Vaibhav Global Limited (EARLIER NOWN AS VAIBHAV GEMS LIMITED), Jaipur V. Deputy Commissioner Of Income Tax, Circle-5, Jaipur

ITTPA 1/JPR/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3233 (ITAT-JAIPUR)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 14-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 25-01-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B K GUPTA DHK
• Assessee Lawyers: S R SHARMA CAS
• Keywords: Transfer pricing; Rectification of order; International transaction; Retrospective amendment; Wholly owned subsidiary; Commercial expediency; Rule 8D
• Section: 143(3); 244A; 92B; 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES B, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ IT(TP)A NO. 01/JP/2019 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2014-15 M/S VAIBHAV GLOBAL LIMITED, E-68, EPIP, SITAPURA INDUSTRIAL AREA, JAIPUR (RAJASTHAN)-302022 CUKE VS. D.C.I.T., CIRCLE-5, JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA -@ PAN/GIR NO.: AAACV 4679 F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI VIJAY MEHTA & SHRI S.R. SHARMA (CAS) JKTLO DH VKSJ LS @ REVENUE BY : SHRI B.K. GUPTA (CIT-DR) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 07/11/2019 MN?KKS 'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT :14/11/2019 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30/11/2018 PASSED U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT) IN PURSUANT TO THE DIRECTIONS OF THE DISPUTES RESOLUTION PANEL (IN SHORT, THE DRP) DATED 20/09/2018 PASSED U/S 144C(5) OF THE ACT FOR THE A.Y. 2014-15. 2. THE ASSESSEE HAS RAISED VARIOUS GROUNDS ALONGWITH FORM NO. 36. SINCE THE ORIGINAL GROUNDS WERE NOT CONCISE BUT ARGUMENTATIVE, THE ASSESSEE FILED CONCISE GROUNDS OF APPEAL AS UNDER: IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD DRP/A.O./TPO HAS ERRED IN CONSIDERING PROVISION OF CORPORATE GUARANTEE AS AN INTERNATIONAL TRANSACTION AND THEREBY MAKING AN ADJUSTMENT OF RS. 3,84,66,628/-. 2. W/P ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/A.O./TPO HAS ERRED IN NOT RESTRICTING THE ALP OF GUARANTEE COMMISSION TO 0.53% AS HELD BY THE HONBLE TRIBUNAL IN APPELLANTS OWN CASE FOR A.Y. 2013-14. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD A.O. HAS ERRED IN NOT ALLOWING LOSS ON SALE OF SHARES OF M/S JEWEL GEMS USA INC AMOUNTING TO RS. 50,72,57,000 DESPITE THE LD. DRP OBSERVING THAT ISSUE IS COVERED BY THE HONBLE JURISDICTIONAL HIGH COURT DECISION IN FAVOUR OF APPELLANT IN ITS OWN CASE FOR A.Y. 2012- 13. THE LD DRP OUGHT TO HAVE GIVEN CLEAR DIRECTION TO A.O. TO ALLOW THE SAID LOSS. 4. WITHOUT PREJUDICE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD DRP/A.O. HAS ERRED IN NOT ALLOWING THE LOSS ON SALE OF SHARES OF M/S JEWEL GEMS USA INC AS CAPITAL LOSS. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD DRP/A.O. HAS ERRED IN DISALLOWING RS. 13,616/- U/S 14A R.W. RULE 8D OF THE RULES. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD DRP/A.O. HAS ERRED IN TAXING INTEREST ON INCOME TAX REFUND OF RS. 1,47,059/- DESPITE THE FACT THAT THE SAME HAS NOT BEEN RECEIVED BY THE APPELLANT. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD DRP/A.O. HAS ERRED IN RESTRICTING THE SET OFF OF BROUGHT FORWARD LOSSES TO RS. 39,80,00,667/-. 3. GROUNDS NO.1 AND 2 OF THE APPEAL ARE REGARDING TP ADJUSTMENT MADE ON ACCOUNT OF PROVISION OF CORPORATE GUARANTEE. THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 3 AND EXPORT OF COLOURED GEMS STONES AND STUDDED JEWELLERY. THOUGH, THE ASSESSEE HAS REPORTED INTERNATIONAL TRANSACTIONS IN RESPECT OF IMPORT AND EXPORT OF GEMS AND JEWELLERY, HOWEVER, THE ASSESSEE HAS NOT REPORTED ANY INTERNATIONAL TRANSACTIONS ON ACCOUNT OF BANK GUARANTEE EXTENDED TO THE ASSOCIATE ENTERPRISES (AE) WITHOUT CHARGING ANY FEES. THE TPO AFTER ISSUING SHOW CAUSE NOTICE TO THE ASSESSEE HAS DETERMINED THE ARMS LENGTH PRICE (ALP) IN RESPECT OF GUARANTEE AT 1.30%. THE A.O. CONSEQUENTLY PASSED DRAFT ASSESSMENT ORDER AND MADE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF RS. 3,78,73,838/- IN RELATION TO CORPORATE GUARANTEE GIVEN BY THE ASSESSEE TO THE A.E.. THE ASSESSEE FILED OBJECTIONS AGAINST THE DRAFT ASSESSMENT ORDER BEFORE THE DRP. THE DPR, THOUGH, ACCEPTED THE FACT THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2013-14 RESTRICTED THE ADJUSTMENT ON ACCOUNT OF CORPORATE GUARANTEE BY CONSIDERING THE ALP AT 0.53%. HOWEVER, THE A.O/TPO WAS GIVEN LIBERTY TO MAINTAIN THE ADDITION BY ADOPTING ALP AT 1.30%. 4. BEFORE THE TRIBUNAL, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT DESPITE THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE, THE DRP HAS NOT PASSED AN APPROPRIATE AND SPECIFIC DIRECTION TO RESTRICT THE ADDITION AND TP ADJUSTMENT ON ACCOUNT OF CORPORATE GUARANTEE BY TAKING ALP AT 0.53% AS DECIDED BY THIS TRIBUNAL BUT THE A.O. WAS ALLOWED TO REPEAT THE ADDITION. HE HAS FURTHER CONTENDED THAT SINCE THE ASSESSEE HAS EVEN IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 4 CHALLENGED THE DECISIONS OF THE TPO ON THE POINT OF INTERNATIONAL TRANSACTION AND SUBMITTED THAT THE CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE DOES NOT FALL IN THE DEFINITION OF INTERNATIONAL TRANSACTION AND HENCE NO TP ADJUSTMENT IS CALLED FOR ON THIS ACCOUNT. THUS, THE LD AR HAS SUBMITTED THAT THE A.O. WHILE PASSING THE FINAL ORDER HAS REPEATED THE ADDITION AS MADE IN THE DRAFT ASSESSMENT ORDER. 5. ON THE OTHER HAND, THE LD DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND FAIRLY ADMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2013-14. 6. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD AT THE OUTSET WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL FOR THE A.Y. 2013-14 VIDE ORDER DATED 24/04/2018 IN PARA 6 AS UNDER: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2009-10, 10-11 AND 12-13 HAS CONSIDERED AND DECIDED THIS ISSUE. THE TRIBUNAL FOR THE ASSESSMENT YEAR 2009-10 VIDE ORDER DATED 25.08.2014 IN IT(TP)A NO. 1/JP/2014 AT PAGE 28 HAS HELD AS UNDER :- WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW THE ITAT BENCH, HYDERABAD HAS CLEARLY HELD THAT TP LEGISLATION DOES NOT STIPULATE THE INCLUSION OF SUCH INTER-GROUP FACILITY AS INTERNATIONAL TRANSACTION WHICH WE HAVE TO RESPECTFULLY FOLLOW. IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 5 EVEN OTHERWISE, SUCH SERVICES CONSTITUTE SHAREHOLDERS SERVICES. IN VIEW THEREOF, AND BY RESPECTFULLY FOLLOWING ITAT HYDERABAD BENCH JUDGEMENT IN THE CASE OF FOUR SOFT LTD VS. DCIT (SUPRA), WE HOLD THAT THE CORPORATE GUARANTEE GIVEN IS NOT A INTERNATIONAL TRANSACTION AND NO ADJUSTMENT IN THIS BEHALF CAN BE MADE U/S 92B OF THE ACT. THUS GROUND NO. 2 OF THE ASSESSEE IS ALLOWED. THUS THE FINDING FOR THE ASSESSMENT YEAR 2009-10 WAS BASED ON THE PREMISES THAT THE RETROSPECTIVE AMENDMENT OF SECTION 92B WITH EFFECT FROM 1 ST APRIL, 2002 BY FINANCE BILL 2012 WILL NOT CHANGE THE CHARACTER OF THE TRANSACTION TAKEN PLACE PRIOR TO SUCH AMENDMENT. FOR THE YEAR UNDER CONSIDERATION, THE AMENDMENT WAS ALREADY BROUGHT INTO THE STATUTE AND, THEREFORE, THE TRANSACTION OF PROVIDING BANK GUARANTEE HAS TO BE CONSIDERED AND ANALYZED AS PER THE AMENDED PROVISIONS OF THE ACT. THERE IS NO DISPUTE THAT AS PER THE AMENDED PROVISIONS OF SECTION 92B THE BANK GUARANTEE PROVIDED BY THE ASSESSEE TO THE AES FALLS WITHIN THE AMBIT OF INTERNATIONAL TRANSACTION AND ACCORDINGLY THE ARMS LENGTH PRICE HAS TO BE DETERMINED AS PER THE PROVISIONS OF THE CHAPTER 10 OF THE IT ACT. ACCORDINGLY, WE ARE OF THE CONSIDERED VIEW THAT THE ARMS LENGTH PRICE OF GUARANTEE FEE WOULD BE 0.53% AS APPLIED BY THE COORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF GLENMARK PHARMACEUTICALS VS. ACIT IN ITA NO. 5031/MUM/2012 DATED 13.11.2013 AS WELL AS THE DECISION OF HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF INFOTECH ENTERPRISES LTD. IN ITA NO. 115/HYD/2011 AND 2184/HYD/2011 DATED 16.01.2014. HENCE THIS GROUND OF THE ASSESSEES APPEAL IS PARTLY ALLOWED AND AO/TPO IS DIRECTED TO RE-COMPUTE THE ADJUSTMENT BY APPLYING ARMS LENGTH PRICE OF GUARANTEE AT 0.53%. THE LD AR OF THE ASSESSEE HAS FAIRLY SUBMITTED THAT THE DECISION OF THE HONBLE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF GLENMARK IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 6 PHARMACEUTICALS VS ACIT IN ITA NO. 5031/MUM/2012 DATED 13/11/2013 HAS RELIED UPON BY THIS TRIBUNAL WHILE DECIDING THIS ISSUE FOR THE A.Y. 2013-14, HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT AND THE SLP FILED BY THE REVENUE HAS BEEN DISMISSED BY THE HONBLE SUPREME COURT VIDE JUDGMENT DATED 11/12/2018. THUS, IT IS CLEAR THAT IN CASE OF GLENMARK PHARMACEUTICALS VS ACIT (SUPRA), THE TPO DETERMINED THE ALP IN RESPECT OF CORPORATE GUARANTEE, THE COMMISSION CHARGEABLE FROM THE AE AT 3% WHICH WAS RESTRICTED BY THE TRIBUNAL AT 0.53%. THE SAID DECISION OF THE TRIBUNAL WAS UPHELD BY THE HONBLE BOMBAY HIGH COURT AS WELL AS NOW BY THE HONBLE SUPREME COURT. THUS, IN VIEW OF THE EARLIER DECISION OF THIS TRIBUNAL AS WELL AS DECISION OF THE HONBLE BOMBAY HIGH COURT AS WELL AS THE HONBLE SUPREME COURT IN THE CASE OF GLENMARK PHARMACEUTICALS VS ACIT (SUPRA) WE RESTRICT THE ADDITION ON ACCOUNT OF T.P. ADJUSTMENT IN RESPECT OF CORPORATE GUARANTEE TO THE AE BY APPLYING THE ALP AT 0.53%. BEFORE PARTING WITH THIS ISSUE, WE TAKE NOTE OF THE DIRECTIONS OF THE DRP ON THIS ISSUE IN PARA 2.2. AS UNDER: 2.2 IN VIEW OF THE ABOVE, TPO ACTION OF ADJUSTMENT ON ACCOUNT TO CORPORATE GUARANTEE IS UPHELD. WITH REGARD TO THE ALP OF 0.53% DETERMINED BY THE HONBLE ITAT, THE TPO SHALL ASCERTAIN IF THE MATTER IS BEING AGITATED BEFORE THE HONBLE HIGH COURT OR NOT. IF NO APPEAL IS FILED IN THE HIGH COURT, THE DIRECTION OF ITAT OF RATE OF 0.53% SHALL BE APPLIED. ASSESSEES OBJECTION IS ACCORDINGLY DISPOSED OFF. IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 7 AFTER CONSIDERING THE DECISION OF THIS TRIBUNAL, THE DRP IN PRINCIPLE ACCEPTED THAT THE ADJUSTMENT ON ACCOUNT OF CORPORATE GUARANTEE IS TO BE RESTRICTED BY APPLYING ALP AT 0.53%, HOWEVER, THE DRP HAS NOT PASSED DIRECTIONS IN CONFORMITY OF THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE. THIS IS A CLEAR CASE OF JUDICIAL INDISCIPLINE ON THE PART OF THE DRP WHO WAS PERFORMING QUASI-JUDICIAL FUNCTIONS WHILE PASSING THE DIRECTIONS U/S 144C(5) OF THE ACT. THE DRP IS SUPPOSED TO DECIDE THE MATTERS INDEPENDENTLY AND AS PER THE LAW AND NOT SUPPOSED TO ACT AS A GUARDIAN OR REVENUE COLLECTING AUTHORITY LIKE TAX AUTHORITIES. THUS, WE FIND THAT THIS ACTION OF THE DRP IS HIGHLY CONTRADICTION TO THE OBJECT FOR WHICH THE SAID PANEL WAS CONSTITUTED UNDER THE PROVISIONS OF THE ACT. ACCORDINGLY, GROUND NO. 1 OF THE ASSESSEES APPEAL IS DISMISSED AND GROUND NO. 2 OF THE APPEAL IS ALLOWED. 7. GROUND NO. 3 AND 4 OF THE APPEAL IS REGARDING DISALLOWANCE OF LOSS ON SALE OF SHARES OF THE SUBSIDIARY COMPANY M/S JEWEL JEMS USA INC. EARLIER IN ORDER TO EXPAND ITS BUSINESS OF RETAIL SEGMENT, THE ASSESSEE DECIDED TO INVEST IN M/S JEWEL JEMS USA INC, HOWEVER, SUBSEQUENTLY, DUE TO ECONOMIC RECESSION AND LOSS INCURRED BY THE SAID SUBSIDIARY, THE ASSESSEE DECIDED TO SELL ITS 100% SHARE HOLDING IN THE SAID SUBSIDIARY FOR A CONSIDERATION OF RS. 1,98,33,000/-. THIS TRANSACTION OF SALE OF SHARES OF THE SUBSIDIARY HAS RESULTED A LOSS OF RS. 50,72,57,000/-. IN IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 8 COMPUTATION OF INCOME, THE ASSESSEE CLAIMED SAID LOSS AS DEDUCTION BEING BUSINESS LOSS. THE A.O. DISALLOWED THE CLAIM OF THE ASSESSEE WHILE PASSING THE DRAFT ASSESSMENT ORDER. ON FILING OBJECTIONS BEFORE THE DRP, THE ASSESSEE CONTENDED THAT THE LOSS IN INVESTMENT MADE IN THE SUBSIDIARY WAS ALREADY ALLOWED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2012-13 AND THE SAID DECISION OF THE TRIBUNAL WAS UPHELD BY THE HONBLE HIGH COURT. THE DRP THOUGH TAKEN NOTE OF THESE DECISIONS OF THIS TRIBUNAL AS WELL AS THE HONBLE HIGH COURT, HOWEVER, A LIBERTY WAS GIVEN TO THE A.O. TO CONSIDER THIS LOSS AS CAPITAL LOSS IF AN SLP IS FILED BY THE REVENUE AGAINST THE JUDGMENT OF THE HONBLE HIGH COURT. IN THE FINAL ASSESSMENT ORDER, THE A.O. HAS REPEATED THE SAID ADDITION AND REJECTED THE CLAIM OF LOSS INCURRED ON ACCOUNT OF SALE OF SHARES OF WHOLLY OWNED SUBSIDIARY. 8. BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF THIS TRIBUNAL FOR THE A.Y. 2012-13 AS WELL AS THE DECISION OF THE HONBLE HIGH COURT. FURTHER HE HAS REFERRED THE DETAILS OF THE SALE FOR THE PRECEDING YEARS FROM 2006-07 TO 2009-10 AND SUBMITTED THAT PURSUANT TO THE SETTING UP OF THIS WHOLLY OWNED SUBSIDIARY COMPANY THE ASSESSEE COULD MAKE SECOND GROUP SALES TOTAL AMOUNTING TO RS. 17.90 CRORES. INVESTMENT WAS MADE BY THE ASSESSEE IN THE SUBSIDIARY FOR THE PURPOSE OF EXPANDING BUSINESS OF THE ASSESSEE. IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 9 HE HAS REFERRED TO THE FINANCIAL STATEMENTS AS WELL AS THE DIRECTORS REPORT FOR THE F.Y. 2004-05 AND SUBMITTED THAT THE INVESTMENT IN USA WAS MADE FOR RETAIL OUTLET BUSINESS WITH THE INTENTION TO INTER INTO THE RETAIL OUTSET BUSINESS OUTSIDE THE INDIA. THEREFORE, THE PURPOSE OF SETTING UP OF THE SUBSIDIARY IN USA WAS ONLY TO EXPAND THE BUSINESS OF THE ASSESSEE COMPANY AND ENTERING INTO RETAIL OUTSET BUSINESS OUTSIDE THE INDIA. EVEN OTHERWISE THIS ASPECT HAS BEEN DULY CONSIDERED BY THIS TRIBUNAL FOR THE A.Y. 2012-13 AS WELL AS THE HONBLE HIGH COURT. THE LD AR HAS FURTHER SUBMITTED THAT THOUGH FOR THE A.Y. 2013-14, THE TRIBUNAL HAS CONSIDERED THE ISSUE REGARDING THE LOSS IN RESPECT OF INVESTMENT IN EQUITY SHARES OF ANOTHER SUBSIDIARY NAMELY STS CREATION THAI LTD.. HOWEVER, THE SAID SUBSIDIARY WAS NOT A SET UP FOR EXPANSION OF RETAIL BUSINESS AND THE TRIBUNAL AFTER CONSIDERING ALL THESE FACTS AND POINTING OUT A SPECIFIC DISTINCTION OF FACTS FOR THE A.Y. 2012-13 AND 2013-14 HAS DECIDED THE ISSUE. THUS, THE LD AR HAS SUBMITTED THAT EVEN FOR THE A.Y. 2013-14, THE TRIBUNAL HAS CLEARLY ANALYSED THE FACTS TO SHOW THAT THE PURPOSE FOR SETTING THE SUBSIDIARY M/S JEWEL GEMS USA INC WAS FOR EXPANDING THE RETAIL SALE OF THE ASSESSEE BY EXPORTING THE GOODS TO THE SUBSIDIARY BUT IN CASE OF STS CREATION THAI LTD., THERE WAS NO SUCH PURPOSE BUT THE SAID WAS SET UP FOR MANUFACTURING OF GOODS AND THEN SELLING OUTSIDE INDIA BECAUSE OF THESE DISTINGUISHING FACTS, THE TRIBUNAL IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 10 DECIDED THE ISSUE FOR THE A.Y. 2013-14. HENCE, THE LD AR HAS SUBMITTED THAT THE ISSUE IS COVERED BY THE EARLIER DECISION OF THE TRIBUNAL FOR THE A.Y. 2012-13. 9. ON THE OTHER HAND, THE LD CIT-DR HAS SUBMITTED THAT THOUGH THE DRP HAS ACCEPTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURT, HOWEVER, THERE ARE CERTAIN MATERIAL FACTS WHICH REQUIRES TO BE CONSIDERED AS THOSE WERE NOT CONSIDERED BY THE DRP. HE HAS THUS CONTENDED THAT THE ASSESSEE HAS INVESTED IN THE SUBSIDIARY NOT IN ONE YEAR BUT IN THREE YEARS BUT THERE IS NO CHANGE OF SHARES HELD BY THE ASSESSEE, THEREFORE, ALL THESE FACTS ARE REQUIRED TO BE CONSIDERED. FURTHER THE JEWELLERY BUSINESS WAS CLOSED BY THESE SUBSIDIARIES AND BPO WERE STARTED. THEREFORE, THESE SUBSIDIARIES WERE NO MORE DOING THE BUSINESS OF RETAIL SALE OF ASSESSEES GOODS. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD AT THE OUTSET, WE NOTE THAT FOR THE A.Y. 2012-13, THE TRIBUNAL IN ASSESSEES OWN CASE HAS CONSIDERED THE ISSUE OF LOSS IN RESPECT OF INVESTMENT MADE IN THE EQUITY SHARES OF THE SUBSIDIARY AND AFTER CONSIDERING AND ANALYZING THE FACTS AS WELL AS THE LAW ON THE POINT HAS HELD VIDE ORDER DATED 17/04/2017 IN IT(TP)A NO. 01/JP/2017 IN PARA 4.5 AS UNDER: IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 11 4.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE FACTS OF THE CASE AND THE RATIO LAID DOWN BY HONBLE SUPREME COURT, HIGH COURTS & ITATS AS MENTIONED ABOVE. ASSESSEE COMPANY IN ORDER TO EXPAND ITS BUSINESS WORLD-WIDE HAD SET UP THE BRICK AND MORTAR RETAIL STORE AT DIFFERENT TOURIST LOCATION IN MEXICO THROUGH ITS 100 SUBSIDIARY. THE INVESTMENT WAS NOT TO EARN DIVIDEND BUT TO EXPAND ITS BUSINESS AND EXPENDITURE WAS PURELY FOR BUSINESS EXPANSION OF ASSESSEES PRODUCT. THUS, THE INVESTMENT MADE BY THE ASSESSEE INTO THE 100% SUBSIDIARY COMPANY INDO MEXICO WAS WITH THE SOLE OBJECT OF EXPANDING ITS BUSINESS AND FOR MARKETING THE PRODUCTS OF THE ASSESSEE COMPANY. THE INVESTMENT MADE TO THE 100% SUBSIDIARY COMPANY INDO MEXICO WAS OUT OF BUSINESS CONSIDERATIONS, IN ORDER TO PROMOTE BUSINESS INTEREST OF THE ASSESSEE. THUS, THE INVESTMENTS MADE WEE OUT OF COMMERCIAL EXPEDIENCY AND FOR BUSINESS INTEREST. IN OUR OPINION, THE WRITTEN OFF SUCH INVESTMENT IN 100% SUBSIDIARY WHICH WAS NOT RECOVERABLE WAS AN ADMISSIBLE BUSINESS LOSS WHICH IS PROXIMATELY RELATABLE TO ASSESSEES BUSINESS. THEREFORE, THE SAID LOSS SO INCURRED HAS BEEN RIGHTLY CLAIMED BY THE ASSESSEE COMPANY AS DEDUCTIBLE BUSINESS LOSS. ACCORDINGLY, WE DECIDE THE GROUND NO. 2(2.1 & 2.2) OF APPEAL IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL HAS GIVEN THE FINDING THAT THE USA SUBSIDIARIES WERE SET UP TO EXPAND ITS BUSINESS AND THE EXPENDITURE WAS PURELY FOR BUSINESS EXPANSION OF THE ASSESSEES PRODUCT. THUS, THE INVESTMENT MADE WERE HELD TO BE OUT OF COMMERCIAL EXPEDIENCY AND BUSINESS INTEREST AND IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 12 CONSEQUENTLY THE LOSS OF SUCH INVESTMENT IN THE 100% SUBSIDIARY NOT RECOVERABLE WAS AN ALLOWABLE BUSINESS LOSS. THIS DECISION OF THE TRIBUNAL WAS CHALLENGED BY THE REVENUE BEFORE THE HONBLE HIGH COURT AND THE HONBLE HIGH COURT VIDE DECISION DATED 12/11/2017 DISMISSED THE APPEAL OF THE REVENUE IN DBIT NO. 291/2017. THE SAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT WAS AGAIN CHALLENGED BY THE REVENUE IN THE SLP, HOWEVER, THE HONBLE SUPREME COURT HAS DISMISSED THE SLP FILED BY THE REVENUE VIDE ORDER DATED 01/10/2018. THEREFORE, THE FINDING OF THE TRIBUNAL ON THIS ISSUE HAS ATTAINED THE FINALITY. WE FURTHER NOTE THAT THE DRP HAS DULY NOTED THESE DEVELOPMENTS AND ORDERS OF THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURT IN PARA 4.2 AS UNDER: 4.2 THIS ISSUE IS COVERED BY THE HONBLE RAJASTHAN HIGH COURT IN ASSESSEES OWN CASE IN ASSESSEES FAVOUR AS DISCUSSED ABOVE, ALTHOUGH DRP UPHELD THE DISALLOWANCE IN AY 2013-14, IT HAS BEEN REVERSED BY THE ITAT. THE DISALLOWANCE IS UPHELD SUBJECT TO AOS VERIFICATION AND SATISFACTION THAT ANY SLP HAS BEEN FILED BEFORE THE APEX COURT, ON THIS GROUND. IF SLP IS FILED ON THIS GROUND, THE A.O. IS DIRECTED TO CONSIDER THIS AS CAPITAL LOSS. THE ASSESSEE HAD ITSELF CLAIMED IT AS CAPITAL LOSS. ASSESSEES OBJECTION IS ACCORDINGLY DISPOSED OFF. THERE IS A MISTAKE IN THE ABOVE ORDER OF THE DRP AS REGARDS THE DISALLOWANCE FOR THE A.Y. 2013-14 AND THE CORRECT A.Y. IS 2012-13. FURTHER THE DRP HAS STATED THAT THE DISALLOWANCE IS UPHELD WHICH IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 13 APPEARS TO BE THE OBJECTION IS UPHELD SUBJECT TO THE A.OS VERIFICATION OF STATUS OF SLP FILED BEFORE THE HONBLE SUPREME COURT. THEREFORE, THE DRP IN PRINCIPLE ALLOWED THE CLAIM OF THE ASSESSEE BEING COVERED BY THE DECISION OF THIS TRIBUNAL AS WELL AS OF THE HONBLE JURISDICTIONAL HIGH COURT. THE ONLY RIDER PUT BY THE DRP IS THE SLP FILED BY THE DEPARTMENT WHICH HAS NOW BEEN DISMISSED BY THE HONBLE SUPREME COURT. HENCE, THE EFFECT OF THE DIRECTION OF THE DRP IS ALLOWANCE OF THE CLAIM OF BUSINESS LOSS AND THEREFORE, THE ADDITION MADE BY THE A.O. IN THE FINAL ORDER IS NOT SUSTAINABLE AND LIABLE TO BE DELETED. AS REGARDS THE CONTENTION OF THE LD CIT-DR THAT CERTAIN RELEVANT FACTS WERE NOT CONSIDERED BY THE DRP WE NOTE THAT A SCOPE OF ARGUMENT AND DEFINING THE ORDER OF THE A.O. IS LIMITED ONLY TO THE EXTENT OF THE FINDING OF THE A.O. IN THE DRAFT ASSESSMENT ORDER WHEN THESE ISSUES OR ASPECTS WERE NOT EVEN RAISED BY THE A.O. IN THE DRAFT ASSESSMENT ORDER ITSELF THEN THESE REMAIN UNVERIFIED FACTS AND IN THE PROCEEDINGS BEFORE THE TRIBUNAL, THE LD. CIT-DR CANNOT GO BEYOND THE ORDER OF THE A.O.. THEREFORE, THE DEPARTMENT CANNOT IMPROVE THE CASE OF THE A.O. BY ADVANCING THE CONTENTION WHICH WERE NOT AT ALL SUBJECT MATTER OF THE ASSESSMENT. HENCE, WE DO NOT FIND ANY SUBSTANCE IN THE CONTENTIONS RAISED BY THE LD CIT-DR. ACCORDINGLY, GROUND NO. 3 OF THE ASSESSEES APPEAL IS ALLOWED AND GROUND NO. 4 IS CONSEQUENTLY BECOME INFRUCTUOUS. IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 14 11. GROUND NO. 5 OF THE APPEAL IS REGARDING CONFIRMATION OF DISALLOWANCE OF RS. 13,616/- U/S 14A OF THE ACT R.W. RULE 8D OF THE IT RULES, 1962. AT THE TIME OF HEARING, DUE TO SMALLNESS OF THE AMOUNT, THE LD AR OF THE ASSESSEE HAS STATED AT BAR THAT THE ASSESSEE DOES NOT WANT TO PRESS GROUND NO. 5 OF THE APPEAL AND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE LD DR HAS RAISED NO OBJECTION IF GROUND NO. 5 OF THE ASSESSEES APPEAL IS DISMISSED AS NOT PRESSED. ACCORDINGLY, GROUND NO. 5 OF THE ASSESSEES APPEAL IS DISMISSED BEING NOT PRESSED. 12. GROUND NO. 6 OF THE APPEAL IS REGARDING ADDITION ON ACCOUNT OF INTEREST ON INCOME TAX REFUND. WE HAVE HEARD THE LD AR AS WELL AS THE LD CIT-DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD AT THE OUTSET, WE NOTE THAT THE ASSESSEE OBJECTED THIS ADDITION BEFORE THE DRP ON THE GROUND THAT NO SUCH INTEREST WAS RECEIVED BY THE ASSESSEE ON THE REFUND OF INCOME TAX. THE DRP, ACCORDINGLY, DIRECTED HE A.O. TO VERIFY AND COMPUTE THE INTEREST THOUGH THERE IS A TYPOGRAPHICAL MISTAKE IN THE ORDER OF THE DRP IN PARA NO. 6.2. THE SUBMISSIONS OF THE ASSESSEE AND THE DIRECTIONS OF THE DRP IN PARA NO. 6.1 AND 6.2 ARE AS UNDER: 6.1 ASSESSEES SUBMISSION: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED AO ASKED THE ASSESSEE TO RECONCILE THE ITS DETAILS WITH THE INCOME OFFERED TO TAX. ONE OF THE ITEMS AS REFLECTED IN FORM 26AS WAS IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 15 INTEREST ON INCOME TAX REFUND. HOWEVER, THE ASSESSEE COULD LIKE TO STATE THAT, THE ASSESSEE HAS NOT RECEIVED ANY INCOME TAX REFUND AS MENTIONED IN FORM 26AS. IN VIEW OF THE ABOVE THE ASSESSEE SUBMITS THAT THE ADDITION ON ACCOUNT OF INTEREST SHOULD BE DELETED. 6.2 DRP DIRECTIONS: THE A.O. IS DIRECTED TO VERIFY THE COMPUTE INTEREST U/S 234D ONLY IF INTEREST ON REFUND HAS BEEN PAID TO THE ASSESSEE DURING THE RELEVANT YEAR. THUS, IT IS CLEAR THAT THE DRP DIRECTED THE A.O. TO VERIFY THIS FACT OF RECEIPT OF INTEREST ON REFUND AND THEN COMPUTE THE INCOME. SINCE THERE IS A TYPOGRAPHICAL MISTAKE IN MENTIONING THE SECTION WHICH IS 234D INSTEAD OF SECTION 244A OF THE ACT THE A.O. HAS REPEATED THE ADDITION. IT IS APPARENT THAT THE A.O. WHILE PASSING THE FINAL ORDER HAS NOT GIVEN EFFECT TO THE DIRECTIONS OF THE DRP, ACCORDINGLY, WE DIRECT THE A.O. TO VERIFY THE FACT WHETHER THIS INTEREST WAS ACTUALLY PAID TO THE ASSESSEE OR NOT AND THEN DECIDE THIS ISSUE AFTER GIVING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. 13. GROUND NO. 7 OF THE APPEAL IS REGARDING SETTING OF APPEAL POWER OF HEARING. THE LD AR OF THE ASSESSEE HAS STATED THAT THE A.O. WHILE PASSING THE RECTIFICATION ORDER/MODIFICATION, HAS ALLOWED THE CLAIM AND THEREFORE THE ASSESSEE DOES NOT PRESS THIS GROUND. SINCE THE A.O. HAS ALLOWED THE CLAIM OF THE ASSESSEE IN THE RECTIFICATION ORDER THEN THIS IT(TP)A NO. 01/JP/2019_ M/S VAIBHAV GLOBAL LTD. VS DCIT 16 GROUND OF ASSESSEES APPEAL BECOME INFRUCTUOUS AND ACCORDINGLY DISMISSED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH NOVEMBER, 2019. SD/- SD/- FOE FLAG ;KNO FOT; IKY JKO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 14 TH NOVEMBER, 2019 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S VAIBHAV GLOBAL LIMITED, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE D.C.I.T., CIRCLE-5, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (IT(TP)A NO. 01/JP/2019) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR