TRANSASIA BIO -MEDICALS LTD, MUMBAI v. ACIT 11(3)(1), MUMBAI

CO 58/MUM/2019 | 2010-2011
Pronouncement Date: 03-03-2021 | Result: Partly Allowed

Appeal Details

RSA Number 5819923 RSA 2019
Assessee PAN AAACT2038C
Bench Mumbai
Appeal Number CO 58/MUM/2019
Duration Of Justice 2 year(s) 21 day(s)
Appellant TRANSASIA BIO -MEDICALS LTD, MUMBAI
Respondent ACIT 11(3)(1), MUMBAI
Appeal Type Cross Objection
Pronouncement Date 03-03-2021
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 03-03-2021
Assessment Year 2010-2011
Appeal Filed On 12-02-2019
Judgment Text
1 I.T.A. NO .1006 /MUM/20 17 IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH MUMBAI BEFORE SHRI PRAMOD KUMAR (VICE PRESIDENT) AND SHRI SAKTIJIT DEY ( JUDICIAL MEMBER ) I.T.A. NO . 1006 /MUM/20 1 7 ( ASSESSMENT YEAR : 20 11 - 1 2 ) TRANSASIA BIO - MEDICALS LIMITED TRANSASIA HOUSE 8 CHANDIVALI STUDIO ROAD ANDHERI (E MUMBAI - 72 PAN : AAACT2038C VS ACIT RANGE - 11(3)(1) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY SHRI ASHOK SUTHAR (AR) RESPONDENT BY SHRI ASHISH HELIWAL (DR) DATE OF HEARING 12 - 01 - 2021 DATE OF PRONOUNCEMENT 0 3 /03/2021 O R D E R PER SAKTIJIT DEY (JM) CAPTIONED APPEAL BY THE ASSESSEE ARISES OUT OF OR DER DATED 10 - 08 - 2016 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 58 MUMBAI FOR THE ASSESSMENT YEAR 2011 - 12. 2. IN GROUND 1 THE ASSESSEE HAS CHALLENGED THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 3. BRIEFLY THE FACTS ARE THE ASSESSEE IS A RESIDENT COMPANY ENGAGED IN THE BUSINESS OF P ROVIDING EQUIPMENTS AND SUPPLIES TO THE DIAGNOSTIC WORLD. IT HAS EIGHT SUBSIDIARIES SITUATE D IN DIFFERENT PARTS OF THE WORLD. AS STATED BY THE TRANSFER PRICING OFFICER (TPO) IN THE YEARS 2009 AND 2010 THE ASSESSEE ACQUIRED FEW MORE COMPANIES IN DIAGNOSTIC FIELD. FROM THE TRANSFER 2 I.T.A. NO .1006 /MUM/20 17 PRICING STUDY REPORT THE TPO FOUND THAT DURING THE YEAR UNDER CONSIDERATION EM GERMANY AN ASSOCIATE ENTERPRISE (AE) OF THE ASSESSEE HAD ACQUIRED CERTAIN COMPANIES ENGAGED IN THE BUSINESS OF DIAGNOSTIC PRODUCTS TO EXPAND ITS BUSINESS. HE FOUND FOR FUNDING SUCH ACQUISITION THE ASSESSEE HAD GRANTED LOANS TO EM GERM A NY IN USD AS WELL AS IN EURO. THE AGGREGATE AMOUNT OF LOAN GRANTED TO THE AE WAS TO THE TUNE OF RS.27.30 CRORES. HE FURTHER FOUND THAT ASSESSEE HAD CHARGED INTEREST ON THE LOAN ADVANCED @3% P.A. AND THE ASSESSEE HAS RECEIVED INTEREST FROM AE OF RS.60 54 0 98. NOT BEING SATISFIED WITH THE INTEREST RATE APPLIED BY THE ASSESSEE ON THE LOAN GIVEN THE TPO CALLED UPON THE ASSESSEE TO EXPLAIN WHY SB I PRIME LENDING RATE OF 11% SHOULD NOT BE APPLIED AS CUP. THOUGH THE ASSESSEE OBJECTED TO THE PROPOSED ACTION OF TH E TPO HOWEVER REJECTING THE SUBMISSIONS OF THE ASSESSEE THE TPO CONCLUDED THAT SB I PRIME LENDING RATE OF 11% SHOULD BE APPLIED ALONG WITH A MARKUP OF 3% CONSIDERING THE FACT THAT THE LOAN IS UNSECURED AND INVOLVES VARIOUS RISKS LIKE COUNTRY RISK CURRE NCY RISK ADMINISTRA TION COST ETC. IN SIMPLE TERM S THE TPO APPLIED THE CUP RATE OF INTEREST AT 14% THEREBY DETERMINING THE ARMS LENGTH INTEREST AT RS.3 82 13 823/ - AND PROPOSED THE SAME FOR ADJUSTMENT TO THE INTEREST CHARGED WHICH SUBSEQUENTLY WAS REC TIFIED U/S 154 OF THE ACT TO RS.2 23 10 454/ - . THE ADJUSTMENT PROPOSED BY THE TPO WAS ADDED TO THE INCOME OF THE ASS ESSEE IN THE ASSESSMENT ORDER. WHILE CONSIDERING ASS ESSEES APPEAL ON THE ISSUE LEARNED COMMISSIONER (APPEALS) OBSERVED THAT FOR CERTAIN FO REIGN CURRENCY LOAN GRANTED IN USD AN D EURO BARCLAYS BANK PLC. H AS CHARGED AVERAGE RATE OF INTEREST AT LIBOR / E URIBOR AT 332.50 BASIS POINTS. CONSIDERING THAT AS A BASIS AND OBSERVING THAT FINANCIAL POSITION OF THE AE IS SLIGHTLY INFERIOR TO THE ASSESSE E AND ALSO THE LOAN ADVANCED IS LO NG TERM HE ULTIMATELY DIRECTED THE TPO TO DETERMINE THE RATE OF INTEREST AT LIBOR / EURIBOR (+) 3.83%. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED DURING THE RELEVANT PERIOD THE LIBOR RATE FOR USD LOAN STOOD AT 0.53% P.A. AND THE SAME FOR URIBOR WAS 1.1575%. HE SUBMITTED CONSIDERING THE LIBOR RATE THE INTEREST CHARGED BY THE ASSESSEE AT 3% IS AT ARMS LENGTH PRICE (ALP); HENCE S HOULD NOT HAVE BEEN DISTURBED. PROCEEDING FURTHER HE SUBMITTED IN A SSESSMENT YEA RS 2012 - 13 AND 2016 - 17 THE TPO HAS ACCEPTED THE INTEREST CHARGED AT 3% TO THE VERY SAME AES TO BE AT ARMS LENGTH. IN THIS CONTEXT HE D R EW OUR ATTENTION TO THE RELEVANT ORDER S PASSED BY THE TPO PLACED IN THE PAPER BOOK. 3 I.T.A. NO .1006 /MUM/20 17 5. THE LEARNED DEPARTMENTAL REPRE SENTATIVE DRAWING OUR ATTENTION TO PARA GRAPH 6.3.9 OF LEARNED COMMISSIONER (A PPEALS )S ORDER SUBMITTED IN CASE OF SIMILAR FOREIGN CURRENCY LOAN ADVANCED BY BARCLAYS BANK PLC. THE RATE OF INTEREST CHARGED VARIED BETWEEN LIBOR (+) 252 LIBOR (+) 400. THEREFORE HE SUBMITTED THE DIRECTION OF LEARNED COMMISSIONER (A PPEALS ) TO CHARGE INTEREST AT LIBOR (+) 3.383% IS IN O RDER. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AN D PERUSED MATERIALS ON RECORD. THE DISPUTE IS ONLY WITH REGARD TO THE ARMS LENGTH RATE OF INTEREST TO BE CHARGED ON THE LOAN ADVANCED TO AE. AS COULD BE SEEN THE TPO HAS CHARGED ARMS LENGTH RATE OF INTERE ST AT 14% WHEREAS LEARNED COMMISSIONER (A PPEALS ) HAS REDUCED I T TO LIBOR / EURIBOR (+) 3 . 8 3%. ADMITTEDLY AGAINST THE AFORE SAID DECISION OF LEARNED FIRST APPELLATE AUTHORITY THE REVENUE IS NOT IN APPEAL. IT IS THE CASE OF THE ASSE SSEE THAT CONSIDERING T HE LIBOR /EURIBOR RATE OF INTEREST AND THE INTEREST CHARGED BY VARIOUS BANKS AS NOTED BY LEARNED COMMISSIONER (APPEALS) IN HIS ORDER WHICH VARIED BETWEEN LIBOR (+) 1.75% TO 4% THE INTEREST CHARGED AT 3% IS AT ARMS LENGTH. WE HAVE NOTED BEFORE LEARNED CO MMISSIONER (APPEALS) THE ASSESSEE HAS SPECIFICALLY SUBMITTED THAT THE LIBOR RATE PREVAILING DURING THE YEAR WAS 0.53% P.A. THE AFORESAID FACTUAL POSITION HAS REMAINED UNCONTROVERTED BEFORE US. IT IS FURTHER NOTED BY US IN ASSESSEES OWN CASE FOR ASSESSMEN T YEARS 2012 - 13 AND 2016 - 17 THE INTEREST CHARGED AT 3% ON THE LOAN GRANTED TO THE SAME AE HAS BEE N ACCEPTED BY THE TPO. THOUGH THE SE ORDERS PASSED BY THE TPO ARE FOR SUBSEQUENT ASSESSMENT YEAR S ; HOWEVER THEY HAVE PERSUASIVE VALUE WHILE DETERMINING THE A R MS LENGTH RATE OF INTEREST AS THERE IS NO MATERIAL CHANGE IN THE FACTUAL POSITION . KEEPING IN VIEW THESE FACTOR S WE HOLD THAT INTEREST CHARGED AT 3% ON THE LOAN ADVANCED TO EM GERMANY SHOULD BE CONSIDERED TO BE AT ARMS LENGTH. HENCE THERE IS NO NEED FOR ANY ADJUSTMENT. ACCORDINGLY THE ADDITION MADE IS DELETED. 7. IN GROUNDS 2 & 3 THE ASSESSEE HAS CHALLENGED DISALLOWANCE MADE U/S 14A R.W.R.8D. 8. BRIEFLY THE FACTS ARE DURIN G THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD EARNED EXEMPT INCOME BY WAY OF DIVIDEND AMOUNTING TO RS.1 77 16 087/ - AND BY WAY OF LONG TERM CAPITAL GAIN AMOUNTING TO RS.3 71 43 046/ - . IN THE COMPUTATION OF INCOME THE ASSESSEE SUO MOTU MADE A DISALLOWANCE OF RS.7 10 356/ - TOWARDS EXPENSES ATTRIBUTABLE TO EXEMPT INCOME. 4 I.T.A. NO .1006 /MUM/20 17 WHEN T HE A SSESSING O FFICER CALLED UPON THE ASSESSEE TO EXPLAIN WHY DISALLOWANCE SHOULD NO T BE MADE IN TERMS OF RULE 8D THE ASSESSEE SUBMITTED THAT NO BORROWED FUND WAS UTILIZED FOR MAKING THE INVESTMENT; HENCE NO DISALLOWANCE CAN BE MADE. FURTHER IT WAS SUBMIT TED THAT THE ASSESSEE HAS WORKED OUT DISALLOWANCE ON THE BASIS OF SALARY PAID TO FINANCE PERSON AT RS.3 33 600/ - TELEPHONE EXPENSES OF RS.9 000/ - CONVEYANCE OF RS.40 000/ - PRINTING AND STATIONERY OF RS.7 200/ - ARE NOT FOR TABLE SPACE AT RS.72 000/ - AND OFFICE PEON RS.48 000/ - AND OTHER ADMINISTRAT IVE EXPENSES OF RS.2 00 556/ - . THE A SSESSING O FFICER HOWEVER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND PROCEEDED TO COMPUTE DISALLOWANCE BY APPLYING THE METHODOLOGY OF RULE 8D. IN THE PROCESS HE DIS ALLOWED AN AMOUNT OF RS.1 18 42 964/ - TOWARDS INTEREST EXPENDITURE UNDER R ULE 8D(2)(II) AND RS.86 44 811/ - TOWARD S ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(III). THUS IN AGGREGATE HE DISALLOWED AN AMOUNT OF RS.2 04 87 775/ - . ASSESSEE CONTESTED THE AFO RESAID DISALLOWANCE BEFORE LEARNED COMMISSIONER (APPEALS ). BEING CONVINCED WITH ASSESSEES SUBMISSION THAT IT HAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE TO MAKE THE INVESTMENT LEARNED COMMISSIONER (A PPEALS ) DELETED THE DISALLOWA NCE OF RS.1 18 42 964/ - MADE UNDER RULE 8D(2)(II). HOWEVER HE SUSTAINED THE DISAL LOWANCE OF RS.86 44 811 MADE UNDER RULE 8D(2)(III) . 9. T HE PRIMARY CONTENTION OF THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE IS BEFORE REJECTING ASSESSEES COMPUTATION OF DISALLOWANCE AND INVOKI NG R ULE 8D THE A SSESSING O FFICER HAS NOT RECORDED PROPER SATISFACTION. HE SUBMITTED THOUGH THE ASSESSEE FURNISHED DETAILED EXPLANATION EXPLAINING THE MANNER IN WHICH SUO MOTU DISALLOWANCE WAS MADE; HOWEVER WITHOUT PROPERLY EXAMINING THE CORRECTNESS OF ASSESSEES CLAIM HAVING REGARD TO THE BOOKS OF ACCOUNT THE A SSESSING O FFICER HAS SIMPLY REJECTED ASSESSEES CLAIM . THUS HE SUBMITTED THE DISALLO WANCE MADE UNDER SECTION 14A R.W.R. 8D SHOULD BE DELETED. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF THE DEPARTMENTAL AUTHORITIES SUBMITTED THE A SSESSING O FFICER HAVING RECORDED PROPER SATISFACTION ASSESSEES CLAIM SHOULD NOT BE ACCEPTED. 11. WE HAVE CONSIDERED RIVAL SUBMISSIONS AN D PERUSED MATERIALS ON RECORD. UNDISPUTEDLY TH E ASSESSEE HAS COMPUTED SUO MOTU DISALLOWANCE UNDER SECTION 14A AMOUNTING TO 5 I.T.A. NO .1006 /MUM/20 17 RS.7 10 356/ - . ON A READING OF THE IMPUGNED ASSESSMENT ORDER IT IS EVIDENT IN RESPONSE TO QUERY MADE BY THE A SSESSING O FFICER THE ASSESSEE HAS EXPLAINED IN DETA IL THE WORKING OF DISALLOWANCE MADE UNDER SECTION 14A VOLUNTARILY. WITHOUT POINTING OUT HOW THE VOLUNTARY DISALLOWANCE MADE BY THE ASSESSEE IS INCORRECT HAVING RE GARD TO THE BOOKS OF ACCOUNT MAINTAINED BY IT THE A SSESSING O FFICER HAS SIMPLY REJECTED THE C OMPUTATION OF THE ASSESSEE BY MAKING GENERAL OBSERVATION THAT AS PER THE MANDATE OF SECTION 14A(1) AND 14A(2) OF THE ACT DISALLOWANCE HAS TO BE COMPUTED IN TERMS OF RULE 8D. NOW LEGAL POSITION IS FAIRLY WELL SETTLED THAT SECTION 14A(2) OF THE ACT MANDATES THE A SSESSING O FFICER TO RECORD SATISFACTION INDICATING THAT THE DISALLOWANCE COMPUTED BY THE ASSESSEE IS INCORRECT HAVING REGARD TO THE BOOKS OF ACCOUNT MAINTAINED BY HIM. THIS CONDITION HAS TO BE SATI SFIED BEFORE INVOKING RULE 8D. IN THE FACTS OF THE PR ESENT CASE THOUGH THE ASSESSEE IN SPECIFIC TERM S HAS PROVIDED ALLOCATION OF VARIOUS EXPENDITURE S FOR EARNING OF EXEMPT INCOME THE A SSESSING O FFICER HAS NEITHER DEA LT WITH THE ASSESSEES CLAIM NOR HAS PROVIDED ANY REASON AS TO WHY THE CLAIM OF THE ASSESS EE IS NOT TO BE ACCEPTED IN TERMS OF SECTION 14A(2) OF THE ACT. THUS IN OUR CONSIDERED OPINION THE CONDITIONS OF SECTION 14A(2) IN THE PRESENT CASE HAS NOT BEEN SATISFIED . IN VIEW OF THE ABOVE WE DELETE THE DISALLOWANCE OF RS.86 44 811/ - . 12. IN THE RES ULT APPEAL IS ALLOWED. OR D ER PRONOUNCED IN THE OP EN COURT ON THIS 0 3 / 03 /202 1 . S D / - S D / - ( PRAMOD KUMAR) (SAKTIJIT DEY) VICE PRESIDENT JUDICIAL MEMBER MUMBAI DATED : 0 3 / 03 /202 1 . PAVANAN SR.P.S (ON CONTRACT) 6 I.T.A. NO .1006 /MUM/20 17 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONENT. 3. THE CIT(A) 4. 4. THE CIT 5. D.R. ITAT MUMBAI. 6. GUARD FILE. //TRUE COPY// BY ORDER I.T.A. T . MUMBAI. 7 I.T.A. NO .1006 /MUM/20 17