ESSEL PROPACK LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX RANGE-6(3)(2), MUMBAI

MA 201/MUM/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0582 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 30 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 10-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 11-08-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR MENON
• Keywords: Transfer pricing; Rectification of order; International transaction
• Section: 143(3); 144C

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) & SHRI PAVANKUMAR GADALE ( JM) M.A. NO. 201/MUM/2020 ARISING IN I.T.A. NO. 2068/MUM/2016 (ASSESSMENT YEAR 2011-12 ) ESSEL PROPACK LIMITED TOP FLOOR, TIMES TOWER KAMALA CITY, SENAPATI BAPAT MARG, LOWER PAREL MUMBAI-400 013. PAN : AAACE1568L VS . DCIT-6(3)(2) ROOM NO. 563 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD CHURCHGATE MUMBAI-400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI MADHUR AGARWAL DEPARTMENT BY SHRI VIJAY KUMAR MENON DATE OF HEARING 11.12.2020 DATE OF PRONOUNCEMENT 10.02.2021 O R D E R PER SHAMIM YAHYA (AM) :- BY WAY OF THIS MISCELLANEOUS APPLICATION ASSESSEE MADE FOLLOWING SUBMISSIONS SEEKING RECTIFICATION OF MISTAKE APPARE NT FROM RECORD IN THE ORDER OF THIS TRIBUNAL IN INCOME TAX APPEAL NUMBER 2068/M UM/2016 VIDE ORDER DATED 27.5.2020 :- THE APPLICATION OF THE APPLICANT ABOVENAMED MOST RESPECTFULLY SUBMIT 1. THE ABOVE-MENTIONED APPEAL WAS DISPOSED OF BY THE HON'BLE INCOME-TAX APPELLATE TRIBUNAL ('THE TRIBUNAL'), 'K' BENCH, MUMBAI VIDE ORDER DATED 27.05.2020 FOR THE ASSESSMENT YEAR 2011-2012 (HEREIN AFTER REFERRED TO AS 'THE ORDER'). 2. THE APPLICANT, WITH DUE RESPECT TO THE HON'BLE B ENCH, SUBMITS THAT THERE ARE CERTAIN MISTAKES APPARENT IN THE ORDER AND TH EREFORE THE ORDER OF THE TRIBUNAL MAY BE RECTIFIED AND NECESSARY ORDER MAY BE PASSED. 3. THE APPLICANT IS A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956 AND HAD ISSUED VARIOUS CORPORATE GUARANTEES ON BEHAL F OF ITS SUBSIDIARIES FOR THE FACILITIES OBTAINED BY THEM. THE DETAILS OF CORPORA TE GUARANTEE ISSUED BY THE APPLICANT ON BEHALF OF ITS ASSOCIATED ESSEL PROPACK LTD. 2 4. ENTERPRISES (HEREINAFTER REFERRED TO AS 'AE') ARE AS UNDER: A) THE FOLLOWING LOANS TAKEN BY THE AES ARE NOT ONLY BACK ED BY CORPORATE GUARANTEE OF THE APPLICANT BUT ALSO TANGIBLE ASSETS OF THE AE. NAME OF THE BORROWER NAME OF THE BANK/ FIS GUARANTEE AMT (RS) LOAN O/S AS ON 31.03.2011 LAMITUBE TECHNOLOGY LTD. MAURITIUS ('LTLM') PUNJAB NATIONAL BANK UK 53,51,40,000 46,82,47,500 ARISTA TUBES INC USA ICICI BANK LTD. CANADA 51,28,42,500 42,36,52,500 ESSEL PROPACK POLSKA POLAND BNP PARIBAS SINGAPORE 35,67,60,000 25,24,19,328 ESSEL PROPACK POLSKA POLAND RAIFFESEN POLAND 19,94,05,000 5,61,08,514 IN THE CASE OF LTLM ABOVE, THE APPLICANT HAS CHARGED A GUARANTEE COMMISSION OF 1%, WHILE IN OTHER CASES THE APPLICANT HAS NOT CHARGED ANY GUARANTEE COMMISSION. B) THE FOLLOWING LOANS TAKEN BY THE AES ARE ONLY BACKE D BY CORPORATE GUARANTEE OF THE APPLICANT. NAME OF THE BORROWER NAME OF THE BANK/ FIS GUARANTEE AMT (RS) LOAN O/S AS ON 31.03.2011 L AMITUBE TECHNOLOGIES LTD., MAURITIUS SBI MAURITIUS 22,29,75,000 16,72,31,250 LAMITUBE TECHNOLOGIES LTD., MAURITIUS AXIS BANK HK 53,51,40,000 53,51,40,00 0 LAMITUBE TECHNOLOGY (CYPRUS) LTD. DBS SINGAPORE 55,74,37,500 53,51,40,000 IN ALL THE CASE, THE APPLICANT HAS CHARGED A GUARAN TEE COMMISSION OF 1.5%. C) THE FOLLOWING AES HAVE ENTERED INTO OPERATING LEASE F OR TAKING MACHINERY/ EQUIPMENT ON LEASE. THE RENTAL PAYMENTS OF SUCH LEASE ARE BACKED BY CORPORATE GUARANTEE OF THE APPLICANT. IN CA SE OF DEFAULT BY THE AE, THE LESSOR WILL TERMINATE THE LEASE AGREEMENT, TAK E BACK THE MACHINERY/EQUIPMENT ON LEASE AND CAN RECOVER THE RENT AL OUTSTANDING & DUE FROM THE APPLICANT. NAME OF THE BORROWER NAME OF THE FI GUARANTEE AMT (RS) LOAN O/S AS ON 31.03.2011 ESSEL PROPACK AMERICA LLC ('EP USA') DE LAGE LANDE FINANCIAL SERVICES 38,79,76,500 5,07,24,262 ESSEL PROPACK LTD. 3 ARISTA TUBES INC, USA DE LAGE LANDE FINANCIAL SERVICES 3 7,90,57,500 5,48,29,472 ARISTA TUBES LIMITED UK GE CAPITAL 16,09,43,355 16,09,43,355 IN THE CASE OF EP USA ABOVE, THE APPLICANT HAS CHARG ED A GUARANTEE COMMISSION OF 1%, WHILE IN OTHER CASES THE APPLICANT HAS NOT CHARGED ANY GUARANTEE COMMISSION. 5. THE TRANSFER PRICING OFFICER (HEREINAFTER REF ERRED TO AS 'THE TPO'), VIDE ORDER DATED 27 TH JANUARY, 2015 UNDER SECTION 92CA(3) OF THE ACT, INTE R ALIA PROPOSED AN ADJUSTMENT OF RS. 3,83,02,220 ON ACCOUNT O F ALP OF GUARANTEES GIVEN TO BANK FOR AE. 6. THE DRP CONFIRMED THE ADJUSTMENT MADE BY THE TP O / AO ON ACCOUNT OF THE AFORESAID GUARANTEE. 7. THE AO VIDE ORDER DATED 28 TH JANUARY, 2016 UNDER SECTION 143(3) R.W.S. 144C (13) OF THE ACT [HEREINAFTER REFERRED TO AS 'THE FI NAL ASSESSMENT ORDER'], COMPLETED THE ASSESSMENT MAKING, INTER ALIA, AN ADDIT ION OF RS. 3,60,13,918 WITH RESPECT OF THE TRANSFER PRICING ADJUSTMENT ON COR PORATE GUARANTEE ON BEHALF OF THE AE CONFIRMED BY THE DRP. 8. THE APPLICANT FILED AN APPEAL TO THE HON'BLE TRI BUNAL CONTESTING THE AFORESAID TRANSFER PRICING ADJUSTMENT. 9. BEFORE THE HON'BLE TRIBUNAL, THE APPLICANT SUBM ITTED, INTER ALIA, THAT IN A NUMBER OF DECISION NS, 0.5% OF THE GUARANTEE AMOUN T HAS BEEN HELD TO BE AN ARM'S LENGTH COMMISSION FOR GIVING CORPORATE GUAR ANTEE. REFER: CIT VS. EVEREST KENTO CYLINDERS LTD. [378 ITR 57 (BOM)] ZEE ENTERTAINMENT ENTERPRISES LTD. VS. ACIT (81 TA XMANN.COM 379)(MUM) FURTHER, THE ASSESSEE SUBMITTED IN VIEW OF THE ABOVE, TH E ALP OF GUARANTEE COMMISSION SHOULD BE COMPUTED AT 0.5% AND THEREFORE W HERE THE ASSESSEE HAS ALREADY CHARGED COMMISSION IN EXCESS OF 0.5%, N O TRANSFER PRICING ADJUSTMENT IS WARRANTED. 10. THE AFORESAID CONTENTION OF THE APPLICANT IS RECO RDED IN PARA 9 OF THE IMPUGNED ORDER. THE HON'BLE TRIBUNAL AFTER ACCEPTING THE SUBMISSION OF THE APPLICANT THAT 0.5% OF THE GUARANTEE AMOUNT SHOULD BE TR EATED AS ARM'S LENGTH, WHILE DIRECTING THE AO/TPO TO RECOMPUTE THE A MOUNT OF GUARANTEE COMMISSION HAS COMMITTED AN INADVERTENT ERROR. THE RE LEVANT EXTRACT OF PARA 12 OF THE ORDER IS AS UNDER. '12. FOR REST OF THE GUARANTEE COMMISSIONS, BEFORE US, THE ID AR FOR THE ASSESSEE MADE TWO FOLD SUBMISSIONS; I.E. IN FIRST S ET OF SUBMISSIONS THE ID AR SUBMITS THAT EXTENDING CORPORATE GUARANTEE IS NO T AN INTERNATIONAL TRANSACTION AND THAT THE PROVISIONS OF CHAPTER X IS NOT APPLICABLE AND BUTTRESS HIS SUBMISSIONS ON THE BASIS OF DECISION O F TRIBUNAL IN CASE OF MARICO LTD VS ACIT (SUPRA) AND BOMBAY DYING AND MAN UFACTURING CO LTD ESSEL PROPACK LTD. 4 (SUPRA). THIS SUBMISSION OF THE ID. AR FOR THE ASSE SSEE IS NOT ACCEPTABLE TO US, AS THERE IS NUMEROUS CONTRARY DECISION OF TRIBU NAL ON THE ISSUE. OTHERWISE, THIS FACT WAS ALSO FAIRLY ACCEPTED BY ID . AR FOR THE ASSESSEE DURING HIS SUBMISSION. HOWEVER, WE FIND MERIT IN TH E ALTERNATIVE SUBMISSIONS OF THE ASSESSEE THAT HON'BLE BOMBAY HIG H COURT IN CIT VS EVEREST KANTO CYLINDERS LTD (SUPRA) HELD THAT 0.5% OF GUARANTEE COMMISSIONS IS AT ARM'S LENGTH PRICE. THUS, WE ACCE PT THE ALTERNATIVE SUBMISSION OF THE ID. AR FOR THE ASSESSEE AND DIREC T THE AO/TPO TO RECOMPUTE THE ADJUSTMENT ON ACCOUNT OF OTHER GUARANTEE COMMISSIONS @ 0.5% IN ADDITIONS TO THE COMMISSIONS ALREADY CHARGED BY THE ASSESSEE. WE ALSO ACCEPT THE SUBMISSION OF LEARNED AR OF THE ASSESSEE THAT GUARANTEE COMMISSION ON THE OPERATING LEASE MU ST BE COMPUTED ON THE BASIS OF LEASE RENTAL OUTSTANDING ONLY, AND NOT ON THE AGGREGATE OF ALL FUTURE LEASE RENTALS. NEEDLESS TO DIRECT THAT BEFOR E FRESH COMPUTATION THE TPO /AO SHALL GRANT A FAIR AND PROPER HEARING TO TH E ASSESSEE. THE ASSESSEE IS ALSO DIRECTED TO PROVIDE THE NECESSARY DETAILS TO THE TPO/AO. IN THE RESULT GROUND NO. 1 OF THE APPEAL IS PARTLY ALLOWED. ' 11. THE APPLICANT SUBMITS THAT DIRECTION TO THE TPO/AO THAT THE TRANSFER PRICING ADJUSTMENT SHOULD BE COMPUTED AT 0.5% OF THE G UARANTEE COMMISSION IN ADDITIONS TO THE COMMISSIONS ALREADY CHARGED BY THE ASSESSEE' IS AN INADVERTENT ERROR. THE APPLICANT SUBMITS THAT THE DIRECTION OUGHT TO BE 'IN CASE THE COMMISSION ALREADY CHARGED BY THE ASSESSEE IS LESS THAN 0.5%. 12. THE ABOVE CONSTITUTES A MISTAKE APPARENT FROM REC ORD AND THEREFORE, THE APPLICANT HUMBLY PRAYS THAT THE HON'BLE TRIBUNAL MAY B E PLEASED TO : A. RECTIFY THE MISTAKE APPARENT ON RECORD OF ORDER DA TED 27.05.020 AND GRANT THE RELIEF PRAYED FOR IN THE APPEAL BY PASSING A PPROPRIATE ORDER; B. ANY OTHER RELIEF, WHICH THE HON'BLE BENCH DEEMS FIT AND PROPER CONSIDERING THE FACTS OF THE APPLICANT. 2. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. UPON CAREFUL CONSIDERATION WE AGREE THAT A MISTAKE HAS CREPT INT O THE ORDER OF THE TRIBUNAL. HENCE, WE DIRECT THAT AT PAGE NO. 14 IN PARAGRAPH N O. 12, LINE NO. 16 & 17 THE SENTENCE IN ADDITIONS TO THE COMMISSIONS ALREADY C HARGED BY THE ASSESSEE IS CORRECTED AS IN CASE THE COMMISSION ALREADY CHARGED BY THE ASSES SEE IS LESS THAN 0.5%. ESSEL PROPACK LTD. 5 3. IN THE RESULT, MISCELLANEOUS APPLICATION FILED B Y THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED UNDER RULE 34(4) OF THE ITAT RULES BY PLACING THE RESULT ON NOTICE BOARD ON 10.2.2021. SD/- SD/- (PAVANKUMAR GADALE) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 10/02/2021 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI