TMI Blog2019 (11) TMI 1026X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of the subsidiary company M/s Jewel Jems USA Inc. - HELD THAT:- For the A.Y. 2012-13, the Tribunal in assessee s 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 that the USA subsidiaries were set up to expand its business and the expenditure was purely for business expansion of the assessee s product. Thus, the investment made were held to be out of commercial expediency and business interest and consequently the loss of such investment in the 100% subsidiary not recoverable was an allowable business loss. Interest on income tax refund - 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 - HELD THAT:- 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 ₹ 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 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 Arm s Length Price (ALP) in respect of guarantee at 1.30%. The A.O. consequently passed draft assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P legislation does not stipulate the inclusion of such inter-group facility as international transaction which we have to respectfully follow. 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 1st 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 internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee s 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 assessee s 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, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered 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 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 Hon ble High Court, however, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidiaries were set up to expand its business and the expenditure was purely for business expansion of the assessee s product. Thus, the investment made were held to be out of commercial expediency and business interest and 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 Hon ble High Court and the Hon ble High Court vide decision dated 12/11/2017 dismissed the appeal of the revenue in DBIT No. 291/2017. The said decision of the Hon ble Jurisdictional High Court was again challenged by the revenue in the SLP, however, the Hon ble 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 Hon ble High Court in para 4.2 as under: 4.2 This issue is covered by the Hon ble Rajasthan High Court in assessee s own case in assessee s favour as discussed above, although DRP upheld the disallowance in AY 2013-14, it has been revers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed as not pressed. The ld DR has raised no objection if ground No. 5 of the assessee s appeal is dismissed as not pressed. Accordingly, ground No. 5 of the assessee s 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 Assessee s 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 interest on income tax refund. However, the assessee could like to state that, the assessee has not re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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