPELLANT DURING THE YEAR UNDER CONSIDERATION FROM THE EARLIER YEARS WITHOUT BRINGING ANY RECORD. DOCUMENTS OR REASONING TO THAT EFFECT AND THEREBY MAKING ADDITION OF PROFIT OF RUBMAIN FZC BY RELYING UPON THE ORDER OF DRP FOR AY 2013-14. 4. THE LEARNED CIT(A] ERRED IN TACT AND IN LAW IN CONFIRMING THE ACTION OF THE AC) IN TAXING THE ENTIRE PROFIT OF SUBSIDIARY COMPANY OF THE APPELLANT VIZ. RUBAMIN FZC SITUATED IN UAH IN THE HANDS OF THE APPELLANT BY ALLEGING THAT THE ENTIRE CONTROL AND MANAGEMENT OF RUBAMIN F/C IS IN THE HANDS OF THE APPELLANT AND THEREBY ' TREATING RUBAMIN FZC AS A COLORABLE DEVICE / SHELL ENTITY CREATED SOLELY FOR THE PURPOSE OF SHIFTING OF ITS PROFIT OUT OF INDIA WITHOUT ANY BASIS. 5. THE LEARNED CIT(A) ERRED IN FAD AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN RELYING ON THE DOCUMENTS AND PAPERS WHICH ARE NOT PERTAINING TO ASSESSMENT YEAR UNDER CONSIDERATION AS WELL AS WHOLLY IRRELEVANT FOR THE YEAR UNDER CONSIDERATION AND ALSO FOR COMING TO THE ALLEGED CONCLUSION. 6. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN TAXING THE PROFIT OF RUBAMIN FZC IN THE HANDS OF THE APPELLANT DESPITE THE FACT THAT NO PAN OF PROFIT OF RUBAMIN F/C WAS CHARGEABLE TO LAX IN INDIA. WITHOUT PREJUDICE TO ABOVE: 7. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN NOT ADJUDICATING THE GROUND NO. 3 OF THE APPEAL PERTAINING TO DEDUCTION OF DIVIDEND INCOME OF KS. 16.70,37.236 ON THE INCORRECT REASONING THAT THE SAME DID NOT EMANATE FROM THE ASSESSMENT ORDER PASSED FOR THE YEAR UNDER CONSIDERATION AND THEREBY ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN NOT REDUCING THE DIVIDEND OF KS. 16,70,37,236 RECEIVED FROM RUBAMIN F/C AND INCLUDED IN THE RETURNED INCOME DESPITE THE FACT THAT ENTIRE PROFIT OF RUBAMIN F/C HAS BEEN INCLUDED BY THE AO IN THE TOTAL INCOME OF THE APPELLANT AND THEREBY TAXING THE SAME INCOME TWICE IN THE HANDS OF APPELLANT. 8. THE LEARNED CIT'(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN NOT ALLOWING SET OFF OF BROUGHT FORWARD LOSS OF EARLIER YEARS. FRAUD LOSS - 9. THE LEARNED CI'I'(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN NOT ALLOWING THE DEDUCTION OF FRAUD LOSS AMOUNTING TO RS. 4,80,08.326 IN THE YEAR UNDER CONSIDERATION. 10. THE LEARNED CL'I'(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN NOT ALLOWING THE DEDUCTION OF FRAUD LOSS AMOUNTING LO RS. 4,80,08,326 DESPITE THE FACT THAT THE SAME WAS INCURRED IN THE YEAR UNDER CONSIDERATION. 11. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN NOT ALLOWING THE DEDUCTION OF FRAUD LOSS AMOUNTING LO RS. 4,80,08,326 DESPITE THE FACT THAT THE DRP HAD DIRECTED THE AO TO ALLOW DEDUCTION OF FRAUD LOSS OF RS. 4,80,08,326 IN THE YEAR UNDER CONSIDERATION. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 81 12. THE LEARNED C1T(A) ERRED IN FACT AND IN LAW IN NOT ADJUDICATING ON THE ISSUE PERTAINING TO DEDUCTION OF FRAUD LOSS OF RS. 4,80,08,326 ON THE GROUND THAT THE SAME DID NOT EMANATE FROM THE ASSESSMENT ORDER PASSED FOR THE YEAR UNDER CONSIDERATION. OTHER GROUNDS 13. THE LEARNED C1T(A) ERRED IN FACT AND IN LAW IN CONFIRMING [HE ACTION OF THE AO IN LEVYING INTEREST U/S 234B OF THE INCOME TAX ACL. 1961 ('THE ACT'), 14. THE LEARNED OIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN LEVYING INTEREST U/S 234C OF THE ACT. 15. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE LEARNED AO IN INITIALING PENALTY PROCEEDINGS U/S 271A AB OF THE ACT. 16. FHE LEARNED AO ERRED IN FACT AND IN LAW IN INITIATING PENALTY PROCEEDINGS U/S 271(1 )(C) OF THE ACT. 17. YOUR APPELLANT CRAVES THE RIGHT TO ADD TO OR ALTER, AMEND, SUBSTITUTE, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS 168. THE FIRST ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1 TO 6 OF ITS APPEAL IS THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO BY SUSTAINING THE ADDITION OF RS. 48,63,67,250/- ONLY BY HOLDING THAT THE PROFIT EARNED BY ITS AE, M/S RUBAMIN FZC LOCATED AT SHARJAH UAE BELONGS TO THE ASSESSEE. 169. AT THE OUTSET WE NOTE THAT THE ISSUES RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL FOR THE AY 2014-15 ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS. 4 TO 7 OF ITSSA NO. 20/AHD/2018 FOR THE ASSESSMENT YEAR 2011-12. THEREFORE, THE FINDINGS GIVEN IN ITSSA NO. 20/AHD/2018 SHALL ALSO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. AY 2014-15. THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT 2011-12 HAS BEEN DECIDED BY US VIDE PARAGRAPH NOS. 47 TO 65 OF THIS ORDER IN FAVOUR THE ASSESSEE. THE LEARNED AR AND THE DR ALSO AGREED THAT WHATEVER WILL BE THE FINDINGS FOR THE ASSESSMENT YEAR 2011-12 SHALL ALSO BE APPLIED FOR THE YEAR UNDER CONSIDERATION I.E. AY 2014-15. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE ALLOWED. 170. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 7 IS THAT THE LEARNED CIT (A) ERRED IN NOT REDUCING THE DIVIDEND INCOME OF RS. 16,70,37,236/- RECEIVED FROM RUBAMIN FZC IN THE EVENT PROFIT OF RUBAMIN FZC MERGED WITH ASSESSEES INCOME. 171. AT THE OUTSET WE NOTE THAT THE ISSUES RAISED BY THE ASSESSEE IN ITS GROUND OF APPEAL FOR THE AY 2014-15 ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 82 GROUND NO 12 AND 13 OF ITSSA NO. 21/AHD/2018 FOR THE ASSESSMENT YEAR 2012-13. THEREFORE, THE FINDINGS GIVEN IN ITSSA NO. 21/AHD/2018 SHALL ALSO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. AY 2014-15. THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT 2012-13 HAS BEEN DECIDED BY US VIDE PARAGRAPH NOS. 125 OF THIS ORDER AGAINST THE ASSESSEE. THE LEARNED AR AND THE DR ALSO AGREED THAT WHATEVER WILL BE THE FINDINGS FOR THE ASSESSMENT YEAR 2012-13 SHALL ALSO BE APPLIED FOR THE YEAR UNDER CONSIDERATION I.E. AY 2014-15. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE DISMISSED. 172. THE NEXT RAISED BY THE ASSESSEE IN GROUND NO. 8 IS THAT THE LEARNED CIT (A) ERRED IN NOT ALLOWING THE SETOFF OF THE BROUGHT FORWARD LOSSES OF EARLIER YEARS. 173. AT THE OUTSET WE NOTE THAT THE FACTS THE ISSUE RAISED IN THIS GROUND OF APPEAL WERE NOT ARISING FROM THE ASSESSMENT ORDER, THEREFORE THE LEARNED CIT (A) DID NOT ADJUDICATE THE IMPUGNED ISSUE. HENCE, THE LEARNED CIT (A) DISMISSED THE GROUND OF APPEAL RAISED BEFORE HIM FOR ALLOWING THE SET OFF OF THE BROUGHT FORWARD LOSSES OF THE EARLIER YEARS. THE LEARNED AR BEFORE US CONTENDED THAT THE IMPUGNED ISSUE CAN BE SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS PER THE PROVISIONS OF LAW. ON THE OTHER HAND, THE LEARNED DR RAISED NO OBJECTION IF THE MATTER IS SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS PER THE PROVISIONS OF LAW. 174. HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE PROVISIONS OF INCOME TAX REQUIRE TO TAX INCOME OF THE ASSESSEE AFTER CONSIDERING THE BROUGHT FORWARD LOSSES. AS THE ISSUE RAISED BEFORE US HAS NOT BEEN ADJUDICATED BY THE AUTHORITIES BELOW, WE ARE INCLINED, IN THE INTEREST OF JUSTICE AND FAIR PLAY, TO RESTORE THIS ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS PER THE PROVISIONS OF LAW. HENCE, GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR THE STATISTICAL PURPOSES. 175. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUNDS NO. 9 TO 10 IS THAT THE LEARNED CIT(A) ERRED IN NOT ALLOWING THE FRAUD LOSS OF RS. 4,80,08,326/- DESPITE THE CLEAR DIRECTION OF DRP IN CASE OF A.Y. 2013-14 TO ALLOW THE LOSS IN THE YEAR UNDER CONSIDERATION. 176. AT THE OUTSET WE NOTE THE ASSESSEE HAS MADE THE CLAIM OF SAME LOSS INCURRED DUE TO FRAUD COMMITTED BY THE CFO IN ASSESSMENT YEAR 2013-14 WHICH WAS IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 83 DISALLOWED BY THE LEARNED DRP BY HOLDING THAT THE LOSS WAS CRYSTALIZED IN A.Y. 2014- 15. THUS THE SAME IS ALLOWABLE IN ASSESSMENT YEAR 2014-15. HOWEVER THE ASSESSEE CHALLENGED THE DIRECTION OF THE LEARNED DRP BEFORE US IN THE APPEAL FILED FOR A.Y. 2013-14 BEARING IT(SS)A NO. 22/AHD/2018 VIDE GROUND NOS. 13 TO 15. WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE IN ITS FAVOUR VIDE PARAGRAPH NO. 68 OF THIS ORDER. THUS THE GROUNDS RAISED BY THE ASSESSEE DO NOT REQUIRE ANY SEPARATE ADJUDICATION. AS SUCH THE GROUND RAISED BY THE ASSESSEE BECOME INFRUCTUOUS. HENCE WE DISMISS THE SAME. 177. THE ISSUE RAISED BY THE ASSESSEE IN GROUNDS NOS. 13 TO 17 IS EITHER CONSEQUENTIAL OR PREMATURE TO DECIDE. THUS THE SAME IS DISMISSED ACCORDINGLY. 178. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR THE STATISTICAL PURPOSES. COMING TO THE ITA 2929/AHD/2014 AN APPEAL BY THE ASSESSEE FOR A.Y. 2009-10. 179. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: TRANSFER PRICING ADJUSTMENTS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-III. BARODA ['THE CIT(A)'] ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX (TRANSFER PRICING) - II, AHMEDABAD (' THE TPO') IN PROPOSING AND THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4 ('THE AO') IN MAKING AN UPWARD ADJUSTMENT OF RS. 2.57,56,081/- U/S 92C OF THE INCOME TAX ACT. 1961 ('THE ACT 1 '). 2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE TPO IN APPLYING THE ARM'S LENGTH PRINCIPAL ON SEGREGATED TRANSACTIONS. 3. THE LEARNED CIT'(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF TPO IN HOLDING THAT THE BENCHMARKING OF INTERNATIONAL TRANSACTION DONE BY THE ASSESSES IS ERRONEOUS AND LIABLE TO BE REJECTED. INTEREST ON LOAN TO ASSOCIATED ENTERPRISE: 4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN PARTLY CONFIRMING THE ACTION OF THE TPO IN MAKING ADJUSTMENT OF RS. 71,42,4727- IN DETERMINATION OF ANN'S LENGTH PRICE ('ALP'') OF INTERNATIONAL TRANSACTIONS IN RESPECT OF LOAN ADVANCED BY THE APPELLANT TO ITS AE, THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE TPO IN DETERMINING THE ALP OF INTEREST ON ADVANCE OF LOAN APPLYING THE COMPARABLE UNCONTROLLED PRICE ('CUP') METHOD AND REJECTING THE TRANSACTION NET MARGIN ('TNM') METHOD APPLIED BY THE APPELLANT. 6. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE TPO IN COMPUTING THE ALP OF INTERNATIONAL TRANSACTION OF LOAN APPLYING FRESH SEARCH CRITERIA. CORPORATE GUARANTEE: 7. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE TPO IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 84 IN MAKING ADJUSTMENT OF RS. 1.86,13.609/- IN DETERMINATION OF ALP OF INTERNATIONAL TRANSACTION IN RESPECT OF CORPORATE GUARANTEE GIVEN BY THE APPELLANT ON BEHALF OF ITS AE. 8. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE TPO IN CONSIDERING GRANTING OF CORPORATE GUARANTEE AS AN 'INTERNATIONAL TRANSACTION' ELIGIBLE TO THE ADJUSTMENT U/S. 92C OF THE ACT. * 9. THE LEARNED CIT(A) ERRED IN FACE AND IN LAW IN CONFIRMING THE ACTION OF THE TPO IN CONSIDERING 2.85% OF TOTAL GUARANTEE APPLYING CUP METHOD AS THE ALP OF INTERNATIONAL TRANSACTION OF GIVING CORPORATE GUARANTEE BY THE APPELLANT ON BEHALF OF AE. REGULAR ADDITIONS: SUBSIDY: 10. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN REJECTING THE CONTENTION OF THE APPELLANT THAT THE SUBSIDY GRANTED TO THE APPELLANT IN THE FORM OF SALES TAX EXEMPTION IS CAPITAL IN NATURE AND THEREFORE NOT CHARGEABLE TO TAX. 11. THE LEARNED CTT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN MAKING AN ADDITION OF RS. 1,26,92,000,'- ON ACCOUNT OF SALES LAX EXEMPTION CONSIDERING THE SAME AS REVENUE RECEIPT INSTEAD OF CAPITAL RECEIPT CONSIDERED BY THE APPELLANT. ADDITION U/S 50C: THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN MAKING AN ADDITION OF RS. 15,71.061/- ON ACCOUNT OF SALE OF LAND INVOKING SECTION SOCOFTHEACT. LONG TERM CAPITAL LOSS: 13. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN RESTRICTING THE CLAIM OF LONG TERM CAPITAL LOSS ON SALE OF SHARES FROM RS. 34.53,223 TO RS. 11,73,223. SHORT TERM CAPITAL LOSS: 14. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING SHORT TERM CAPITAL LOSS OF RS. 2.77,00.000 AND ALSO IN ENHANCING THE DISALLOWANCE OF SHORT TERM CAPITAL LOSS MADE BY THE AO AMOUNTING TO RS.2.77.00.000/- TO RS.3.00.00.000/- * 15. THE LEARNED CIT(A) ERRSD IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN RECOMPUTING THE SHORT TERM CAPITAL GAIN APPLYING RULE 1 LL'A OF THE INCOME TAX RULES. 1962 ('THE RULES') DESPITE THE FACT THAT THE SAID RULE WAS NOT APPLICABLE FOR THE SAID TRANSACTION. 16. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO INITIALING PENALTY PROCEEDING U ; 'S 271(L)(C) OF IHE ACT. 17. YOUR APPELLANT CRAVES THE RIGHT TO ADD TO OR ALTER, AMEND, SUBSTITUTE, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 180. THE FIRST ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 1 TO 6 IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE UPWARD ADJUSTMENT OF RS. 71,42,472/- MADE BY TPO BY USING CUP ON ACCOUNT OF LOAN ADVANCED TO AE. 181. THE ASSESSEE HAS ADVANCED LOAN TO ITS AE WITHOUT CHARGING ANY INTEREST THEREON. AS PER THE ASSESSEE THE INTEREST-FREE LOAN WAS GIVEN FOR THE SURVIVAL OF THE AE WHICH WAS ESTABLISHED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THUS, THE IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 85 IMPUGNED AMOUNT OF LOAN HAS BEEN ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. 182. FURTHERMORE, THE ASSESSEE IS PURCHASING THE GOODS FROM ITS AE AND THE INTEREST COST IN SUCH PURCHASES HAS ALREADY BEEN INBUILT. ACCORDINGLY, THE INTEREST COST CANNOT BE BENCHMARKED INDEPENDENTLY RATHER IT SHOULD BE AGGREGATED WITH THE PURCHASES AND OTHER TRANSACTIONS CARRIED OUT WITH THE AE. IT IS FOR THE REASON THAT ALL THE TRANSACTIONS ARE INTERLINKED. THUS, IN SUCH A SITUATION THE TNMM METHOD CAN BE ADOPTED FOR THE PURPOSE OF BENCHMARKING IN ORDER TO WORK OUT THE ALP. THUS, NO ADJUSTMENT IS REQUIRED TO BE MADE. 183. THE ASSESSEE FURTHER CONTENDED THAT UNDER THE CUP METHOD TO DETERMINE THE ALP, THE ADEQUATE COMPARABLES ARE REQUIRED WHICH ARE NOT AVAILABLE IN THE MARKET FOR THIS KIND OF TRANSACTIONS. LIKEWISE, THE BANKS CANNOT BE TAKEN AS COMPARABLE FOR THE REASON THAT THE BANKS OPERATE UNDER DIFFERENT FACTS AND CIRCUMSTANCES WHICH CANNOT BE COMPARED WITH THE ACTIVITIES OF THE ASSESSEE. 184. HOWEVER, THE AO FOUND THAT THE ASSESSEE HAS NOT FURNISHED ANY BASIS TO ESTABLISH THE FACT THAT THE TRANSACTIONS SUCH AS IMPORT OF GOODS, INTEREST ON LOAN OR OTHER TRANSACTION WERE INTERLINKED WITH EACH OTHER. THUS, IN THE ABSENCE OF SUCH INFORMATION, THE INTERNATIONAL TRANSACTION HAS TO BE BENCHMARKED INDEPENDENTLY ON INDIVIDUAL BASIS. AS PER THE AO, THE TRANSACTIONS CAN BE AGGREGATED IN PURSUANCE TO THE OECD GUIDELINES IN PARA NO. 1.42 TO 1.44 PROVIDED IF THERE IS A COMPOSITE/PACKAGED DEAL/ CONTRACT FOR ALL THE TRANSACTIONS AND WHICH IS NOT POSSIBLE TO SEGREGATE. ACCORDINGLY, THE TNMM CANNOT BE ADOPTED FOR BENCHMARKING THE IMPUGNED TRANSACTION. 185, SUBSEQUENTLY THE AO, DETERMINED THE ALP AT LIBOR + 334 BASIS UNDER CUP METHOD AFTER TAKING MARKET RATE OF INTEREST IN UAE AS PROVIDED BY THE ASSESSEE AT LIBOR + 184 BASIS POINT + 150 BASIS POINT FOR CURRENCY FLUCTUATION RISK. ACCORDINGLY THE AO MADE THE UPWARD ADJUSTMENT OF 1,25,56,591/- TO THE TOTAL INCOME OF THE ASSESSE. 186. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A). THE LEARNED CIT (A) ALLOWED THE GROUND OF APPEAL OF THE ASSESSEE IN PART AFTER PLACING HIS IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 86 RELIANCE ON THE ORDER OF HIS PREDECESSOR IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08 AND 2008-09 BY DIRECTING THE AO TO ADOPT INTEREST RATE AT LIBOR +0.75%. HENCE THE GROUND OF APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED. 187. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 188. THE LEARNED AR BEFORE US SUBMITTED AS UNDER: IT IS SUBMITTED THAT IDENTICAL ISSUE WAS INVOLVED IN ASSESSEES OWN CASE FOR AY 2008-09 WHEREIN THE HONBLE ITAT HAS REMITTED THE MATTER TO FILE OF LD. TPO FOR VERIFICATION. KINDLY REFER PARA 3-5 ON ORDER FOR AY 2008-09 WHEREIN FINDINGS OF HONBLE ITAT ARE REPRODUCED. CONSIDERING THE SAME, WE REQUEST THE HONBLE BENCH TO GIVE APPROPRIATE DIRECTIONS. WE SUBMIT THAT THE COPY OF THE ORDER OF THE HONBLE ITAT FOR AY 2008-09 IS ALREADY PART OF THE PAPERBOOK 5-OTHERS WHICH HAS BEEN FILED FOR ITSSA 17 TO 22/AHD/2018 (SEARCH MATTERS), HOWEVER, FOR YOUR READY REFERENCE, WE ARE ATTACHING THE ORDER FOR AY 2008-09 ALONG WITH THIS WRITTEN SUBMISSION AS ANNEXURE-1 . 190. ON THE OTHER HAND THE LEARNED DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AO/TPO. 191. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT, THIS TRIBUNAL IN THE OWN CASE OF THE ASSESSEE IN ITA NUMBER 1348 & 1402/AHD/2013 FOR THE ASSESSMENT YEARS 2008-09 VIDE ORDER DATED 25 TH JANUARY 2018 HAS DECIDED THE ISSUE AS UNDER: 192. THE FACTS OF THE CASE ON HAND ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE. THE LEARNED THE DR HAS NOT BROUGHT ANYTHING ON RECORD INDICATING THAT THE ABOVE FINDING OF THE ITAT WAS EITHER OVERRULED OR STAYED. THUS WE HOLD THAT THE ABOVE FINDING OF THE ITAT IS ALSO APPLICABLE TO THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THEREFORE WE SET ASIDE THE ISSUE TO THE FILE OF AO FOR FRESH ADJUDICATION AS PER THE PROVISION OF AND IN THE LIGHT OF ABOVE STATED DISCUSSION. HENCE THE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 193. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND 7 TO 9 IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE UPWARD ADJUSTMENT OF RS. 1,86,13,609/- BY TPO ON ACCOUNT CORPORATE GUARANTEE. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 87 194. AT THE OUTSET WE NOTE THAT THE ISSUES RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL FOR THE AY 2009-10 ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN GROUND NO 12 OF ITSSA NO. 20/AHD/2018 FOR THE ASSESSMENT YEAR 2011-12. THEREFORE, THE FINDINGS GIVEN IN ITSSA NO. 20/AHD/2018 SHALL ALSO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. AY 2009-11. THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT 2011-12 HAS BEEN DECIDED BY US VIDE PARAGRAPH NOS. 84 TO 91 OF THIS ORDER PARTLY IN FAVOUR OF THE ASSESSEE. THE LEARNED AR AND THE DR ALSO AGREED THAT WHATEVER WILL BE THE FINDINGS FOR THE ASSESSMENT YEAR 2011-12 SHALL ALSO BE APPLIED FOR THE YEAR UNDER CONSIDERATION I.E. AY 2009-10. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE PARTLY ALLOWED. 195. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND 10 AND 11 IS THAT THE LEARNED CIT (A) ERRED IN HOLDING THE SALE TAX SUBSIDY OF RS. 1,26,92,000/- AS REVENUE RECEIPT. 196. AT THE OUTSET WE NOTE THAT THE ISSUES RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL FOR THE AY 2009-10 ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS. 13 AND 14 OF ITSSA NO. 20/AHD/2018 FOR THE ASSESSMENT YEAR 2011-12. THEREFORE, THE FINDINGS GIVEN IN ITSSA NO. 20/AHD/2018 SHALL ALSO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. AY 2009-11. THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT 2011-12 HAS BEEN DECIDED BY US VIDE PARAGRAPH NOS. 100 TO 102 OF THIS ORDER IN FAVOUR OF THE ASSESSEE. THE LEARNED AR AND THE DR ALSO AGREED THAT WHATEVER WILL BE THE FINDINGS FOR THE ASSESSMENT YEAR 2011-12 SHALL ALSO BE APPLIED FOR THE YEAR UNDER CONSIDERATION I.E. AY 2009-10. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE ALLOWED. 197. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND 12 IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 15,71,061/- BY INVOKING THE PROVISION OF SECTION 50C OF THE ACT. 198. AT THE OUTSET WE NOTE THAT THE ISSUES RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL FOR THE AY 2009-10 ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS. 15 TO 17 OF ITSSA NO. 20/AHD/2018 FOR THE ASSESSMENT YEAR 2011-12. THEREFORE, THE FINDINGS GIVEN IN ITSSA NO. 20/AHD/2018 SHALL ALSO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION I.E. AY 2009-11. THE APPEAL OF THE ASSESSEE FOR THE IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 88 ASSESSMENT 2011-12 HAS BEEN DECIDED BY US VIDE PARAGRAPH NOS. 109-110 OF THIS ORDER IN FAVOUR OF THE ASSESSEE FOR STATISTICAL PURPOSES. THE LEARNED AR AND THE DR ALSO AGREED THAT WHATEVER WILL BE THE FINDINGS FOR THE ASSESSMENT YEAR 2011-12 SHALL ALSO BE APPLIED FOR THE YEAR UNDER CONSIDERATION I.E. AY 2009-10. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 199. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 13 TO 15 IS THAT THE LEARNED CIT (A) ERRED IN RESTRICTING THE LONG-TERM CAPITAL LOSS ON THE SALE OF SHARES TO RS. 11,73,223/- OUT OF THE LOSS OF RS. 34,53,223/- AFTER APPLYING THE RULE 11UA OF INCOME TAX RULE THOUGH THE SAME WAS NOT APPLICABLE. LIKEWISE THE LEARNED CIT (A) ERRED IN CONFIRMING THE SHORT-TERM CAPITAL LOSS DISALLOWED BY THE AO FOR RS. 2.77 CRORES AND FURTHER ENHANCED THE SAME TO 3 CRORES. 200. THE ASSESSEE HAS SHOWN PURCHASES OF THE SHARES OF A COMPANY NAMELY M/S J AND K PIGMENT PVT. LTD. WHICH WAS CLASSIFIED AS INVESTMENT IN ITS BOOKS OF ACCOUNTS. THESE SHARES WERE PURCHASED IN THE EARLIER YEARS. HOWEVER, THE ASSESSEE HAS SOLD ALL THE SHARES IN THE YEAR UNDER CONSIDERATION DATED 30 TH JUNE 2008. ACCORDINGLY, THE ASSESSEE ON SALE OF SHARES HAS CLAIMED SHORT-TERM CAPITAL LOSS AND LONG-TERM CAPITAL LOSS. THE NECESSARY DETAILS OF THE PURCHASES, SALES AND THE LOSSES STAND AS UNDER: SR NO. PARTIC ULARS OF SHARE S QUA SALE PURCHASE INDEX INDEX ED COST CAPITAL GAIN REMA RKS NTITY DATE R A T E AMOUNT DATE R A T E AMOUNT SALE PURE HASE % INCREA SE 1 SHARE SOF J&K PIGME NTS 4,75 0 30/0 6/20 08 19,00,00 0 19/01/ 2007 47,73,750 582 519 112 53,53, 223 (-)34,53, 223 LONG TERM 2 SHARE SOF J&K PIGME NTS 50,0 00 30/0 6/20 08 2,00,00, 000 31/03/ 2008 5,00,00,0 00 582. 582 100 5,00,0 0,000 (- )3,00,0 0,000 SHORT TERM 201. HOWEVER, THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE SHARES HAVE BEEN SOLD AFTER THE PURCHASES WITHIN A SHORT SPAN OF TIME AND THAT TOO TO THE IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 89 SAME PARTY FROM WHOM THE SHARES WERE PURCHASED. CONSEQUENTLY, THE AO WAS OF THE VIEW THAT SUCH TRANSACTION OF PURCHASE AND SALE OF SHARES IS REPRESENTING THE COLOURABLE DEVICE IN ORDER TO GENERATE THE BOGUS SHORT-TERM/LONG-TERM LOSSES. 202. IN VIEW OF THE ABOVE, THE AO SOUGHT CLARIFICATION FROM THE ASSESSEE TO JUSTIFY THE VALUE FOR THE PURCHASES AND SALES OF THE SHARES. THE ASSESSEE IN RESPONSE TO SUCH SHOW CAUSE NOTICE FURNISHED THE ANNUAL RETURN OF THE COMPANY NAMELY M/S J AND K PIGMENT PVT. LTD. WHICH WAS FILED WITH THE ROC. 203. HOWEVER, THE AO BEING DISSATISFIED ON THE REASONING THAT THE ASSESSEE HAS NOT FURNISHED THE NECESSARY INFORMATION FOR THE VALUE OF THE PURCHASE AND SALES OF THE SHARES. ACCORDINGLY IN THE ABSENCE OF SUCH INFORMATION, THE AO RESORTED TO THE PROVISIONS OF RULE 11UA TO DETERMINE THE PURCHASE AND SALES VALUE OF THE SHARES. CONSEQUENTLY, THE AO DETERMINED THE PURCHASE AND SALES VALUE OF THE SHARES IN THE MANNER AS DISCUSSED BELOW: PARTICULARS OF BALANCE SHEET AS ON 31/03/2007 AS ON 31/03/2008 AS ON 31/06/2008 BOOK VALUE OF ASSETS 79,217,000 1,60,653,000 1,36,999,000 ADVANCE TAX (II) 4,000,000 6,453,000 6,453,000 75,217,000 1,54,200,000 1,30,546,000 BOOK VALUE OF LIABILITIES 63,950,000 1,03,484,000 82,358,000 _L 11,267,000 5,07,160,00 48,188,000 SHARE CAPITAL (PE) 5,475,000 5,475,000 5,475,000 PAID UP VALUE (PV) 100 100 100 FMV OF SHARES (A-PV/PE 206 926 880 204. GIVEN ABOVE, THE AO WORKED OUT THE SHORT-TERM CAPITAL LOSS AND THE LONG-TERM CAPITAL LOSS IN THE MANNER AS DETAILED BELOW: (A) GAIN/LOSS ON SHARES PURCHASED ON 17/01/2007 PURCHASE VALUE OF SHARES:- 4750 206 582/519= RS. 1097277/- IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 90 SALE VALUE OF SHARES:- 4,750 880= RS. 41,80,000/- LONG TERM CAPITAL GAIN ON SHARES RS. 4180000- RS. 1097277= RS. 30,82,723/- (B) GAIN/LOSS ON SHARES PURCHASED ON 31/03/2008 PURCHASE VALUE OF SHARES:- 50,000 926 = RS. 4,63,00,000/- SALE VALUE OF SHARES:- 50,000 880= RS. 4,40,00,000/- SHORT TERM CAPITAL GAIN ON SHARES: (-) RS.23,00,000/- 205. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A). 206. THE ASSESSEE BEFORE THE LEARNED CIT (A) SUBMITTED THAT THERE IS NO CONCEPT OF FAIR MARKET VALUE TO DETERMINE THE CAPITAL GAIN ON THE ASSETS UNDER THE PROVISIONS OF SECTION 45 OF THE ACT. AS SUCH THE PROVISIONS OF SECTION 45 OF THE ACT MANDATES TO TAKE THE FULL VALUE OF CONSIDERATION RECEIVED AGAINST THE TRANSFER OF THE ASSETS. ACCORDINGLY THE PURCHASE AND THE SALE VALUE OF THE SHARES DECLARED BY THE ASSESSEE SHOULD BE ACCEPTED BY THE AO INSTEAD OF RESORTING TO THE VALUATION OF THE PURCHASE AND SALE PRICE UNDER THE PROVISIONS OF RULE 11UA WHICH ARE APPLICABLE TO DETERMINE THE INCOME UNDER THIS PROVISIONS OF SECTION 56 OF THE ACT. 207. THE ASSESSEE ALSO CLAIMED TO HAVE MADE INVESTMENTS IN THE SHARES OF THE COMPANY NAMELY M/S J AND K PIGMENT PVT. LTD. SOLELY FOR THE PURPOSE OF EXPANSION OF ITS BUSINESS. HOWEVER, ON A LATER DATE THERE WAS CHANGE IN THE BUSINESS EXIGENCY WHICH COMPELLED THE ASSESSEE TO MAKE THE DISINVESTMENT OF THE SHARES. THUS, THE TRANSACTION CANNOT BE REGARDED AS A COLOURABLE DEVICE AS ALLEGED BY THE AO. 208. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE FURTHER CONTENDED THAT THE AO HAS WRONGLY CALCULATED THE PURCHASE VALUE OF THE SHARES AS ON 31 ST MARCH 2007 UNDER THE PROVISIONS OF RULE 11UA BY TAKING THE SHARE CAPITAL OF THE COMPANY AT RS. 54,75,000/- INSTEAD OF RS. 4,75,000/-. AS SUCH, THE VALUE OF SHARE AS ON 31 ST MARCH 2007 IS OF RS. 2372/- PER SHARE WHEREAS THE AO HAS WRONGLY TAKEN THE FAIR MARKET VALUE OF THE SHARE AT RS. 206. AS SUCH BY CONSIDERING THE VALUE OF SHARE AS ON 31 ST MARCH 2007, IT HAS INCURRED LONG TERM CAPITAL LOSS OF RS. 84,54,670/- FOR THE SHARES PURCHASED ON 19 TH JANUARY 2007. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 91 209. HOWEVER, THE LEARNED CIT (A) AFTER CONSIDERING THE ORDER OF THE AO AND SUBMISSION OF THE ASSESSEE OBSERVED THAT THE SHARES (4750 SHARES) WERE SOLD TO THE SAME PARTIES FROM WHOM THE SHARES WERE PURCHASED. 210. LIKEWISE, THE LEARNED CIT (A) ALSO OBSERVED THAT WHY THE SHARES (50,000 SHARES) HAVE BEEN SOLD WITHIN A SHORT SPAN OF TIME? AS SUCH THERE WAS NOTHING BROUGHT ON RECORD INDICATING THE REASONS FOR THE SALE OF SHARES AT THE LOSS OF 3 CRORES. 211. THE LEARNED CIT (A) HAS GIVEN SEPARATE FINDING FOR THE SALE OF THE SHARES WHICH WERE ACQUIRED ON 19 JANUARY 2007 (4750 SHARES) AND THE SHARES WHICH WERE REQUIRED ON 31 MARCH 2008 (50000 SHARES). FINDING WITH RESPECT TO THE SALE OF SHARES ACQUIRED DATED 19 TH JANUARY 2007 (4750 SHARES) 212. AS PER THE LEARNED CIT (A), THE AO HAS RIGHTLY INVOKED THE PROVISIONS OF RULE 11UA FOR VALUING THE TRANSACTION OF PURCHASE AND SALES OF THE SHARES. IT IS FOR THE REASON THAT THE ASSESSEE HAS NOT FURNISHED ANY BASIS OF THE PRICE AT WHICH THE SHARES WERE ACQUIRED AND SOLD. CONSEQUENTLY THE AO HAD NO OPTION EXCEPT TO DETERMINE THE PURCHASE VALUE AS ON 19 TH JANUARY 2007 AND SALE VALUE AS ON 30 TH JUNE 2008 UNDER RULE 11UA OF INCOME TAX RULES. IN HOLDING SO, THE LEARNED CIT (A) HAS RELIED ON THE FOLLOWING ORDERS /JUDGMENTS: (1) AYESHA ASHOKE SONI, 108 ITD 81 (MUMBAI) (2) CONTROLLER OF ESTATE DUTY VS. G.K. SWARUP [2004] 139 TAXMAN 168 (GUJ) 213. HOWEVER, THE LEARNED CIT (A) WAS PLEASED TO UPHOLD THE CONTENTION OF THE ASSESSEE THAT THERE IS A MISTAKE IN DETERMINING THE VALUE OF THE PURCHASE OF SHARES (4750 SHARES) AS ON 19 JANUARY 2007. HENCE HE DIRECTED THE AO TO COMPUTE THE CAPITAL GAIN AFTER PURCHASE COST OF THE SHARES. FINDING WITH RESPECT TO THE SALE OF SHARES ACQUIRED DATED 31-3-2008 (50000 SHARES) IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 92 214. THE LEARNED CIT (A) IN CONNECTION WITH THE SALE OF SHARES (50,000 SHARES) ISSUED ARE ENHANCEMENT NOTICE DATED 19 TH JUNE 2014 ON THE REASONING THAT THE PURCHASE AND SALE OF THESE SHARES ARE NOT GENUINE TRANSACTIONS. ACCORDINGLY, THE ENTIRE AMOUNT OF LOSS ON THE PURCHASE AND SALE OF SHARES CANNOT BE DETERMINED WITH REFERENCE TO THE VALUATION OF THE PURCHASE AND SALE OF THE SHARES IN THE MANNER PROVIDED UNDER RULE 11UA OF INCOME TAX RULE. CONSEQUENTLY, THE LEARNED CIT (A) TREATED THE ENTIRE AMOUNT OF LOSS OF 3 CRORES AS BOGUS ON THE FOLLOWING REASONS: I. NO BASIS WAS FURNISHED BY THE ASSESSEE FOR SELLING THE SHARES IN A SHORT SPAN OF TIME AT 400 PER SHARE AFTER PURCHASING THE SHARES AT 1000 PER SHARE. NOTHING WAS BROUGHT ON RECORD TO JUSTIFY THE VALUE OF THE SALE PRICE OF THE SHARE AT 400 ONLY. II. NO DETAILS WAS FURNISHED TO WHOM THE ASSESSEE HAS SOLD THE SHARES AS ON 30 TH JUNE 2008. 215. IN VIEW OF THE ABOVE THE LEARNED CIT (A) ENHANCED THE ADDITION BY 23 LACS AND CONFIRMED THE ORDER OF THE AO. 216. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 217. THE LEARNED AR BEFORE US CONTENDED THAT THE ASSESSEE HAS FURNISHED ALL THE NECESSARY DETAILS WITH RESPECT TO THE PURCHASES AND SALES OF THE SHARES ALONG WITH THE PARTIES. THEREFORE THE SAME CANNOT BE TREATED AS A COLOURABLE DEVICE. 218. THE LEARNED AR FURTHER SUBMITTED THAT SHARES WERE ACQUIRED FOR THE PURPOSE OF THE EXPANSION OF THE BUSINESS BUT ON A LATER DATE, DUE TO CHANGE IN THE GOVERNMENT POLICIES, THE IDEA OF THE EXPANSION OF THE BUSINESS WAS ABANDONED. 219. ON THE OTHER HAND THE LEARNED DR BEFORE US THE LOSS CLAIMED BY THE ASSESSEE WAS ARTIFICIAL AND THE SAME WAS NOT BASED ON THE DOCUMENTARY EVIDENCES. THE LEARNED AR HAS NOT PROVIDED ANY BASIS FOR VALUING THE SALE PRICE OF THE SHARES AT 400 PER SHARE THOUGH THE SAME WERE PURCHASED AT 1000 PER SHARE. 220. BOTH THE LEARNED AR AND THE DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AS FAVOURABLE TO THEM. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 93 221. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS OF THE CASE HAS ALREADY BEEN ELABORATED IN THE PRECEDING PARAGRAPH AND THERE IS NO DISPUTE WITH RESPECT TO THE FACTS OF THE CASE. ACCORDINGLY, FOR THE SAKE OF CONVENIENCE AND GRAVITY, WE ARE NOT INCLINED TO REPEAT THE SAME. 222. ADMITTEDLY, THE ASSESSEE HAS MADE PURCHASES OF THE SHARES OF THE SAME COMPANY 2 TIMES IN TWO DIFFERENT FINANCIAL YEARS. THE PURCHASE PRICE OF 1000 PER SHARE ON BOTH THE OCCASIONS WAS THE SAME. HOWEVER, ALL THE SHARES WERE SOLD IN 1 STROKE DATED 30 TH JUNE 2008 I.E. FINANCIAL YEAR UNDER CONSIDERATION AT 400 PER SHARE ONLY. THE ASSESSEE EVENTUALLY HAS INCURRED LOSSES WITH RESPECT TO THE PURCHASES OF THE SHARES MADE BY IT IN 2 DIFFERENT FINANCIAL YEARS. THE LOSSES WITH RESPECT TO 1 ST PURCHASES (FINANCIAL YEAR 2006-07) HAS RESULTED LONG-TERM CAPITAL LOSS WHEREAS THE LOSSES WITH RESPECT TO 2 ND PURCHASES OF THE SHARES (FINANCIAL YEAR 2007-08) HAS RESULTED SHORT-TERM CAPITAL LOSS. 223. THE AO TREATED THE ENTIRE TRANSACTION OF SALE PURCHASE OF THE SHARES AS A COLOURABLE DEVICE AND REWORKED THE AMOUNT OF LOSS IN ACCORDANCE WITH THE METHOD ADOPTED UNDER RULE 11UA. THE LEARNED CIT (A) ON APPEAL HAS CONFIRMED THE ORDER OF THE AO WITH RESPECT TO THE 1 ST LOT OF PURCHASES UPHOLDING THE METHOD SPECIFIED UNDER RULE 11UA AFTER A SMALL MODIFICATION RELATING TO THE CALCULATION. HOWEVER, THE LEARNED CIT (A) TREATED LOSSES ON THE 2 ND LOT OF PURCHASES AS A BOGUS LOSS FOR THE REASONS WHICH HAS BEEN ELABORATED DISCUSSED IN THE PRECEDING PARAGRAPH. 224. FIRST OF ALL, WE FIND THAT THE FINDING OF THE AO APPEARS TO BE INCORRECT AS LONG AS THE ALLEGATION OF COLOURABLE DEVICE ADOPTED BY THE ASSESSEE IS CONCERN. IT IS FOR THE REASON THAT ONCE A TRANSACTION HAS BEEN TREATED AS A COLOURABLE DEVICE, THEN THE ENTIRE AMOUNT INVOLVED IN THE TRANSACTION HAS TO BE TREATED AS BOGUS AND CONSEQUENTLY THE SAME SHOULD BE DISALLOWED IN ENTIRETY. 225. THE CONCEPT AND MEANING OF 'COLOURABLE DEVICE' REFERS TO THE TRANSACTIONS WHICH APPEAR TO BE AUTHENTIC ON THE FACE BUT IN ACTUALITY THEY ARE FALSE. IT REFERS TO SOMETHING FALSE, FAKE OR FICTITIOUS THAT PURPORTS TO BE GENUINE, SOMEONE WHO LEADS YOU TO BELIEVE SOMETHING THAT IS NOT TRUE. FROM THE CONCEPT OF COLOURABLE DEVICE IT IS IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 94 APPARENT THAT 'WHEREVER THE PARTIES TO THE TRANSACTION ADOPT A COLOURABLE DEVICE, THEY CONCEAL THE TRUE NATURE OF THE TRANSACTION AND PURPORT TO SHOW IT DIFFERENTLY WITH OSTENSIBLE INTENTION OF AVOIDANCE OF TAX. IF THE FACTS OF THE CASE SO INDICATE AUTHORITIES ARE WITHIN THEIR JURISDICTION TO IGNORE THE DEVICE AND LOOK THROUGH THE TRANSACTION TO FIND OUT THE TRUE NATURE OF THE TRANSACTION AND ASCERTAIN AS TO WHAT WAS THE REAL INTENTION OF THE PARTIES FOR CARRYING OUT THE TRANSACTION THE WAY THEY HAVE CARRIED OUT AND WHY IT HAS BEEN PRESENTED THE WAY IT HAS BEEN DONE? 226. A COLOURABLE DEVICE IS NOT AN INSTRUMENT OR A SPECIFIC DOCUMENT BUT IT IS WHOLE SET OF SERIES OF TRANSACTION WHICH CREATE A DIFFERENT IMPRESSION WHEN THEY ARE LOOKED AT THEIR FORM ALONE OR SEEN FROM RESULT THEY CREATE, BUT WHEN IT IS LOOKED THROUGH AND THE SUBSTANCE OF THE TRANSACTION IS BROUGHT INTO LIMELIGHT AND SUCH SUBSTANCE OF THE TRANSACTION CLEARLY INDICATES AN INTENTION OF TAX EVASION AS WELL AS MANIPULATION, DODGING, OR EVEN FRAUD, SUCH DEVICE HAS TO BE IGNORED AND THE EFFECT COMING OUT OF THE SUBSTANCE HAS TO BE APPLIED FOR WORKING OUT TAXABLE INCOME. IT IS THE TASK OF THE COURT TO ASCERTAIN THE LEGAL NATURE OF THE TRANSACTION AND WHILE DOING SO, E NTIRE TRANSACTION HAS TO BE LOOKED AT AS A WHOLE AND NOT IN PIECES. IN THIS REGARD WE DRAW SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT 'IN THE CASE OF BANYAN & BERRY V. CIT REPORTED IN [1996] 84 TAXMAN 515 (GUJ.), WHERE IT WAS HELD THAT EVERY ACT WHICH RESULTS IN TAX DEDUCTION, EXEMPTION OF TAX OR NOT ATTRACTING TAX AUTHORIZED BY LAW CANNOT BE TREATED AS A DEVICE OF TAX AVOIDANCE AND THE REAL QUESTION TO BE ASKED IS WHETHER THE ACT OF THE ASSESSEE FALLS IN THE CATEGORY OF A COLOURABLE DEVICE, A DUBIOUS METHOD OR SUBTERFUGE WHICH THE JUDICIAL P ROCESS MAY NOT ACCORD APPROVAL. 227. IN THE BACKDROP OF THE ABOVE ST ATED DISCUSSION, WE ANALYZE THE FACTS OF THE EXISTING CASE. THE AO ON ONE HAND IS ALLEGING THE ENTIRE TRANSACTION AS A COLOURABLE DEVICE BUT ON THE OTHER HAND HE HAS DETERMINED THE LOSS ON THE PURCHASE AND SALE OF SHARES UNDER THE RULE 11UA OF INCOME TAX RULE. IN OUR CONSIDERED VIEW, THE AO CANNOT TREAT A PART OF THE TRANSACTION AS GENUINE AS FAR AS SALES AND PURCHASE OF THE SHARES IS CONCERNED BUT HAVING A DOUBT ON THE VALUE OF THE PURCHASES AND SALES OF THE SHARES. EVEN, FOR THE SAKE OF UNDERSTANDING, THE PURCHASE VALUE SHOWN BY THE ASSESSEE AS ON 19 JANUARY 2007 AT 1000, THE SAME SHOULD HAVE BEEN SUBSTITUTED IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 95 BY THE AO AT 2372 UNDER THE METHOD OF VALUATION PROVIDED UNDER RULE 11UA OF INCOME TAX RULE. BUT THE AO HAS NOT DONE SO FOR THE REASON THAT IT CAUSES LOSS TO THE REVENUE. IN OTHER WORDS, THE AO CANNOT PICK AND CHOOSE THE VALUE WHICH SUITS TO THE REVENUE. 228. LIKEWISE, THE LEARNED CIT (A) HAS ADOPTED THE VALUATION MADE BY THE AO WITH RESPECT TO 1 ST LOT OF PURCHASES AFTER SMALL MODIFICATION UNDER RULE 11UA OF INCOME TAX RULE BUT THE SAME WAS DISREGARDED WITH RESPECT TO THE 2 ND LOT OF PURCHASES DESPITE HAVING THE NECESSARY DETAILS AS MENTIONED HEREUNDER: 1. ANNUAL REPORT FOR THE FINANCIAL YEAR 2007-08 SHOWING THE AUTHORISED AND SUBSCRIBED CAPITAL OF THE COMPANY AT 55000 SHARE OF RS. 100 EACH AND ISSUED & SUBSCRIBED SHARE CAPITAL AT 54750 SHARE OF RS. 100 EACH 2. SHARE SALE AGREEMENT OF 54750 SHARES WHICH WERE SOLD TO MRS. ASHA AGARWAL AND MS. RITIKA AGARWAL 229. FURTHERMORE, TO ARRIVE TO THE CONCLUSION THAT THE TRANSACTION IS A COLOURABLE DEVICE, THE AUTHORITIES BELOW HAVE TO DO NECESSARY EXERCISE BY ISSUING NOTICES UNDER SECTION 131, 133(6) OF THE ACT TO THE PARTIES INVOLVED IN THE TRANSACTIONS TO DIG OUT THE TRUTH. BUT IT HAS NOT BEEN DONE. 230. BESIDES THE ABOVE, THERE ARE CERTAIN UNDISPUTED FACTS WHICH HAVE NOT BEEN CONTROVERTED BY THE AUTHORITIES BELOW. THESE FACTS ARE ELABORATED AS UNDER: I. THE ASSESSEE TIME AND AGAIN BEFORE THE AUTHORITIES BELOW HAS CONTENDED THAT IT HAS ACQUIRED THE SHARES OF THE COMPANY NAMELY J AND K PIGMENT PVT. LTD WHICH WAS NOT CONNECTED TO IT EITHER DIRECTLY OR INDIRECTLY. THE SUBMISSION OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW READS AS UNDER: WE MAY LIKE TO MENTION THAT THE SHARES HAVE BEEN PURCHASED FROM A THIRD PARTY AND SOLD TO THIRD PARTY. THE AO HAS NOT DOUBTED THE SALE AND PURCHASE OF THE SHARES. THE PARTY FROM WHOM THE SHARES WERE PURCHASED ARE NOT RELATED TO THE APPELLANT NOR ARE RELATIVES OF THE DIRECTORS OF THE APPELLANT. THE TRANSACTION HAS TAKEN PLACE AT ARM'S IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 96 LENGTH. IN FACT THE APPELLANT HAD DECIDED TO EXPAND ITS ACTIVITIES IN THE STATE OF J&K AS THE STATE OF J & K WAS ENJOYING VARIOUS TAX / CESS BENEFITS. IN PURSUANCE OF THE SAID PLAN THE COMPANY 'JKPL' WAS ACQUIRED. II. SIMILARLY, IT WAS CONTENDED BY THE ASSESSEE BEFORE THE LEARNED CIT (A) THAT THE SHARES WERE ACQUIRED FOR THE PURPOSE OF EXPANSION OF THE BUSINESS. III. LIKEWISE, THE ASSESSEE ALSO SUBMITTED BEFORE THE LEARNED CIT (A) THAT THE SHARES OF THE COMPANY NAMELY M/S J AND K PIGMENT PVT. LTD. WERE SOLD WITHIN IN A SHORT SPAN OF TIME FOR THE REASON THAT THERE WERE CERTAIN BENEFITS GRANTED UNDER THE INCOME TAX ACT TO THE COMPANY NAMELY M/S J AND K PIGMENT PVT. LTD. WHICH WERE WITHDRAWN. THEREFORE, THE ASSESSEE HAS TAKEN A DECISION TO DROP THE PROJECT FOR THE EXPANSION OF ITS BUSINESS IN THE STATE OF JAMMU & KASHMIR. THE RELEVANT SUBMISSION OF THE ASSESSEE BEFORE THE LEARNED CIT (A) READS AS UNDER: THE APPELLANT HAD ACQUIRED JKPL ON 19-1-2007 AND FOR EFFECTING TRANSFER OF SHARES THE APPELLANT HAD ENTERED INTO A SHARE PURCHASE AGREEMENT WHICH IS ATTACHED AT PAGE NOS. 122-139 OF THE PAPER BOOK. SUBSEQUENT TO THAT THE APPELLANT HAD INFUSED FUNDS IN THE SAID COMPANY TO THE TUNE OF RS. 5,58,57,622 TILL 31-3-2007 IN THE FORM OF LOAN (REFER LEDGER ACCOUNT ATTACHED AT PAGE NOS. 240 TO 243) WHICH HAVE BEEN USED TO MODERNIZE THE PLANT MAKING IT WORLD CLASS WITH LATEST TECHNOLOGY. IN 2008 SOME MAJOR CHANGES OCCURRED IN THE STATE OF J&K IN ADDITION TO WORLD-WIDE RECESSION. THE CHANGES WERE MAINLY IN THE FORM OF WITHDRAWAL OF THE SUBSIDY GIVEN TO THE STATE OF J & K UNDER CIRCULAR NO. 56/2002 WHEREIN EXCISE DUTY WAS EXEMPTED. ZINC DROSS BECAME CENVATABLE WHICH WAS A NET LOSS TO THE UNIT. 231. THE ABOVE FACTS WERE DULY BROUGHT TO THE NOTICE OF THE LEARNED CIT (A) BY THE ASSESSEE BUT THE SAME HAVE NOT BEEN CONTROVERTED BASED ON THE COGENT REASONS. IN OTHER WORDS, THE ASSESSEE BY SUBMITTING THE AFORESAID DETAILS HAVE SHIFTED ITS ONUS TO THE REVENUE TO DISPROVE THE CONTENTION OF THE ASSESSEE BASED ON COGENT MATERIAL. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 97 HOWEVER WE FIND THAT, THE LEARNED CIT (A) HAS NOT GIVEN ANY FINDING ON THE CONTENTIONS OF THE ASSESSEE AS DISCUSSED AFORESAID. 232. IN ADDITION TO THE ABOVE, WE ALSO NOTE THAT THE FINDING OF THE LEARNED CIT (A) IS BASED ON THE WRONG ASSUMPTION OF FACTS INSOFAR THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF THE PARTIES TO WHOM THE SHARES WERE SOLD. IT IS FOR THE REASON THAT THE ASSESSEE BEFORE THE LEARNED CIT (A) HAS CATEGORICALLY SUBMITTED THAT THE DETAILS OF THE PARTIES TO WHOM THE SHARES WERE SOLD BY IT. THE RELEVANT SUBMISSION OF THE ASSESSEE BEFORE THE LEARNED CIT (A) READS AS UNDER: 13. THE APPELLANT HAS SOLD TOTAL 54,750/- SHARES TO MRS. ASHA AGARWAL AND MS. RITIKA AGARWAL ON 30-06-2008. THE SHARES WERE SOLD FOR A TOTAL CONSIDERATION OF RS. 2,19,00,000/- I.E. RS. 400/-PER SHARE. THE AGREEMENT IN RESPECT OF SALE OF SHARES IS ATTACHED AT PAGE NOS. 247 TO 249 OF THE PAPER BOOK. THE APPELLANT HAD ENTERED INTO A SHARE PURCHASE AGREEMENT WITH THE BUYERS WHICH WAS SUBMITTED TO THE A.O. DURING THE COURSE OF ASSESSMENT. 233. IN THIS CONNECTION, WE HAVE ALSO PERUSED THE DETAILS AVAILABLE IN THE FORM OF SALE OR PURCHASE AGREEMENT OF SHARE, PLACED AT PAGE 266 TO 268 OF THE PAPER BOOK. ALL THESE DETAILS, EVIDENT THAT THE NECESSARY DETAILS TO WHOM THE SHARES WERE SOLD BY THE ASSESSEE WERE AVAILABLE BEFORE THE LEARNED CIT (A). THUS TO THIS EXTENT, WE HOLD THAT THE FINDING OF THE LEARNED CIT (A) IS CONTRARY TO THE MATERIALS AVAILABLE ON RECORD. 234. ADDITIONALLY, WE ALSO NOTE THAT THERE WAS NOTHING BROUGHT ON RECORD BY THE REVENUE INDICATING/SUGGESTING THAT THE ASSESSEE HAS RECEIVED ANY CONSIDERATION IN CASH AGAINST THE SALE OF SHARES. 235. IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE FACTS IN TOTALITY WE ARE NOT CONVINCED WITH THE FINDING OF THE AUTHORITIES BELOW THAT THE ASSESSEE HAS ADOPTED THE COLOURABLE DEVICE FOR INCURRING THE IMPUGNED LOSSES. 236. THE NEXT CONTROVERSY ARISES WHETHER THE PRICE (400 PER SHARE) AT WHICH THE SHARES WERE SOLD WAS SUPPORTED BASED ON ANY DOCUMENTARY EVIDENCE. THE PROVISIONS OF SECTION 48 OF THE ACT PROVIDES FOR THE COMPUTATION OF CAPITAL GAIN BY IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 98 TAKING THE SALE CONSIDERATION AND REDUCING THEREFROM THE COST OF ACQUISITION. THE PROVISIONS OF SECTION 48 OF THE ACT READS AS UNDER: 8. THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS' SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING 67 AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY : (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER 68 ; (II) THE COST OF ACQUISITION OF THE ASSET AND THE COST OF ANY IMPROVEMENT 6 THERETO 237. FROM THE PROVISION, WE NOTE THAT THE SECTION 48 DEALS WITH COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS'. SECTION 48 REFERS TO THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF A CAPITAL ASSET. IT STATES THAT FROM THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING, DEDUCTION WOULD BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER AND COST OF ACQUISITION OF ASSET AND COST OF ANY IMPROVEMENT THERETO. IN OTHER WORDS, THE PROVISION DOES NOT PROVIDE THAT THE FAIR MARKET VALUE OF THE PROPERTY AS ON THE DATE OF TRANSFER SHOULD BE CONSIDERED AS THE SALE CONSIDERATION PROVIDED UNDER SUCH 48 OF THE ACT. IN HOLDING SO WE DRAW SUPPORT AND GUIDANCE FROM THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN CASE OF DEV KUMAR JAIN VS. ITO REPORTED IN [2009] 180 TAXMAN 110 (DELHI), WHEREIN IT WAS HELD AS UNDER: IT HAS BEEN HELD IN CIT V. SMT. NILOFER I. SINGH [2009] 309 ITR 233/ 176 TAXMAN 252 (DELHI) THAT THE PROVISIONS OF SECTION 55A APPLY ONLY WHERE THE ASSESSING OFFICER IS REQUIRED TO ASCERTAIN THE 'FAIR MARKET VALUE' OF A CAPITAL ASSET. THE COURT WENT ON TO HOLD THAT A COMBINED READING OF SECTIONS 45(1) AND 48 WOULD SHOW THAT WHEN A SALE OF PROPERTY TAKES PLACE, THE 'CAPITAL GAINS' ARISING OUT OF SUCH A TRANSFER HAVE TO BE COMPUTED BY LOOKING AT THE 'FULL VALUE OF THE CONSIDERATION' RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER. THE COURT FURTHER HELD THAT THE EXPRESSION 'FULL VALUE OF SALE CONSIDERATION' IS NOT THE SAME AS 'FAIR MARKET VALUE' AS APPEARING IN SECTION 55A. FOLLOWING THE SUPREME COURT JUDGMENTS IN CIT V. GEORGE HENDERSON & CO. LTD. [1967] 66 ITR 622 AND CIT V. GILLANDERS ARBUTHNOT & CO. [1973] 87 ITR 407, THE COURT CONCLUDED THAT FOR THE PURPOSE OF COMPUTING 'CAPITAL GAINS', THERE IS NO NECESSITY FOR COMPUTING THE 'FAIR MARKET VALUE' AND, THEREFORE, THE ASSESSING OFFICER COULD NOT HAVE REFERRED THE MATTER TO THE VALUATION OFFICER. [PARA 7] 238. WE ALSO NOTE THAT THERE IS NO PROVISION UNDER THE ACT PRESCRIBING THE GUIDELINES FOR PRICING OF THE SHARES UNLIKE THE PROVISIONS CONTAINED UNDER SECTION 50C OF THE ACT CONCERNING IMMOVABLE PROPERTIES UNDER THE HEAD CAPITAL GAIN. THUS IN THE ABSENCE OF ANY SPECIFIC PROVISION TO DETERMINE THE SALE PRICE OF THE SHARES OF UNLISTED IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 99 COMPANY AT PREVAILING POINT OF TIME, WE ARE INCLINED TO HOLD THAT THE PRICE DECLARED BY THE ASSESSEE IS CORRECT AND WITHIN THE PROVISIONS OF LAW. 239. WE ALSO FIND THAT A NEW SECTION 50CA OF THE ACT WAS INSERTED BY THE FINANCE ACT 2018 WHICH IS APPLICABLE FROM 1ST APRIL 2018, THE RELEVANT EXTRACT OF THE SECTION IS REPRODUCED AS UNDER: [SPECIAL PROVISION FOR FULL VALUE OF CONSIDERATION FOR TRANSFER OF SHARE OTHER THAN QUOTED SHARE. 50CA. WHERE THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER BY AN ASSESSEE OF A CAPITAL ASSET, BEING SHARE OF A COMPANY OTHER THAN A QUOTED SHARE, IS LESS THAN THE FAIR MARKET VALUE OF SUCH SHARE DETERMINED IN SUCH MANNER AS MAY BE PRESCRIBED 40A , THE VALUE SO DETERMINED SHALL, FOR THE PURPOSES OF SECTION 48, BE DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER. EXPLANATION.FOR THE PURPOSES OF THIS SECTION, 'QUOTED SHARE' MEANS THE SHARE QUOTED ON ANY RECOGNISED STOCK EXCHANGE WITH REGULARITY FROM TIME TO TIME, WHERE THE QUOTATION OF SUCH SHARE IS BASED ON CURRENT TRANSACTION MADE IN THE ORDINARY COURSE OF BUSINESS.] 240. FROM THE PLAIN READING OF THE ABOVE PROVISION WE NOTE THAT THE LAW WAS AMENDED TO BRING THE TRANSACTION OF UNQUOTED SALE AND PURCHASE OF SHARES UNDER THE NET OF INCOME TAX CONCERNING THE SALE PRICE OF THE SHARES. AS PER THE PROVISIONS OF SECTION 50CA OF THE ACT, THE SALE PRICE OF SHARES OTHER THAN QUOTED SHARES SHALL BE THE FAIR MARKET RATE WHICH SHALL BE DETERMINED AS PRESCRIBED UNDER THE RULE 11UA OF THE INCOME TAX RULE. 241. WE ALSO NOTE THAT IT IS NOT THE CASE OF THE REVENUE THAT THERE WAS SOME INFLOW OF MONEY FROM THE BUYER OF THE SHARES TO THE ASSESSEE WHICH IS UNACCOUNTED. AS THERE IS NO DISPUTE ABOUT THE NATURE OF THE TRANSACTION AND THE CONSIDERATION RECEIVED BY THE ASSESSEE AGAINST THE SALE OF SHARES, THEREFORE THE TRANSACTION CANNOT BE TERMED AS A SHAM TRANSACTION. MOREOVER, THE ONUS IS ON REVENUE TO ESTABLISH THAT ASSESSEE HAS RECEIVED SOME BENEFIT OVER AND ABOVE THE ACTUAL SALES CONSIDERATION. IN THIS REGARD, WE FIND SUPPORT AND GUIDANCE FROM A RECENT JUDGMENT OF DELHI HIGH COURT IN CASE ARJUN MALHOTRA VS. CIT (403 ITR 354) WHERE THE SAME ISSUE HAS BEEN DEALT AND DECIDED IN FAVOR OF THE ASSESSEE. THE RELEVANT EXTRACT OF THE ORDER READS AS UNDER: IT WAS ONLY WHEN THERE WAS UNDER-STATEMENT OF CONSIDERATION I.E., WHEN CONSIDERATION ACTUALLY RECEIVED WAS HIGHER AND MORE THAN ACTUALLY DECLARED, THAT THE FAIR MARKET VALUE OF THE CAPITAL ASSET ON THE DATE OF TRANSFER WAS TO BE TAKEN AS THE FULL VALUE OF CONSIDERATION. THEREFORE, UNDER-STATEMENT SHOULD BE FIRST ESTABLISHED AND THEN THE ASSESSING OFFICER COULD TAKE THE FAIR MARKET VALUE OF THE SHARE CAPITAL ASSET AS THE FULL VALUE OF CONSIDERATION. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 100 242. WE ALSO NOTE THAT THE PURCHASE AND SALE OF THE SHARES BY THE ASSESSEE OF THE SHARES OF COMPANY WERE DULY SUPPORTED WITH THE RELEVANT DOCUMENTARY EVIDENCES SUCH SHARE PURCHASE AGREEMENT, COPY OF ANNUAL RETURN AND SHARE SALE AGREEMENT WHICH ARE PLACED ON PAGES 122 TO 139, 100 TO 113 AND 266 TO 268 OF THE PAPER BOOK. IT IS ALSO PERTINENT TO NOTE THAT THE LOWER AUTHORITIES DID NOT DOUBT THE DETAILS OF THE PURCHASES AND SALES OF THE SHARES. IN VIEW OF THE ABOVE, WE ARE NOT INCLINED TO UPHOLD THE FINDING OF AUTHORITIES BELOW. ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT (A) AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 243. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 16 AND 17 IS PREMATURE TO DECIDE OR GENERAL IN NATURE. HENCE THE SAME IS DISMISSED ACCORDINGLY. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED PARTLY FOR THE STATISTICAL PURPOSES. COMING TO THE ITA 2909/AHD/2014 AN APPEAL BY THE REVENUE FOR A.Y. 2009-10. 244. THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, AHMEDABAD (CIT(A) IN SHORT), DATED 13.08.2014 FOR AY 2009-10. 245. AT THE TIME OF HEARING, IT WAS SUBMITTED BY THE LD.AR FOR THE ASSESSEE THAT THE APPEAL FILED BY THE REVENUE IS HIT BY RECENTLY ISSUED CBDT CIRCULAR NO.17 OF 2019 DATED 08/08/2019 REVISING THE PREVIOUS THRESHOLDS PERTAINING TO TAX EFFECTS. IT IS INTER ALIA NOTICED THAT THE CBDT VIDE INSTRUCTION NO. F. NO. 279/MISC/M-93/2018- ITJ DT. 20/08/2019 HAS OBSERVED THAT CIRCULAR NO.17/2019 DATED 08/08/2019 RELATING TO ENHANCEMENT OF MONETARY LIMITS IS ALSO APPLICABLE TO ALL PENDING APPEALS. AS PER AFORESAID CIRCULAR READ WITH INSTRUCTION, ALL PENDING APPEALS FILED BY REVENUE ARE LIABLE TO BE DISMISSED AS A MEASURE FOR REDUCING LITIGATION WHERE THE TAX EFFECT DOES NOT EXCEED THE PRESCRIBED MONETARY LIMIT WHICH IS NOW REVISED AT RS.50 LAKHS. IN THE INSTANT CASE, THE TAX EFFECT ON THE DISPUTED ISSUES RAISED BY THE REVENUE IS STATED TO BE NOT EXCEEDING RS.50 LAKHS AND THEREFORE APPEAL OF THE REVENUE IS REQUIRED TO BE DISMISSED IN LIMINE. IT(SS)A NOS. 20 TO 22/AHD/2018 & ORS. A.YS. 2011-12 TO 2013-14 & ORS. 101 246. THE LEARNED DR FOR THE REVENUE FAIRLY ADMITTED THE APPLICABILITY OF THE CBDT CIRCULAR NO. 17 OF 2019. ACCORDINGLY, APPEAL OF THE REVENUE IS DISMISSED AS NOT MAINTAINABLE. HOWEVER, IT WILL BE OPEN TO THE REVENUE TO SEEK RESTORATION OF ITS APPEAL ON SHOWING INAPPLICABILITY OF THE AFORESAID CBDT CIRCULAR IN ANY MANNER. 247. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED DUE TO LOW TAX EFFECT. 246. IN THE COMBINED RESULTS, IN IT(SS)A NO. 20/AHD/2018 FOR ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, IN IT(SS)A NO. 21 & 22/AHD/2018 FOR ASSESSEES APPEAL ARE PARTLY ALLOWED, IN ITA NO. 1291/AHD/2018 FOR ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, IN ITA NO. 2929/AHD/2014 FOR ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND ITA NO. 2909/AHD/2014 FOR REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 05- 10- 2021 SD/- SD/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 05/10/2021 RAJESH COPY OF THE ORDER FORWARDED TO:- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD
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