M/s. United Spirits Limited, Bengaluru V. Deputy Commissioner of Income Tax, Circle-7(1)(1), Bengaluru

SA 258/BANG/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6118 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 16 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 01-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 15-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: F V IRANI
• Keywords: Depreciation; Transfer pricing; International transaction; Earning of tax free income; Tax effect; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER SP NO.258/BANG/2018 [IN ITA NO.2701/BANG/2017] ASSESSMENT YEAR : 2013 - 14 UNITED SPIRITS LIMITED, UB TOWERS, NO.24, VITTAL MALLYA ROAD, BANGALORE 560 001. PAN: AACCM 8043J VS. THE JOINT COMMISSIONER OF INCOME TAX, SPECIAL RANGE-7, BANGALORE. APP EL L ANT RESPONDENT APP ELL ANT BY : SHRI F.V. IRANI, SR. ADVOCATE RE SPONDENT BY : DR. P.V. PRADE EP KUMAR, ADDL.CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 25 .01.2019 DATE OF PRONOUNCEMENT : 25 . 01 . 201 9 O R D E R PER N V VASUDEVAN, VICE PRESIDENT THIS STAY PETITION IS FILED BY THE ASSESSEE PRAYI NG FOR AN ORDER OF STAY FOR RECOVERY OF OUTSTANDING DEMAND OF RS.363,64,19, 140. 2. THE OUTSTANDING DEMAND ARISES OUT OF ORDERS OF R EVENUE AUTHORITIES IN RELATION TO AY 2013-14. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT ONE OF THE ITEMS OF ADDITION MADE WH ICH HAS GIVEN RISE TO THE OUTSTANDING DEMAND WAS A SUM OF RS.538.59 CRORES ON ACCOUNT OF DETERMINATION OF ARMS LENGTH INTEREST INCOME ON AD VANCES MADE TO OVERSEAS SUBSIDIARY BY THE ASSESSEE. THE ADVANCES TO THE SUBSIDIARIES SP NO.258/BANG/2018 PAGE 2 OF 6 WERE IN FOREIGN CURRENCY. THE ADJUSTMENT SUGGESTED BY THE TPO WAS BY APPLYING 14.18% RATE OF INTEREST, WHEREAS AS PER TH E LAW LAID DOWN BY THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. VAIBHAV GEMS LTD. [2017] 88 TGAXMANN.COM 12 AND THE DECISION OF THE JURISDICTIONAL TRIBUNAL IN THE CASE OF SASKEN TECHNOLOGIES LTD. IN ITA NO.550/BANG/2016, O RDER DATED 16.11.2018 , ONLY THE LIBOR RATE OF INTEREST HAS TO BE ADOPTED FOR LOANS GIVEN TO OVERSEAS AES, WHICH IN THIS CASE WOU LD BE 0.23%. IF THE SETTLED LAW ON THIS ISSUE IS APPLIED, THEN THE TAX EFFECT ON THE DISALLOWANCE WOULD BE LESS BY RS.174.80 CRORES. 3. IT WAS POINTED OUT THAT ANOTHER INTERNATIONAL TR ANSACTION ON CORPORATE GUARANTEE GIVEN TO THE AE WAS SUBJECT MATTER OF DET ERMINATION OF ARMS LENGTH PRICE (ALP). THE TPO FIXED 3% AS GUARANTEE FEE TO BE CHARGED, WHEREAS THE JURISDICTIONAL ITAT IN THE CASE OF X CHANGING SOLUTIONS LIMITED V. DCIT IN ITA NO.1294/BANG/2012, ORDER DATED 31.10 .2016, REPORTED IN [2017] 78 TAXMANN.COM 54, HAS TAKEN A VIEW THAT 0.5 0% WOULD BE THE APPROPRIATE GUARANTEE FEE THAT SHOULD BE REGARDED A S SATISFYING THE ALP. IF THIS ORDER OF TRIBUNAL IS FOLLOWED, THEN THE ADDITI ON MADE TO THE TOTAL INCOME ON ACCOUNT OF GUARANTEE COMMISSION AT RS.101.81 CRO RES WILL STAND REDUCED TO RS.33.06 CRORES. 4. IT WAS ALSO SUBMITTED THAT THE AO MADE A DISALLO WANCE U/S. 14A OF THE ACT OF RS.45.75 CRORES. AS PER LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF DCIT V. STATE BANK OF PATIALA [2018] 99 TAXAMANN.CO M 286 , THE ADDITION MADE U/S. 14A CANNOT EXCEED THE EXEM PT INCOME WHICH WAS ONLY RS.2.29 CRORES IN THE HANDS OF THE ASSESSE E. HE ALSO BROUGHT TO OUR NOTICE A SIMILAR DECISION OF THE HONBLE HIGH C OURT OF KARNATAKA IN THE CASE OF PRAGATHI KRISHNA GRAMIN BANK V. JCIT [2018] 95 TAXM ANN.COM 41 , WHEREIN THE HONBLE HIGH COURT ALSO TOOK THE VIEW T HAT DISALLOWANCE OF EXPENSES U/S. 14A CANNOT EXCEED THE EXEMPT INCOME. IF EFFECT IS GIVEN TO SP NO.258/BANG/2018 PAGE 3 OF 6 THE CORRECT LEGAL POSITION, THE OUTSTANDING DEMAND WOULD GET REDUCED BY RS.14.85 CRORES. 5. IT WAS FURTHER SUBMITTED THAT REVENUE AUTHORITIE S DISALLOWED BRAND PROMOTION EXPENSE OF RS.44.33 CRORES HOLDING IT TO BE CAPITAL EXPENDITURE AND ALLOWED ONLY DEPRECIATION, WHICH RESULTED IN LE VY OF TAX TO THE EXTENT OF RS.14.39 CRORES. THE HONBLE HIGH COURT OF KARNATA KA IN THE CASE OF INDO NISSIN FOODS LTD. REPORTED IN 35 TAXMANN.COM 637 HAS TAKEN A VIEW THA T BRAND PROMOTION EXPENSES ARE REVENUE IN NATURE AND CANNOT BE TREATED AS CAPITAL EXPENDITURE. IF EFFECT IS GIVEN TO THIS DE CISION, THE TAX PAYABLE WOULD BE REDUCED BY RS.14.39 CRORES. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HAS A PRIMA FACIE CASE AND BALANCE OF CONVENIENCE IS IN FAVOUR OF GR ANTING OF STAY OF RECOVERY OF OUTSTANDING DEMAND. IT WAS ALSO SUB MITTED THAT THE ASSESSEE IS FACING SEVERE FINANCIAL HARDSHIP, AFTER HAVING PAID ADVANCE TAX OF RS.225 CRORES WITH AN ADDITIONAL ESTIMATED RS.10 0 CRORES FOR THE MONTH OF MARCH, 2019, BESIDES RS.121 CRORES TOWARDS OUTST ANDING DEMAND FOR AY 2012-13 AND A SUM OF RS.10 CRORES IN RELATION TO AY 2004-05 WHICH WERE ALSO PAID BY THE ASSESSEE. IT WAS SUBMITTED THAT A NY FURTHER PAYMENT OF TAX WOULD CAUSE IMMENSE HARDSHIP TO THE ASSESSEE. 7. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT TH IS TRIBUNAL DISMISSED THE ASSESSEES PETITION FOR GRANT OF STAY IN AY 2012-13 IN SP NO.220/BANG/2017 BY ORDER DATED 17.11.2017. IT WAS SUBMITTED THAT THE HONBLE HIGH COURT OF KARNATAKA ON A WRIT PETITION AGAINST THE SAID ORDER OF TRIBUNAL ALSO CONFIRMED THE ORDER OF TRIBUNAL. IT WAS SUBMITTED BY HIM THAT THE ISSUE OF CORPORATE GUARANTEE FEE, HOWEVER, WAS NOT THE SUBJECT MATTER OF ADDITION IN AY 2012-13. HE THEREFORE PRAYED THA T THE PETITION FOR STAY SHOULD BE DISMISSED. IN ANY EVENT, THE ASSESSEE SH OULD BE ASKED TO PAY SP NO.258/BANG/2018 PAGE 4 OF 6 SUBSTANTIAL OUTSTANDING DEMAND, IF THE TRIBUNAL DES IRES TO GIVE ANY ORDER OF STAY. 8. THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, SUBMI TTED THAT THE LAW WITH REGARD TO DETERMINATION OF ALP IN RESPECT OF I NTEREST INCOME FROM INTERNATIONAL TRANSACTION ON ADVANCES TO AE WAS GIV EN BY THE JURISDICTIONAL TRIBUNAL IN THE CASE OF SASKEN TECHNOLOGIES LTD. (SUPRA) AND DISMISSAL OF SLP AGAINST THE DECISION OF RAJASTHAN HIGH COURT IN VAIBHAV GEMS LTD. (SUPRA) WERE AFTER THE EARLIER ORDER OF STAY PASSED BY THE TRIBUNAL. SO ALSO, HE POINTED OUT THAT THE DISALLOWANCE U/S. 14A TO BE RESTRICTED TO EXEMPT INCOME EARNED WAS RENDERED BY THE HONBLE HIGH COUR T OF KARNATAKA IN THE CASE OF PRAGATHI KRISHNA GRAMIN BANK (SUPRA) AFTER THE PASSING OF THE ORDER OF TRIBUNAL IN THE STAY PETITION FILED FOR AY 2012-13. HE THEREFORE SUBMITTED THAT THERE WERE MATERIAL CHANGES IN THE F ACTS AND CIRCUMSTANCES OF THE CASE AND THEREFORE DISMISSAL OF STAY PETITIO N IN THE EARLIER ASSESSMENT YEAR WILL NOT BE OF ANY SIGNIFICANCE. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS. KEEPING IN MIND THE EXISTENCE OF A PRIMA FACIE CASE, OTHER CONTENTIONS REGARDING CHANGE OF CIRCUMSTANCES, SINCE THE PASSING OF THE EARLIER ORD ER OF TRIBUNAL IN STAY PETITION FOR AY 12-13, BALANCE OF CONVENIENCE, FINA NCIAL AND OTHER HARDSHIPS, WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO DIRECT THE ASSESSEE PAY A FURTHER SUM OF RS.10 CRORES IN T WO INSTALMENTS I.E., RS. FIVE CRORES (RS.5,00,00,000) ON OR BEFORE 31 ST JANUARY, 2019 (31.01.2019) AND ANOTHER SUM OF RS. FIVE CRORES (RS.5,00,00,000) ON OR BEFORE 10 TH FEBRUARY, 2019 (10.02.2019) AS A CONDITION FOR GRAN T OF STAY. IN THIS REGARD, WE NOTICE THAT THE TOTAL TAX PAYABLE BY THE ASSESSE E EXCLUDING INTEREST U/S.234B & 234C OF THE INCOME TAX ACT, 1961 (ACT) I S RS.492,73,02,320, OUT OF WHICH THE ASSESSEE HAS ALREADY PAID RS.163,1 8,13,536, LEAVING BALANCE TAX PAYABLE OF RS.329,54,88,784. THE ASSES SEE HAS FURTHER PAID A SP NO.258/BANG/2018 PAGE 5 OF 6 SUM OF RS.150 CRORES, THEREBY 45.5% OF THE OUTSTAND ING DEMAND IN RESPECT OF TAXES ALREADY STANDS DISCHARGED BY THE ASSESSEE. TAKING INTO CONSIDERATION THESE ASPECTS, WE HAVE FIXED A SUM OF RS.10 CRORES TO BE PAID IN TWO INSTALMENTS BY THE ASSESSEE WHICH WILL MAKE THE PAYMENT OF OUTSTANDING DEMAND OF TAXES BY THE ASSESSEE TO ALMO ST 50% OF THE TAX PAYABLE. THIS WILL SUFFICIENTLY SAFEGUARD THE INTE REST OF THE ASSESSEE AS WELL AS THE INTEREST OF REVENUE. THE STAY PETITION IS O RDERED ACCORDINGLY. 10. THE APPEAL IS FIXED ALREADY FOR HEARING ON 14.0 2.2019 AND THE PARTIES WILL NOT SEEK ANY ADJOURNMENT ON THE DATE O F HEARING, WITHOUT JUST AND SUFFICIENT CAUSE AND ARE REQUESTED TO CO-OPERAT E IN THE DISPOSAL OF APPEAL BY THE TRIBUNAL AT THE EARLIEST. ACCORDING LY, THERE WILL BE A STAY OF RECOVERY OF OUTSTANDING DEMAND SUBJECT TO THE CONDI TIONS ALREADY MENTIONED HEREINABOVE FOR A PERIOD OF SIX (6) MONTH S FROM THE DATE OF THIS ORDER, OR TILL THE DISPOSAL OF THE APPEAL, WHICHEVE R IS EARLIER. 11. IN THE RESULT, THE STAY PETITION IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF JANUARY, 2019. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 25 TH JANUARY, 2019. / D ESAI S MURTHY / SP NO.258/BANG/2018 PAGE 6 OF 6 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.