9911796707
TMI Blog2019 (9) TMI 1328X X X X Extracts X X X X X X X X Extracts X X X X ..... of such eligible units and in reducing the deduction claimed accordingly. 2) The learned Dispute Resolution Panel erred in confirming the action of the Assessing Officer in rejecting the claim raised by the Appellant during the course of the assessment proceedings that the expenditure incurred oil buyback of shares is revenue expenditure and is allowable under the provisions of Section 37(l) of the Act. TRANSFER PRICING ISSUES Corporate Guarantee given on behalf of the Associated Enterprises 3) The learned Dispute Resolution Panel erred in holding that the transaction of giving corporate guarantees by the Appellant on behalf of its Associated Enterprises would fall within the definition of an "international transaction" under Section 92B of the Act and thereby erred in determining the Arm's Length price in respect of such Transaction. 4) The learned Dispute Resolution Panel erred in confirming the credit ratings of the Associated Enterprises at "131313-" for the purpose of benchmarking the guarantee fee without appreciating that the Associate Enterprise's credit rating equaled that of the Appellant. 5) The learned Dispute Resolution Panel erred in confirmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is engaged in the business of manufacture of fast moving, consumer goods and manufactures toilet soaps, hair colour, liquid detergents and other toiletries. The manufacturing units of the company are located at Malanpur, Baddi, Gauhati, Sikkim and Katha and the registered office is situated at Vikhroli, Mumbai. The company has four branches at Delhi, Chennai, Kolkata and Mumbai and distributors and C&F agents situated all over India. 4. A reference u/s 92CA(1) of the I.T. Act was made to the Transfer Pricing Officer on 23.07.2012 for computation of the Arm's Length Price (ALP) in relation to International Transactions. The TPO passed the order u/s 92CA(3) of the Act dated 30.01.2014 who has made an adjustment of Rs. 9,99,10,416/- to Arm's Length Price (ALP) which was added to the income of the assessee company. The draft assessment order was passed u/s 143(3) r.w.s. 144C(1) of the Act. After communication on draft assessment order, the assessee filed the objection before the DRP in view of the provisions u/s 144C of the Act. The DRP-3 has also issued the direction on 22.12.2014. Thereafter, the assessment order was passed by assessing the income in sum of Rs. 2,85,27,74,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Industrial Policy provides for incentive on transpiration of raw material as well as finished products. It is also claimed by the assessee that similar incentives are also provided under the industrial policy of Himachal Pradesh. It is the claim of the assessee that the transportation and power subsidy provided under the Industrial Policy of Assam and Himachal Pradesh are actually the reimbursement of actual cost incurred by the assessee, therefore, it is an operational subsidy which goes to reduce the cost of manufacture resulting in enhancement of the profit of the assessee. It is the contention of the assessee that as the power and transport subsidy granted to the assessee has a direct nexus to the earning of profit it is a part of the business income, hence, eligible for deduction under section 80IC. It is noticed, in case of CIT v/s Meghalaya Steels Ltd. (supra), the Hon'ble Guwahati High Court while examining assessee's claim of deduction under section 80IB / 80IC, analysed the industrial policy of the year 1971 of the Assam Government and found that the transportation and power subsidy given by the Government under the scheme is towards actual reimbursement of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rring to the decision of the Hon'ble Supreme Court in Jai Bhagwan Oil and Flower Mills v/s Union of India, [2009] 14 SCC 63, observed, the transport subsidy as per industrial policy was aimed to reduce the cost of production of industrial undertaking, therefore, there was a first degree nexus between the transport subsidy and cost of production. When cost is reduced, it naturally helps in earning of profit. Therefore, such profits have to be treated as profit and gains derived from the industrial undertaking. 14. As far as power subsidy is concerned, the High Court referring to the industrial policy of the year 1997, as extended by the Industrial Policy of Assam 2003, noticed that it provides for power subsidy to be given to eligible industrial units for a period of five years from the date of commercial production. It was further noticed, the power subsidy is available in the form of reimbursement of fully paid power bills with certain ceilings. The Court observed, reimbursement of fully paid power bills will obviously reduce the cost of production of an industrial undertaking contributing thereby to the profit and gains derived by the industrial undertaking and augmenting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EPB entitlement, hence, its relation to the manufacturing / production is neither proximate nor direct. The High Court after analyzing the ratio laid down in the case of Liberty India (supra), ultimately concluded that the DEPB and duty drawback are not provided by the Government as a means to reduce the cost of production of the industrial undertaking. Therefore, the ratio laid down would not apply to the power and transport subsidy which directly reduces the cost of production. The Court observed, the DEPB considered by the Hon'ble Supreme Court in Liberty India Ltd. (supra) is a case of non-operational subsidy as much as it does not relate to production, whereas the transport and power subsidy provided under the industrial policy are operational in nature, inasmuch as, they are related to production of industrial undertaking. Thus, it was held by the Court that the income received on account of power and transport subsidy would form part of the profit derived from the industrial undertaking, hence, eligible for deduction under section 80IC. 15. Though, it may be a fact that the Hon'ble Himachal Pradesh High Court in the decisions referred to by the learned Departmenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to find out the true nature of subsidy granted under the respective subsidy schemes. Therefore, in our view, for coming to a definite conclusion as far as nature of subsidy is concerned, the relevant subsidy schemes have to be examined to find out whether such subsidy are for reimbursement of actual costs incurred by the assessee towards transport and power. As the Departmental Authorities have not examined the nature of subsidy with reference to the relevant industrial policy resolution and subsidy schemes, we are inclined to restore the matter back to the file of the Assessing Officer for deciding afresh keeping in view the ratio laid down in the decisions referred to above as well as the observations made by us. As far as the issue of particular assessment year in which the subsidy deemed to have accrued, we may observe, the Assessing Officer did not raise this issue in course of assessment proceedings. It is only the learned Commissioner (Appeals) who has raised this issue. However, there is nothing in the order of the learned Commissioner (Appeals) to suggest that assessee was given opportunity to explain its stand on the issue. Be that as it may, whether the subsidy has ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 41(1), however, he held that the gain derived by the assessee on premature repayment would be taxable under section 28(iv) of the Act." 6. Since the issue is fully covered by the decision of Hon'ble ITAT in the assessee's own case for the A.Y. 2009-10 in ITA. No.1299/M/2013, therefore, in the said circumstances, the issue is hereby restored before the AO to decide the matter of controversy on the similar direction has given by Hon'ble ITAT above in ITA. No.1299/M/2013 dated 20.04.2016. Accordingly, this issue is decided in favour of the assessee against the revenue for the statistical purposes. ISSUE NO. 2 7. Under this issue the assessee has challenged the confirmation of the addition of the expenditure incurred for by back shares which is revenue in nature and is allowable u/s 37(1) of the Act. At the very outset, the Ld. Representative of the assessee has argued that this issue is also covered by the decision of Hon'ble ITAT in the assessee's own case for the A.Y.2009-10 in ITA. No.1299/M/2013 dated 20.04.2016. The copy of order is on the file in which the relevant finding is hereby reproduced as under.:- "39. We have considered the submissions of the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to note, in case of Everest Kento Cylinders Ltd. (supra), the Hon'ble Jurisdictional High Court while accepting the commission rate of 0.5% on corporate guarantee provided by the assessee to its A.E. observed that corporate guarantee cannot be equated to bank guarantee. Following the aforesaid decision the Tribunal, Mumbai Bench, in Godrej Household Products Ltd., ITA no.7369/Mum./2010, dated 22nd November 2013, held the rate of guarantee commission of 0.5% as the arm's length price of the corporate guarantee provided by the assessee to its A.E. In the present case also, there is no dispute that the internal CUP by way of letter received from HSBC indicates that the commission charged for financial guarantee is 0.5%. Further, it is relevant to note that the Department in assessee's own case has accepted the arm's length price of corporate guarantee @ 0.5% in the assessment year 2006-07 and 2007-08. Thus, on consideration of overall facts and circumstances in the light of judicial pronouncements referred to above, we are of the considered opinion that the arm's length price of the corporate guarantee should be fixed at 0.5%. The Assessing Officer / Transfer Pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate guarantee @ 0.5% in the assessment year 2006-07 and 2007-08. Thus, on consideration of overall facts and circumstances in the light of judicial pronouncements referred to above, we are of the considered opinion that the arm's length price of the corporate guarantee should be fixed at 0.5%. The Assessing Officer / Transfer Pricing Officer is directed to make adjustment accordingly. Ground no.12, raised by the assessee is partly allowed." 12. Since the assessee is fully covered in favour of the assessee by the above said decision and the facts are not distinguishable at this stage. Therefore, in the said circumstances, the arm's length price of corporate guarantee is hereby restricted to the extent of 0.5%. Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE Nos. 8 to 12 13. At the very outset, the Ld. Representative of the assessee has argued that this issue is squarely covered by the decision of Bombay High Court in the case of Aurionpro Solutions Ltd. (ITA. No.1869 of 2014) (Bom High Court) and Marico Ltd. (ITA. No.9958/M/2011 & 8713/M/2011) (Mum), therefore, in the said circumstances, the claim of the assessee is liable to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Enterprise to 12%. Consequent to the directions of DRP, the Assessing Officer by an assessment order dated 19.9.2011 charged interest of Rs. 1.76 crores on the above account as a part of the respondent-assessee's income. 5. Being aggrieved, the respondent - assessee preferred an appeal to the Tribunal. The Tribunal by the impugned order held : (a) that the interest free loan extended by a company to its Associate Enterprise comes within the ambit of International Transaction and issue to be examined in such a case would be the ALP of such an International Transactions; and (b) With regard to quantum of addition on account of interest by ALP the impugned order held that as the amounts were advanced to Associated Enterprises in Germany, the rate of interest is to be determined on EURIBOR rate of interest i.e. rates prevailing in Europe. Thus partly allowed the respondent - assessee's appeal by applying the decision of the Tribunal in the case of "VVF Ltd. Vs. DCIT, (ITA No.673/Mum/06)" and "DCIT Vs. Tech Mahindra Ltd. (46 SOT 141)" by holding that the loan advanced to an Associate Enterprise situated abroad, the rate of interest to be applied is the rate prevailing in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
