TMI Blog2021 (10) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... one/Internet connection up to November 2010 at the office of RFZC at UAE which evidences that the office was not functioning independently and properly - whether the company namely RFZC located in UAE was a paper company? - HELD THAT:- Indeed the RFZC was incorporated after due compliance of RBI as well as the local laws of UAE - approval of RBI and the local laws of UAE do not decide the nature of transactions. The purpose of RBI is to approve the company within the provisions of relevant law which has no role to play with respect to the provisions of income tax Act. Accordingly, in view of the above facts and definitions, we hold that the company namely RFZC is a shell or paper company which is not doing any business activity in reality and only used as vehicle to books sales and profit and the employees cost which it has shown but actually, it is working for DRC companies. Thus, we also hold that the approval given by the RBI will not help to the assessee insofar holding the RFZC as a paper company. As pertinent to note that in earlier assessment years, there was not any search or survey carried out. Indeed in those assessment years, the assessment was completed based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on the reasoning that the assessee has diverted the profit by using the colourable device. In either situation whether the profit belongs to RFZC or the DRC, the position of the assessee cannot be altered. In other words the assessee company can earn from either of subsidiary companies in the form of dividend only which is also a reality that the assessee has taken a dividend. In a situation of holding the profit of RFZC attributable to the DRC companies, the assessee would have taken the dividend which would have been subject to tax its hands in the same manner as the dividend from RFZC is taxable. Accordingly we hold that position of the assessee in either case cannot be detrimental to it. As we have decided the issue that profit attributable to RFZC belongs to DRC companies, then the question of the colourable device used by the assessee for diverting its profit does not arise. The profit attributable to RFZC with respect to the transactions carried out by it with the company based in China namely Trafigura Beheer BV belongs to DRC companies. Likewise, the profit attributable to RFZC with respect to the transactions carried out by it with the assessee company has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be applied to determine the ALP. The relevant extract of the order has already been reproduced in the submission of the learned AR for the assessee. In the order of the Mumbai ITAT in the case of Greatship (India) Ltd. supra, various judgements were referred therein and in all those judgements average rate of commission was ranging from 0.2 to 0.5 percent. Thus we are of the view that the justice will be served to the assessee and the revenue if the addition is restricted to 0.5% of the guarantee amount. We accordingly hold so. Hence the ground of appeal of the assessee is partly allowed. Characterization of receipts - sales tax subsidy as revenue receipt chargeable to tax - Alternatively, if it is treated as revenue receipt then the amount of deduction under section 80IB of the Act should be enhanced by the corresponding amount - HELD THAT:- As decided in own case [ 2017 (2) TMI 1085 - ITAT AHMEDABAD] we hold that the impugned receipt of sales tax subsidy is a revenue receipt which is chargeable to tax Deduction u/s 80IB - DRP has already given a direction to allow the deduction under section 80IB of the Act for the amount of sale tax subsidy but after verificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sider the income as per revised return if the same is filed within the framework of law. Hence the ground of assessee is allowed in terms of above for the statistical purposes. Not allowing the loss occurred due to fraud on reason that the same not crystallized in the current year - no documentary evidence furnished by the assessee with respect to the loss incurred on account of the fraud committed by the then CFO except the copy of the FIR - whether the impugned loss was crystallised in the year under consideration or in the subsequent year so as to allow the deduction to the assessee? - HELD THAT:- The expression detection and discovery have different and distinct implications in law. The expression 'discovery' has to be interpreted so as to mean that loss must be deemed to have arisen only when the assessee comes to know about it and realizes that the amount embezzled cannot be recovered and not merely from the date of acquiring knowledge in which that embezzlement has taken place. In the present case, the ld. DRP has given finding that last amount was received in the financial year under consideration which implies that the balance amount is not recoverable. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that the section 48 deals with computation of income chargeable under the head 'capital gains'. Section 48 refers to the full value of consideration received or accruing as a result of transfer of a capital asset. It states that from the full value of consideration received or accruing, deduction would be allowed in respect of expenditure incurred wholly and exclusively in connection with the transfer and cost of acquisition of asset and cost of any improvement thereto. In other words, the provision does not provide that the fair market value of the property as on the date of transfer should be considered as the sale consideration provided under such 48. There is no provision under the Act prescribing the guidelines for pricing of the shares unlike the provisions contained under section 50C of the Act concerning immovable properties under the head capital gain. Thus in the absence of any specific provision to determine the sale price of the shares of unlisted company at prevailing point of time, we are inclined to hold that the price declared by the assessee is correct and within the provisions of law. We note that the law was amended to bring the transaction of un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law in taxing the profit of subsidiary company of the Appellant viz. Rubamin FZC situated in UAE, in the hands of the Appellant. 5 The learned AO as well as the learned DRP erred in fact and in law by making addition of ₹ 27,05,11,474 by way of taxing the profit of Rubmain FZC in the hands of the assessee by holding Rubamin FZC as a colourable device/shell entity created solely for the purpose of shifting of the Apellant's profit out of India without any basis. 6 The learned AO as well as the learned DRP erred in fact and in law by taxing the profit earned by Rubamin FZC from an activity which has no nexus with India and thus the AO has clearly exceeded his jurisdiction. 7 The learned AO as well as the learned DRP erred in fact and in law in relying on the documents and papers which are wholly irrelevant for the year under consideration and also for coming to the alleged conclusion. Disallowance of Fraud loss incurred by Rubamia Ltd. 8 The learned AO as well as the learned DRP erred in fact and in law by not allowing deduction of ₹ 1,50,87,623 in respect of fraud loss incurred by Rubamin FZC by holding that such loss is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had objected to the value adopted by the AO during the course of assessment proceedings. Other Grounds: 18 The learned AO erred in fact and in law in charging interest u/s 234B of the Act. 19 The learned AO erred in fact and in law in charging interest u/s 234C of the Act. 20 The learned AO erred in fact and in law in initiating penalty proceedings u/s 271(l)(c)of theAct. 21 Your Appellant craves a right to add to or amend, alter, substitute, delete or withdraw all or any of the grounds of appeal. 2. The assessee in ground Nos. 1 and 2 has challenged the validity of assessment order on the reasoning that it is barred by time. 3. At the outset we note the learned AR before us submitted the issue raised in these grounds of appeal is without prejudice to the issue raised in ground Nos. 4 to 7 of this appeal. It was the contention of the learned AR that if the issue raised in grounds Nos. 4 to 7 is held against the assessee i.e. profit of Rubamin FZC be merged with the assessee s profit by treating Rubamin FZC as part or arm of assessee, then the assessment should be barred by time as in such scenario the provision of TP will not apply. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 RUBAMIN LIMITED INDIA ---- ---- 2 RUBAMI FZC UAE 90 BY RUBAMIN LIMITED 10 BY NAVIN DALMIA 3 RUBAMIN SPRL DRC(CONGO) 100% BY RFZC NA 4 RUBACO SPRL DRC (CONGO) 100% BY RFZC NA 8. The above group of companies were controlled and managed by different persons as detailed under: SNO NAME OF THE PERSON DESIGNATION IN RUBAMIN LIMITED DESIGNATION IN RFZC DESIGNTION IN DRC BASED CO. 1 ATUL N DALMIA (IN SHORT AD) PROMOTORS, DIRECTOR, MD and CEO NON EXECUTIVE DIRECTOR NA 2 ANIL R PATEL (IN SHORT AP) PROMOTERS AND DIRECTORS DIRECTOR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. (Email dated 06-03-2009) iii. In the process of loan by the DRC based companies, the holding company i.e. RFZC based in UAE was to provide the corporate guarantee as it is booking the profit in RFZC whereas the companies based in DRC were incurring the losses. (Email dated 26-10-2012) iv. The discussion of distribution of dividend of USD 2 million by RFZC company based in UAE after considering the current year performance viz a viz reduction in interest cost and the burden of tax in India on such payment of dividend. Likewise, it was pointed out to set off the dividend income from the business loss of Rubamin Limited. (Email on different dates 31- 10-2011, 23-08-2012, 17-09-2012, 03-10-2012 etc) v. The policy for hedging the copper cannot be changed without the approval of Shri AD and to this effect a confirmation from the parties was obtained. There was also a discussion for the regular report from DRC based company to this effect. (Email dated 04-10-2011) vi. There was also a conversation about the sales realization, profit generation from the sale of the product namely Copper Blister. The RFZC is dealing in such product. (Email dated 01-04-2009) vii. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he elimination of personal guarantees. It also contained the information about copper hedging mechanism in the companies based in DRC. ii. There was a resolution dated 17th September 2012 declaring the amount of dividend which was prepared in India and signed by Shri Anil R Patel as he never visited to UAE during that relevant time. iii. There was available the sales contract of RFZC with the 3rd party namely Baxville Minerals Trading Ltd. As per the sales contract the shipping schedule was dated in the month of November/ December 2006. iv. There was also found a supply contract agreement between Rubamin SPRL and Kirby Building Syatem Kuwait dated 11 July 2007 which was duly stamped by Rubamin SRPL. v. There were certain letter of appointment/ contract of the RFZC/DRC employees which were found from the office of Rubamin Ltd at Baroda. vi. The salary chart for the employees based in DRC was found from the premises of Rubamin Ltd at Baroda. vii. There was the appointment letter of Shri Rajesh Agarwal, the vice president (Commercial) of RFZC which was issued by Shri Michael Hamawalla who is HR of Rubamin Ltd at Baroda. 11. Besides the above, the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the international business directly from DRC, it was essential to establish a 3rd company in order to carry on the business from DRC. Furthermore, the Indian regulations do not permit to carry on the business in the manner as prevailing in DRC. As such it was possible to carry on the business from UAE as it provides liberalized exchange control system. Accordingly, the assessee after obtaining the permission from the RBI established its subsidiary company in RFZC in the year 2004-05. iii. The transactions carried out by the assessee with RFZC were accepted by the Income Tax Department under the provisions of transfer pricing requiring the determination of ARM length price. iv. The assessee under protest submitted that the RFZC was having the business transactions with the assessee and other parties. The profit earned by RFZC on the business transactions carried out with other parties cannot be taxed in the hand of the assessee. Therefore, the profit earned by RFZC with the business transactions carried on with the assessee should only be considered for the purpose of tax instead of its entire profit. v. The assessee also submitted that RFZC has independent legal e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are independently working in their own capacity. x. Likewise, the activity of hedging the transaction requires specialized knowledge and therefore such decisions are taken by the holding company without giving any authority to the respective subsidiaries. xi. The sale contract found during the search pertains to the financial year 2006- 7 and therefore it is not relevant for the year under consideration. xii. The affairs of RFZC were controlled by the authorized persons who were appointed by the RFZC but posted at DRC. These persons were highly qualified and performing critical functions of the company after drawing huge salaries with definite responsibilities. As such these employees were not carrying out the clerical activities. It is the normal practice for a holding company being a shareholder to keep the information by way of MIS report for the activities carried out by the subsidiaries. But that does not give the authority to infer that the controls and managements are based in India with the holding company. Some of the controls indeed have been exercised in India but with respect to group policies. There was no iota of evidence suggesting that there was an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SPRL and sales is to Rubamin Ltd in India of its product namely cobalt concentrates. Further, RFZC is purchasing from the local market of Middle East and selling the same to Rubamin Ltd in India. All these transactions leave an impression that RFZC is playing a role for shifting the profit from India to tax heaven. v. The banking facilities in the DRC were established more than a century ago. Furthermore, in case the assessee was to avail the banking facility then there was no necessity for routing all the transactions for purchase and sale of the products except financial transactions from RFZC. vi. Shri AD has admitted in a statement recorded dated 28th April 2013 that Rubamin Ltd exported machineries to Rubamin SPRL and Rubaco SPRL and payment was made by RFZC up-to July 2010. Thereafter the payment was received by Rubamin Ltd directly from Rubamin SPRL, UAE bank account. Accordingly, it was alleged that once the assessee is able to export the goods to the companies present DRC that there was no reason to involve RFZC with respect to the purchase and sales of transaction. As such the assessee was in a position to import the goods directly without involving RFZC. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used for the year under consideration. It is because the year in dispute expires on 31st March 2010 whereas this email is dated 17-01-2013 which was recovered in the search operation. Thus, it is clear that prior to this email dated 17th January 2013 all the banking operations were carried out by the officers/employees of RFZC. As such, the AO cannot draw any inference against the assessee regarding the control and management of RFZC based on this email dated 17th January 2013 for the year under consideration. v. The email dated 06th March 2009 written by AA which explains how to improve the financial position of Rubamin Ltd with respect to the loan given to the subsidiary, debt equity ratio and interest cost reduction. For this purpose, there was a discussion for the arrangement of the funds in the hands of the subsidiaries by obtaining the finance facilities from the bank. As such this email relates to the financial position/balance sheet of Rubamin Ltd and it has nothing to do with the operation of RFZC. It is a quite normal practice in the industries for the parent company to discuss the group policy in order to cut down the cost, improvement of the profitability of the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een directly dealing with DRC companies, then the profit of DRC companies would have been subject to corporate tax @ 30% and the assessee would have received dividend after such tax further dividend would have subject to 20% withholding tax in DRC. In simple words, for example there is a profit of ₹ 100/- in the hands of DRC company, then assessee would only get a dividend of ₹ 70/- only after the payment of tax of ₹ 30 only. The assessee s tax liability on such dividend would be of ₹ 21 only but ultimately paid tax amount would be paid to Indian authority for ₹ 7 only after getting benefit of withholding tax of ₹ 14 @ 20% on such dividend. It is explained as under: Tax Comparison Pre-Amendment Post- Amendment A. With FZC No FZC With FZC No FZC Total Combined Profits 100.00 100.00 100.00 100.00 Profits at DRC 40.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The Capital, debt restructuring and payments of Rubamin FZC to benefit Rubamin Ltd. c) Corporate guarantee of Rubamin FZC subsidiaries by assessee. d) The timing quantum of dividend distribution by Rubamin FZC was decided by Rubamin Ltd. 2) The assessee had absolute control over business operation of Rubamin FZC. To prove this point, he has discussed evidence to show that: a) Assessee' s Control over copper business of Rubamin FZC b) Hedging of copper of Rubamin FZC directed by Rubamin Ltd, though Rubamin Ltd. does not deal with copper blisters. c) Assessee's control over copper blister business of Rubamin FZC though Rubamin Ltd neither import nor export and does not indulge in consumption or production of copper blisters d) Sale of copper Ore was totally controlled by Rubamin Ltd. e) Shri Atul Dalmia was directly dealing with Rubamin FZC's customer of Cobalt concentrate f) assessee s control over Zinc business of Rubamin FZC 3) The assessee had Control over business agreements and strategy of RFZC subsidiaries in support. In support he has discussed evidence to show that: a) Agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was bearing the burden of tax in the form of dividend income. 21. The assessee as a holding company of the group was able to shift the profit of the companies within DRC as well as its own profit to RFZC being a tax heaven zone. In fact, the activities are carried out in the company based in DRC but these entities are showing losses in all 6 years beginning from AY 2008-09 to AY 2013-14. Likewise the assessee company in overall is also showing losses only over a period of 6 years beginning from AY 2008-09 to 2013-14 after excluding the dividend income despite having the business activities. On the contrary, the RFZC was declaring huge amount of profit in all the 6 years which was diverted to the assessee in the form of dividend. Furthermore, the assessee has set off the entire amount of dividend received from RFZC against the losses shown by it. Effectively, the assessee has not made any tax on the income being a company incurring the losses except in the assessment year 2013-14 where a small amount of profit chargeable to tax was shown amounting to ₹ 2.15 crores which was generated on account of extraordinary item being the fraud expenditure reversed by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its subsidiaries as well as with the assessee have been seriously compromised. The evidences found during the course of search show that the transactions have been arranged in a manner to serve the motive of tax avoidance. No real business purpose of setting Rubamin FZC is visible, but for tax avoidance. This entity clearly is a corporate veil and interposed entity. Therefore, in the opinion of the Panel creation of the Rubamin FZC is clearly a colourable device. 7.21. It is again reiterated that the Supreme Court in the case of McDowell Co. Ltd Vs. CIT (1985) 154 ITR 148 has held that tax avoidance through the use of colourable devices and by resorting to dubious methods and subterfuges is not permissible. The same was upheld once again in the case of Vodafone International Holding B. V. (supra) by Hon'ble Supreme Court clearing the doubts about the perceived overruling effect of decision of Hon'ble Supreme Court in the case of Azadi Bachao Andolan (supra) over the findings of Hon'ble Supreme Court in the case of McDowell Co. Ltd. It is also by Hon'ble Supreme Court held that in cases of abuse of organisation form/legal form and without reasonable busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciple of piercing of corporate veil, in the case of Sturkie vs. Sifly. (c) The facts evidences clearly show that the subservient entity i.e. Rubamin FZC in this case manifests no separate interest on its own and functions solely to achieve the goals of the assessee. (d) The Rubamin FZC is an entity which has no commercial business substance and has been interposed only to avoid tax. (e) While a subsidiary will always be controlled to some degree by the principles of parent company, however in this case the control has reached to a point where there is no semblance of the existence of a separate entity of Rubamin FZC. (f) The motive of tax avoidance very clearly established. (g) The evidences also very clearly establish that the intergroup transactions are vitiated and have been arranged in a manner to serve the dominant purpose of tax avoidance. Thus, it is very clear that interpositioning of Rubamin FZC between assessee and Congo companies is to evade tax. It is an inserted entity which has no business purpose except deferment of tax, though it had a business effect. Therefore, it is held that creation of Rubamin FZC is a colourable de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed its jurisdiction by clubbing the income of its foreign subsidiary with the income of the assessee. 30. Furthermore, the international transactions between the associated enterprises are governed under chapter X of the Act which provides the mechanism for the determination of arm length price of such transaction. In fact, TPO himself has made adjustments with respect to the transaction carried out by the assessee with its associated enterprise based in UAE. Therefore, the profit shown by the AE cannot be clubbed/added to the total income of the assessee being separate and independent legal entities. Thus, even if it is assumed that RFZC was controlled and managed from India, then also its profit has to be taxed separately and therefore its income cannot be clubbed with the assessee. 31. It was also pointed out that the Revenue in the case on hand has treated the subsidiary company as shell company on various reasoning but after ignoring certain undisputed/admitted facts as detailed under: i. It was established with the approval of RBI in the year 2004 for the purpose of trading activities and this fact was admitted by the revenue in the earlier years. The existence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out by RFZC without any interference of the assessee where the assessee had no control of whatsoever. 33. The goods manufactured in DRC were sold to the customers based in China. The customers was developed by RFZC at its own through its employees who were qualified, competent, experienced, authorised and were actually exercising such operational activities. The assessee had no control or connection with the customers of RFZC. Similarly the assessee was not dealing in the products sold by RFZC to its customers. Therefore, it will be inappropriate to hold that the affairs of the RFZC were controlled and managed in entirety from India. 34. The learned AR also submitted that existence of the companies based in DRC were not doubted/challenged by the Revenue and their income was admitted as belonging to them which are also wholly own subsidiary company of RFZC. Once the existence of RFZC is doubted/eliminated then the existence of wholly owned subsidiary companies should also be denied. 35. It was further contended that the DRP was apprised with the fact that had there not been RFZC, then there would have been less tax payable in India. Therefore it cannot be alleged th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case on hand the transactions of the assessee with the associated enterprises was exceeding the threshold limit specified by the CBDT, the AO had no choice except to make the reference. Accordingly the extended time limit for passing the order shall be applied which is ending 31st December 2016 whereas the assessment was framed before the expiry of the time limit. 41. The learned DR in support of his contention relied on the various judgments as follow: I. PCIT vs. Asia Holdings (India) Pvt Ltd. 108 taxmann.com 213, II. Shri Vishnu Eatables (India) Pvt Ltd. vs. DCIT 74 taxmann.com 89. III. Intas Pharmaceutical Ltd. vs. DCIT 33 taxmann.com 308 IV. A T S India (P.) Ltd vs. 94 taxmann.com 16 V. CIT vs. Cushman and Wakefield (India) Pvt Ltd 367 ITR 730 42. It was brought to our notice that the AO during the assessment proceedings came to know about the colourable device adopted by the assessee by diverting its profit, based on the search documents and accordingly the AO frame the assessment after including the entire amount of profit declared by RFZC. Accordingly, it cannot be said that the assessment framed by the AO is beyond the time as pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffairs. iii. There was only one employee present in RFZC. Similarly, there was no fixed assets shown in the financial statement of RFZC as on 31 March 2007 whereas there was the turnover for the year ending 31st March 2007 at AED 10,05,70,174/-. Likewise the turnover shown as on 31st March 2008 stands at AED 74,00,128/- whereas property plant and equipment shown at AED 4,164/- only as on 31 March 2008. iv. It was pointed out by the learned DR that the contention of the learned AR that the employees of the entire group of Rubamin are using the email IDs in the domain name of Rubamin.com, but the same is not true. For this purpose, the learned DR drew our attention on various pages of the paper book including the page 36 of the paper book 2 TPO for the AY 2011-12 where different IDs were used as detailed below: a. naveen_dalmia2002@yahoo.com b. rajeshaggarwal2004@yahoo.co.in c. guptadc2006@yahoo.com d. presannakumar2002@yahoo.co.in e. rubaminfzc@gmail.com f. info@rubamin.com v. Likewise, the invoices issued by RFZC in the name of the assessee were not containing any address and phone numbers. It is also not clear who is signing the invoic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s working for RFZC. This email is placed on page 13 of the paper book 3 FZC. In other words the salaries of the companies in DRC were revised from India. The role of ND was designed by the HR head based in India as evident from the email placed on page 58 of the paper book 3-FZC. This email suggest that ND the managing director of RFZC is not working independently. As per the email written by SD to ND designing the SOP for RFZC payment at Baroda office which is placed on pages 62 of the paper book 3-FZC. As per the email the payment advice to be made at DRC office by ROA, first will be approved by ND and it will further be authorised by SD upto $10,000 and the payment beyond $10,000/- has to be authorised by AD. Thus it appears that there was a complete control of Rubamin Ltd on the Banking of RFZC. C. Other contentions i. He also submitted that ND was earlier an employee of the assessee company upto the year 2006 and drawing salary. However, in the year 2007 he was shifted to DRC after taking the charge as director in RFZC. ND is also a shareholder in RFZC holding 10% of the equity share which were allotted by the company in the form of sweat equity shares. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement, shareholding etc., there will not be any changed in the contract. In other words the contents and the clauses appearing in the contract shall remain continue in full force and effect. The conditions in the agreement suggests that there was no control of Shri Naveen Dalmia in the company namely RFZC UAE. v. As per IMF report, the banking system was established long ago in DRC, therefore the contention of the assessee for having poor banking facility in DRC is not acceptable. Furthermore, the subsidiary companies of the assessee based in DRC were already functioning therein with the existing banking facility. vi. There were a lot of emails exchange between the group with respect to the capital restructuring, bank borrowings, evaluation of the balance sheets, cost cuttings, strategy, budgets, treasury functions, processing unit in DRC and for all the group company is with Shri AD. In many emails there was the discussion about RFZC within the directors of Rubamin Ltd but without involving the management of RFZC. All these emails suggest that the entire activities of the group were controlled and managed by Shri AD who is based in India vii. The appointment letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover of few hundred crores of rupees in Indian currency. 45. The sum and the substance of the arguments advanced by the learned DR was that the whole purpose of creating the RFZC was to divert profit which is evident from the undisputed fact that no operation carried out at RFZC in actual sense and whatever paper transactions has been shown in the financial statements of RFZC were managed and controlled from India. Accordingly, the learned DR urged before us to treat the existence of RFZC as a paper/ shell company. 46. The learned DR in view of the above further contended that once it is established that RFZC is a paper company then it is necessary to lift the corporate veil and add the income of RFZC to the total income of the assessee being a holding company which is making the investment and controlling its affairs. The learned DR in support of his contention relied on various judgement of Hon ble Courts and filed a case law paper book to this effect which is available on record. 47. We have heard the rival contentions of both the parties and perused the materials available on record. In the case on hand, the Revenue has treated the subsidiary company namely RF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued from the DRC as the directors of the company are based therein. iii. The sales bills have been authorised by the person based in DRC. But there was no document filed suggesting that such person has visited to RFZC at UAE. The copy of the passport was not available on record. Furthermore, the sales bills have been issued on continuous basis throughout the year but the concern officer/ RFZC was not available in UAE throughout the year. iv. Indeed, the company registered in DRC is producing cobalt and copper concentrate which is supplied directly to ultimate customers based in China and India. But for the purpose of Billing, the company RFZC at UAE has been used for generating the invoices in the name of customers at China and India. Thus from the modus operandi employed, it is emerged that no activity is carried out in UAE except showing so called sale and purchase on papers in RFZC. v. There was no telephone/Internet connection up to the year 2010 which is significant enough to establish that the office of RFZC was not functional properly at all. vi. The employees engaged by the RFZC, were residing in DRC who were performing different functions such as fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the ready reference, such affairs can be categorised as under: a. Capital and Debt restructuring for the finance b. Payment authorization SOP c. Declaration of dividend d. Board resolution passes for declaration of dividend e. Appointment of employees f. Hedging policy of copper g. Books of accounts maintain in India h. Sale Contract between RFZC and its customer i. Business Strategy plan j. Supply Contract Agreement k. Salary Chart of employee based in DRC x. It was seen that the books of accounts were maintained by Shri Pradeep but he was not residing in UAE. Thus, a doubt arises about the maintenance of the books of accounts whether such books of accounts were maintained at the office of RFZC or elsewhere. To our understanding, these books of accounts were not maintained at the office of RFZC in UAE as the assessee failed to substantiate its contention based on the documentary evidence. xi. On analysing the financial statements of all the companies of the group, it is seen that the group based in DRC and in India are only incurring losses whereas company based in UAE is generating huge profit which is situated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany was not collecting the information from the subsidiary for record purposes or to keep the track in the manner of shareholders function. Rather it is seemed that Mr. AD promoter and MD of assessee is formulating and deciding the strategies be it financial or hedging of its subsidiary companies. Therefore it is emerged that neither any effective operations are carried out at RFZC nor any decision were taken. The company RFZC was only used for the purpose of routing the transactions on papers. In the light of above discussion, can the Rubmin RFZC be categorized as a paper/ shell company? 52. Now it becomes important to understand shell or paper company. In this regard we note that the shell /paper company has not been defined under the Act or in any other Act applicable for the time being in in India. However, we find that the Organization for Economic Co-operation and Economics Development (In short OECD) has defined shell companies as A shell company is a firm that does not conduct any operations in the economy (other than in a pass-through capacity), but it is formally registered, incorporated, or legally organized in the economy. 53. Similarly, the U.S. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oming to the issue on hand we note that, indeed the RFZC was incorporated after due compliance of RBI as well as the local laws of UAE. However the approval of RBI and the local laws of UAE do not decide the nature of transactions. The purpose of RBI is to approve the company within the provisions of relevant law which has no role to play with respect to the provisions of income tax Act. Accordingly, in view of the above facts and definitions, we hold that the company namely RFZC is a shell or paper company which is not doing any business activity in reality and only used as vehicle to books sales and profit and the employees cost which it has shown but actually, it is working for DRC companies. Thus, we also hold that the approval given by the RBI will not help to the assessee insofar holding the RFZC as a paper company. 57. Before parting, it was also argued that the existence of the RFZC was accepted by the TPO in the earlier year. However it pertinent to note that in earlier assessment years, there was not any search or survey carried out. Indeed in those assessment years, the assessment was completed based on the information furnished in the return and books of account su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than India) and especially China. It may be worthwhile to mention that presently, the subsidiaries in DRC does not supply any material to the Company and its entire business is either within DRC or to countries outside India. It was therefore considered essential to make the structure such that it is possible to do the business internationally in a most efficient manner. 2.3 Having taken the decision to set up a subsidiary in DRC, the Company faced another problem. DRC was fraught with political and economic uncertainties, further, DHL did not have appropriate banking system to support international business. It was extremely difficult to carry on business internationally directly through DRC and it was essential that a third company is set up. Further, it was also not possible to set up such company in India, as Indian regulations would not permit the manner of doing business in DRC and only liberalized exchange control requirements (which UAE had) would enable carrying on such business. It was with this aspect in mind that in the year 2004-05 (i.e. about 4 years prior the first year under your assessment), that the Company set up Rubamin FZC. 2.4 It may be worthwhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, understood of our difficulties and approved setting up a two tier structure. RBl having approved the said structure, it would not be appropriate for your kind office to consider the said approval as a mere tax saving device or a shell company or a conduit. It is submitted that such an allegation would not only be an allegation on the Company but also on the RBl's judgement. It is submitted that your conclusions that setting up Rubamin FZC is without any purpose is completely contrary to the facts of the Assessee 's case. 59. From the above the argument of the learned AR for the assessee that there is lot of political and economic disturbance viz a viz poor banking facility appears to be correct. This fact can be found out from the submission of the assessee vide letter dated 16th December 2016 and 20th December 2016 before the AO which has not been controverted. It is also important to note that the AO in his order has also admitted the fact regarding the poor banking facility and therefore he was of the opinion that the assessee could have approached to Durban, South African country or Tanzania where better banking facilities were available. Thus a conjoint readin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es do not violate any provisions of law and therefore nothing adverse can be drawn against such companies until and unless the transactions of the paper companies were violating the provisions of law. In the light of the above discussion, we have to see whether RFZC contravenes the provisions of law by using the dubious method in order to avoid the tax liability. In this connection, we find that there was no allegation of the revenue that there was any violation of law except to hold that the assessee by using the colourable device was diverting profit to RFZC. The allegation of using the colourable device of the revenue was based on the reasoning that the affairs of RFZC were controlled and managed by the assessee. From the allegation, what is inferred is this that control and the management of the affairs of RFZC was based in India. However, we note that the revenue has not invoked the provisions of section 6 of the Act which reads as under: 6. For the purposes of this Act,- (3) A company is said to be a resident in India in any previous year, if- (i) it is an Indian company; or (ii) its place of effective management, in that year, is in India. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioning. Therefore the profit attributable to DRC for the reasons as discussed above cannot be clubbed with the assessee on the reasoning that the assessee has diverted the profit by using the colourable device. In either situation whether the profit belongs to RFZC or the DRC, the position of the assessee cannot be altered. In other words the assessee company can earn from either of subsidiary companies in the form of dividend only which is also a reality that the assessee has taken a dividend. In a situation of holding the profit of RFZC attributable to the DRC companies, the assessee would have taken the dividend which would have been subject to tax its hands in the same manner as the dividend from RFZC is taxable. Accordingly we hold that position of the assessee in either case cannot be detrimental to it. 64. As we have decided the issue that profit attributable to RFZC belongs to DRC companies, then the question of the colourable device used by the assessee for diverting its profit does not arise. 65. We are also conscious to the fact that the profit attributable to RFZC with respect to the transactions carried out by it with the company based in China namely Trafig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue raised by the assessee in ground No. 12 is that the learned DRP erred in confirming the order of the AO by treating the transaction of corporate guarantee furnished by the assessee to its AE as international transaction and thereby making an addition of ₹ 1,47,85,930/- being guarantee commission. 72. The assessee has furnished corporate guarantee of $ 1,35,50,000/- to the bank in connection with the loan taken by its AE namely Rubamin FZC. It was claimed by the assessee that it has neither incurred any cost nor charged any commission from its AE. As per the assessee the transaction of furnishing the corporate guarantee to the AE is not an international transaction. Therefore the question of charging any commission from the AE at the arm length price does not arise. 73. In addition to the above, the assessee also submitted that its AE in UAE was established by it (the assessee) in order to facilitate the supply of goods to the assessee. For this purpose, the assessee initially has provided its own funds to the AE but later on it (the assessee) has taken its money back from the AE after furnishing the bank guarantee with respect to the loan obtained by the AE. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nection with the loan, the same cannot be assumed/treated as a transaction of shareholding activity. As per the paragraph No. 7.13 of OECD guidelines 2010, whenever the credit rating of the AE goes high due to explicit guarantee by group member, then such transaction shall be treated as intragroup services. The TPO further found that as per revised section D of chapter-1 of Action Plan 8 of the OECD BEPS Project if group synergy arises due to intragroup action then such synergy benefit should be shared by the group in the proportion of their contribution. Similarly due to extension of explicit guarantee by the group member, the benefit arises to AE, then such benefit should be charged by the member of the group extending the guarantee. 79. In view of the above, the TPO treated the transaction of furnishing the corporate guarantee by the assessee to the AE as international transaction and accordingly benchmarked the same to determine the ALP in the manner as detailed below: As clearly stated above, the business risk, financial risk drivers, and management related factors are taken into consideration while determining the credit rating with considerable emphasis on evalu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts AE on account of issuing the guarantee. Such difference in average coupon rate is computed at 2.456%. Accordingly, the guarantee commission to be charged by the assessee company from the AE is computed at ₹ 1,47,85.930 @2.46%. The upward adjustment of ₹ 1,47,85,930 is accordingly proposed on , this issue. 80. Aggrieved assessee carried the matter to the learned DRP who confirmed the action of the TPO by observing as under: 13.5 The transaction relating to the provision of a guarantee and consequential charging of the guarantee commission from the AE by the assessee clearly falls within the definition of the term international transaction u/s. 92b of the Act. It is pertinent to note that the definition international transaction has been retrospectively amended by Finance Act, 2012 to inter-alia guarantee. The assessee had incurred risks in providing guarantee to the AE and accordingly it should have benchmarked the transactions for determination of the arm s length price. The TPO thus rightly proceeded to benchmark of the impugned transaction. 13.12 We further find that the assessee was not correct in not benchmarking the transaction. The assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of risk being adopted by the assessee company on behalf of its AE on ; account issuing the guarantee. The approach of the TPO in taking the guarantee as per such difference in average coupon rate is found to be reasonable and acceptable in the given facts and circumstances of the case. 13.16 We, therefore, do not find any infirmity in the findings of the TPO in this regard and therefore, the objection of the assessee is rejected. 81. Being aggrieved by the order of the learned DRP, the assessee is in appeal before us. 82. The learned AR before us submitted as under: During the course of the hearing before the Hon ble Bench, in respect of transfer pricing adjustment relating to Corporate Guarantee, we had relied on the decision of Hon ble ITAT, Ahd in Assessee s own case for AY 2008-09 wherein it was held that provision of Corporate Guarantee is not an International Transaction and the provisions of section 92 would not apply. Kindly refer para 7 on Pg. No. OTHERS-65 wherein the Hon ble ITAT has deleted the transfer pricing adjustment relating to corporate guarantee commission by holding that the same is not an International Transaction. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been relied upon by the assessee before the lower authorities as well as before us: Particulars Guarantee Commission rate 1. Everest Kento Cylinder Ltd. v. ACIT [2012] 34 CCH 0528 (Mum) [Note : Order of Tribunal upheld by the Hon'ble High Court of Bombay : CIT v. Everest Kento Cylinder Ltd. v. CIT [2015] 378 ITR 57 (Bom). 0.5% 2. Reliance Industries Ltd. v. Addl. CIT (ITA No. 4475/Mum/2007) 0.38% 3. Asian Paints Ltd. v. Addl. CIT [2014]149 ITD 511 (Mumbai) 0.20% 4. Aditya Birla Minacs Worldwide Ltd. v. JCIT [2016] 47 CCH 760 (Mum) 0.5% p.a 5. Godrej Household Products Ltd. v. Addl. CIT 41 taxmann.com 386 (Mum) 0.5 % p.a 6. Nimbus Communications Limited v. Addl. CIT [2014] 149 ITD 0508 (Mumbai) 0.5% p.a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the transaction of giving corporate guarantee is not an international transaction. It is also a fact that the onus is on the assessee to determine that all its transactions with its AE s are at ALP. In this case, the assessee has failed to discharge the primary onus cast on it by the statute. In the case of Greatship India cited and relied upon by the assessee as reproduced hereinabove, the ITAT did not find fault with the methodology adopted. The Hon ble ITAT stated we are of the considered view that insofar the adequacy of the ALP of the corporate guarantee fees determined by the assessee at 0.43% is concerned, the same in the backdrop of the aforesaid facts cannot be called in question. It is to be observed here that the value of 0.43% is arrived at after taking into account the facts of that particular case. The facts in the case of the assessee Rubamin are completely different. The arm s length price of any transaction is dependent on the facts and circumstances that affect that transaction. Therefore, this case has no application to the facts of the present case at all. The assessee has submitted without prejudice basis before the DRP that the rate of 0.50% shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, we note that the different benches of the ITAT have taken different view. Some of them held that the transaction of corporate guarantee is an international transaction whereas some of them held that the transaction of corporate guarantee is outside the purview of the international transaction including the Ahmedabad tribunal in the case of Micro Ink Ltd. vs. Addl. CIT reported in [2015] 63 taxmann.com 353, wherein it was held that the corporate guarantee is not international transaction. Further in the own case of the assessee corresponding to A.Y. 2008-09 bearing ITA No. 1402/Ahd/2013, the ITAT allowed the appeal of the assessee by following the order in case Micro Ink Ltd (Supra). At the time of hearing, the learned AR heavy relied on this order of the tribunal. 87. However we find that the learned DR before us has brought the judgment of Hon ble Madras High Court in case of PCIT v. Redington (India) Ltd. [2021] 430 ITR 298 where the Hon ble court held that the corporate guarantee extended to the AE is an international transaction and needs to be benchmarked. The relevant finding of the Hon ble Court is reproduced here under: 75. The concept of Bank Guarantees a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the own case of the assessee has been overruled by the Hon ble Madras High Court as discussed above. Accordingly we hold that the assessee cannot take the benefit of the order of the ITAT in its own case. 90. The next aspects arises for the determination of the ALP of the impugned international transaction. The TPO in the case on hand has adopted the basis of credit rating of the assessee and AE and accordingly calculated the average coupon rate difference based on such rating as per the data available for US bond. The relevant finding of the TPO/AO reads as under: Since the credit rating of the assessee company is determined at BBB level by the 1CRA, the credit rating of the AE is taken at one notch down at BB level by this office for the year under consideration. The difference in average coupon rate between the BB and BBB bonds (i.e. risk spread) issued during the year under consideration (as determined from the publicly available US bond data and made available to the assessee company along with the show- cause notice), represents the level of risk being adopted by the assessee company on behalf of its AE on account at issuing the guarantee. Such difference in aver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal to the learned DRP. The assessee before learned DRP submitted that subsidy was provided by the authority in order to rapid industrialization in backward area. Therefore such subsidy should be considered as capital receipt. 95. The assessee made alternative claim that if subsidy held as revenue receipt then it should be allowed deduction under section 80IB in view CBDT circular bearing no. 39/2016. The assessee further submitted that the Hon ble ITAT in its own case for A.Y. 2007-08 allowed its alternative claim. 96. However, the learned DRP held that the subsidy as revenue receipt. Nevertheless, the ld. DRP allowed the assessee s alternate claim by observing as under: 15.2 As regards issue of treatment of sales tax subsidy as capital receipt, the issue is covered by ITAT, Ahmedabad judgment in case of assessee itself where the ITAT has held that it is revenue receipt. Accordingly, the assessee's objection that it should be treated as capital receipt is liable to be rejected. 15.3 As regards alternative claim of deduction u/s. 80-IB, the assessee has placed reliance on the CBDT Circular 39/2016, wherein the CBDT has, after relying upon the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAT in own case of the assessee for the A.Y. 2007-08 and 2008-09 which was also not objected by the assessee. The ld. DR vehemently supported the order of the authorities below. 100. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that, the issue of sales tax subsidy has already been decided by this tribunal in own case of the assessee for the assessment year 2007-08 in ITA Nos. 664, 665 795/Ahd/2012 and also followed in A.Y. 2008-08 in ITA Nos. 1402/Ahd/2013. The relevant extract of the order is reproduced as under: 10. Apropos assessee s other issue pertaining to claim of sales tax exemption/subsidy as capital in nature has fairly considered by the ITAT in ITA Nos.999, 2467 3426/Ahd/2008, in which it has been held as Revenue in nature. Accordingly, this ground of assessee is dismissed. 11. Apropos third issue challenging the allowability of deduction u/s. 80IB on the amount of sales tax subsidy, the Ld. Counsel for the assessee contends that the issue in question is squarely covered in favour of the assessee by the Hon ble Supreme Court judgment in the case of CIT vs. M/s. Shree Bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17.2 This is an admitted fact that the stamp valuation adopted by the valuation authority has not been challenged. The assessee has argued that the actual value of the property may be low because of various other attributes, charges, encumbrances, limitation and condition is not acceptable. If any such limitation was the reason for actual value of property been lower than the registration value, it is expected that the value of registration would be challenged. Otherwise also assessee could not demonstrate that the property had any such attribute which would have resulted into deduction of its market value. 17.3 It is also submitted by the assessee that it has objected to adoption of Stamp Duty value before the AO, however, the AO has failed to make reference to the DVO in accordance with Section 50C(2). The above argument of the assessee is not tenable because Section 50C(2) clearly provides that in circumstances fulfilling conditions of Section 50C(2) also, the Assessing Officer may refer the valuation of the capital asset to the Valuation Officer. The Section uses the words 'may' instead of 'shall' and therefore reference to DVO is optional on part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17.7 In view of above factual and legal position, the objection of assessee in respect of additions made u/s 50C of the I.T. Act are rejected. The order of AO on this account does not require any interference. 106. Being aggrieved by the direction of the learned DRP the assessee in is in appeal before us. 107. The learned AR before us submitted as under: It is submitted that similar issue was involved in Assessee;s own case for AY 2008-09 wherein the Hon ble ITAT has directed the ld. AO to refer the valuation to the DVO. Kindly refer para 9-10 on Pg. No. OTHERS-66-70 wherein findings of Hon ble ITAT are reproduced. Considering the same, we request the Hon ble Bench to give appropriate directions. 108. On the other hand the learned DR also agreed with contention of the learned AR to remit the issue to the file of the AO for fresh verification/adjudication. 109. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that the identical issue was raised by the assessee in its own case in the assessment year 2008-09 bearing ITA No. 1348 1402/Ahd/13 which was set aside by the ITAT vide order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Coming to the IT(SS)A No. 21/Ahd/2018 an appeal by the assessee for the AY 2012-13. 112. The assessee has raised the following grounds of appeal. Validity of the Assessment Order: 1 The assessment order passed by the learned Deputy Commissioner of Income Tax- Central Circle-2, Vadodara ( the AO ) is invalid and void-ab-initio as it is barred by time. 2 The assessment order passed by the learned AO is invalid and void-ab-initio as it is not passed in accordance with the direction given by the learned Dispute Resolution Panel-2, Mumbai ( the DRP ). No Incriminating Material Found: 3 The learned AO as well as the learned DRP erred in fact and in law in making additions in the assessment u/s 153 A of the Income Tax Act, 1961 ( the Act ), despite the fact that no incriminating material was found during the course search. Addition in respect of Rubamin Ltd.: 4 The learned AO as well as the learned DRP erred in fact and in law in taxing the profit of subsidiary company of the Appellant viz. Rubamin FZC situated in UAE, in the hands of the Appellant. 5 The learned AO as well as the learned DRP erred in fact and in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed income despite the fact that entire profit of Rubamin FZC has been included by the AO in the total income of the assessee and thereby taxing the same income twice in the hands of assessee. 13 The learned AO erred in not following the directions of the DRP to include the amount of dividend received from Rubamin FZC on protective basis only. Non-consideration of Revised Return of Income 14 The learned AO as well the learned DRP has erred in fact and in law by not considering the return income as per revised return of income filed 139(5) r.w.s.!53A of the Act for the purpose of making an assessment. Other Grounds: 15 The learned AO erred in fact and in law in repeating an addition of ₹ 1.45,65,207 u/s 50C of the Act, despite the fact that said addition was already made in AY 2011-12. 16 The learned AO erred in fact and in law in making an addition of ₹ 1,45,65,207 u/s 50C of the Act despite the fact that no transfer of capital asset was made in the year under consideration. 17. The learned AO erred in fact in law in levying interest u/s.234B of the Act. 18. The learned AO erred in fact and in law in initiating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the grounds of appeal filed by the assessee are allowed. 119. The next issue raised by the assessee in ground No. 8 and 9 is that the learned DRP erred in confirming the order of the AO by not allowing the deduction of the loss of ₹ 71,35,142/- for the reason that it was not crystallised the under consideration. 120. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2012-13 are identical to the issues raised by the assessee in ground nos. 8 and 9 of ITSSA No. 20/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITSSA No. 20/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 68 of this order against the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the grounds of appeal filed by the assessee are dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee in the ground of appeal against the profit of the assessee does not arise. Hence the ground of appeal of the assessee is dismissed. 126. The issue raised by the assessee in ground number 14 is that the AO as well as learned DRP erred in not considering the income as per the revised return. 126. The learned AR for the assessee before us submitted as under: The ld. AO while computing the total income has not considered the income as per revised return of income. Hence, we request the Hon ble Bench to direct the ld. AO to consider the total income as per revised return of income while computing the assessed income. 127. At the outset we note that the return of income can be revised under the Act if it has been done within time limit as per the provision of the Act. Then it is the duty of Revenue authority to consider the income as per the revised return. Accordingly we direct the AO to consider the income as per revised return if the same is filed within the framework of law. Hence the ground of assessee is allowed in terms of above for the statistical purposes. 128. The issue raised by the assessee in ground nos. 15 and 16 is that the AO err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and in law by taxing the profit earned by Rubamin FZC from an activity which has no nexus with India and thus the AO has clearly exceeded his jurisdiction. 7 The learned AO as well as the learned DRP erred in fact and in law in relying on the documents and papers which are wholly irrelevant for the year under consideration and also for coming to the alleged conclusion. Transfer Pricing Adjustment: 8 The learned AO erred in fact and in law in not following the directions of the DRP by making addition on account of transfer pricing in respect of corporate guarantee commission of ₹ 19,49,160 to the total income of the assessee u/s 92 of the Act, where the DRP has specifically directed to make the transfer pricing addition only on a protective basis. 9 The learned AO erred in fact and in law in making addition on account of transfer pricing in respect of corporate guarantee commission of ₹ 19,49,160 to the total income of the assessee u/s 92 of the Act. Double Taxation of Income 10 The learned AO as well as DRP has erred in not reducing the dividend of ₹ 24,55,09,656 received from Rubamin FZC and included in the Returned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the grounds of appeal filed by the assessee are dismissed. 135. The next issue raised by the assessee in ground number 3 is that the learned DRP erred in holding the assessment under section 153A as valid without being any incriminating material found. 136. The learned AR at the time of hearing before us submitted that he was directed by the appellant assessee not to press this ground. Accordingly we dismiss the same being not pressed. 137. The next issue raised by the assessee in ground no. 4 to 7 of its appeal is that the learned DRP erred in confirming the order of the AO/TPO by sustaining the addition of ₹ 46,72,89,465/- only by holding that the profit earned by its AE, M/s Rubamin FZC located at Sharjah UAE belongs to the assessee. 138. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2013-14 are identical to the issues raised by the assessee in ground nos. 4 to 7 of ITSSA No. 20/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITSSA No. 20/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2011-12 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal filed by the assessee are dismissed. 143. The issue raised by the assessee in ground number 12 is that the AO as well as learned DRP erred in not considering the income as per the revised return. 144. The learned AR for the assessee before us submitted as under: The ld. AO while computing the total income has not considered the income as per revised return of income. Hence, we request the Hon ble Bench to direct the ld. AO to consider the total income as per revised return of income while computing the assessed income. 145. At the outset we note that the return of income can be revised under the Act if it has been done within time limit as per the provision of the Act. Then it is the duty of Revenue authority to consider the income as per the revised return. Accordingly we direct the AO to consider the income as per revised return if the same is filed within the framework of law. Hence the ground of assessee is allowed in terms of above for the statistical purposes. 146. The issue raised by the assessee in ground 13 to 15 is that the learned DRP erred in not allowing the loss of ₹ 4,80,08,326/- occurred due to fraud on reason that the same not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the reasoning that it was detected in the year under consideration. 151. Nevertheless, the AO disallowed the loss claimed by the assessee on the reasoning that such loss on account of the fraud was committed in the earlier years. Therefore, the same cannot be allowed in the year under consideration. 152. The AO also rejected the claim of the assessee on the reasoning that there was no documentary evidence furnished by the assessee with respect to the loss incurred on account of the fraud committed by the then CFO except the copy of the FIR. In view of the above the AO disallowed the loss and added the same to the total income of the assessee. 153. Aggrieved assessee preferred an appeal to the learned DRP who admitted the fact that the loss on account of the fraud has actually been occurred to the assessee. Indeed, the loss was detected in the year under consideration but the FIR was lodged in the subsequent assessment year i.e. 2014-15 which evidences the fact that such loss was crystallized in the assessment year 2014-15. Likewise, part of the amount of the loss incurred by the assessee was also realized in the year under consideration. Accordingly, the learned D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loss by embezzlement by employees would be allowed as deduction in the year in which the fraud is discovered. In the case of the Assessee, the fraud was discovered in November, 2012 i.e. AY 2013-14, hence the loss on account of the fraud shall be allowed as deduction in the year under consideration. Once it is established that loss has been occasioned by embezzlement of an employee the same should be treated as incidental to a business and this loss should be allowed as deduction in the year in which it is discovered and the bifurcation of the same as between what was irretrievably loss and what was possible of recovery is therefore unnecessary as was held in the case of Dinesh Mills Ltd. v. CIT [2002] 254 ITR 673 (Guj.). The observations made by the Hon ble Punjab High Court in the case of Punjab Steel Stockholders Syndicate Ltd. v. CIT [1980] 125 ITR 519 are relevant in this respect : If an embezzlement is proved by an assessee, the same can be claimed as business loss. Embezzlement is a criminal offence, and if, in a given case, criminal proceedings have been launched, it may be one of the relevant pieces of evidence for proving the loss but the culmin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee during the financial year 2012-13. The FIR was finally filed only on 22 June 2013 and thus the actual loss was crystallised in FY 2013-14 158. The above findings of the learned DRP was not in dispute. It implies that the finding of the learned DRP has reached to its finality as far as the facts of the case discussed hear-in above. 159. Now the controversy arises for our adjudication whether the impugned loss was crystallised in the year under consideration or in the subsequent year so as to allow the deduction to the assessee. There is no dispute that the impugned loss is incidental to business carried on by the assessee and therefore the same is eligible for deduction. Only dispute remains to be resolved the year in which such loss should be allowed as deduction to the assessee. The learned DRP in his order has made the reference to the judgement of the Hon ble Supreme Court in the case of Associated Banking Corporation of India Ltd. vs. CIT reported in 56 ITR 1 wherein it was held as under: That conclusion was based on evidence and the loss must, in the circumstances of the case, be deemed to have occurred to the bank after the liquidator cam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee comes to know about it and realizes that the amount embezzled cannot be recovered and not merely from the date of acquiring knowledge in which that embezzlement has taken place. In the present case, the ld. DRP has given finding that last amount was received in the financial year under consideration which implies that the balance amount is not recoverable. Accordingly it can be inferred that, such loss is eligible for deduction as it was discovered to the assessee that the amount of loss was not recoverable. Accordingly we set aside the finding of the learned DRP and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 165. The issues raised by the assessee in ground Nos. 16 to 19 are either consequential or premature to decide. Thus the same are dismissed. 166, In the result appeal of the assessee is partly allowed. Coming to the 1291/AHD/2018 an appeal by the assessee for A.Y. 2014- 15. 167. The assessee has raised the following grounds of appeal: All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other. Erroneous Characterization of Rub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd no. 3 of the appeal pertaining to deduction of dividend income of Ks. 16.70,37.236 on the incorrect reasoning that the same did not emanate from the assessment order passed for the year under consideration and thereby erred in fact and in law in confirming the action of the AO in not reducing the dividend of Ks. 16,70,37,236 received from Rubamin F/C and included in the Returned income despite the fact that entire profit of Rubamin F/C has been included by the AO in the total income of the Appellant and thereby taxing the same income twice in the hands of Appellant. 8. The learned CIT'(A) erred in fact and in law in confirming the action of the AO in not allowing set off of brought forward loss of earlier years. Fraud LOSS- 9. The learned CI'I'(A) erred in fact and in law in confirming the action of the AO in not allowing the deduction of fraud loss amounting to ₹ 4,80,08.326 in the year under consideration. 10. The learned Cl'I'(A) erred in fact and in law in confirming the action of the AO in not allowing the deduction of fraud loss amounting lo ₹ 4,80,08,326 despite the fact that the same was incurred in the year und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7 is that the learned CIT (A) erred in not reducing the dividend income of ₹ 16,70,37,236/- received from Rubamin FZC in the event profit of Rubamin FZC merged with assessee s income. 171. At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2014-15 are identical to the issues raised by the assessee in ground no 12 and 13 of ITSSA No. 21/AHD/2018 for the assessment year 2012-13. Therefore, the findings given in ITSSA No. 21/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2014-15. The appeal of the assessee for the assessment 2012-13 has been decided by us vide paragraph Nos. 125 of this order against the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2012-13 shall also be applied for the year under consideration i.e. AY 2014-15. Hence, the grounds of appeal filed by the assessee are dismissed. 172. The next raised by the assessee in ground no. 8 is that the learned CIT (A) erred in not allowing the setoff of the brought forward losses of earlier years. 173. At the outset we note that the facts the issue raised in this ground of appeal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee for A.Y. 2009-10. 179. The assessee has raised following grounds of appeal: Transfer Pricing Adjustments: 1. The learned Commissioner of Income Tax (Appeals)-III. Baroda [ the CIT(A) ] erred in fact and in law in confirming the action of the learned Deputy Commissioner of Income Tax (Transfer Pricing) - II, Ahmedabad ( the TPO ) in proposing and the learned Assistant Commissioner of Income Tax, Circle-4 ( the AO ) in making an upward adjustment of ₹ 2.57,56,081/- u/s 92C of the Income Tax Act. 1961 ( the Act1'). 2. The learned CIT(A) erred in fact and in law in confirming the action of the TPO in applying the Arm's Length Principal on segregated transactions. 3. The learned CIT'(A) erred in fact and in law in confirming the action of TPO in holding that the benchmarking of international transaction done by the Assesses is erroneous and liable to be rejected. Interest on loan to Associated Enterprise: 4. The learned CIT(A) erred in fact and in law in partly confirming the action of the TPO in making adjustment of ₹ 71,42,4727- in determination of Ann's Length Price ( ALP ') of international t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirming the action of the AO in disallowing short term capital loss of ₹ 2.77,00.000 and also in enhancing the disallowance of short term capital loss made by the AO amounting to ₹ 2.77.00.000/- to ₹ 3.00.00.000/- * 15. The learned CIT(A) errsd in fact and in law in confirming the action of AO in recomputing the short term capital gain applying Rule 1 ll'A of the Income Tax Rules. 1962 ( the Rules ) despite the fact that the said rule was not applicable for the said transaction. 16. The learned CIT(A) erred in fact and in law in confirming the action of AO initialing penalty proceeding u;'s 271(l)(c) of ihe Act. 17. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal. 180. The first issue raised by the assessee in ground Nos. 1 to 6 is that the learned CIT (A) erred in confirming the upward adjustment of ₹ 71,42,472/- made by TPO by using CUP on account of loan advanced to AE. 181. The assessee has advanced loan to its AE without charging any interest thereon. As per the assessee the interest-free loan was given for the survival of the AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate at LIBOR +0.75%. Hence the ground of appeal of the assessee was partly allowed. 187. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 188. The learned AR before us submitted as under: It is submitted that identical issue was involved in Assessee s own case for AY 2008-09 wherein the Hon ble ITAT has remitted the matter to file of ld. TPO for verification. Kindly refer para 3-5 on order for AY 2008-09 wherein findings of Hon ble ITAT are reproduced. Considering the same, we request the Hon ble Bench to give appropriate directions. We submit that the copy of the order of the Hon ble ITAT for AY 2008-09 is already part of the Paperbook 5-OTHERS which has been filed for ITSSA 17 to 22/Ahd/2018 (search matters), however, for your ready reference, we are attaching the order for AY 2008-09 along with this written submission as Annexure-1. 190. On the other hand the learned DR before us vehemently supported the order of the AO/TPO. 191. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that, this tribunal in the own case of the assessee in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2009-10. Hence, the grounds of appeal filed by the assessee are allowed. 197. The next issue raised by the assessee in ground 12 is that the learned CIT (A) erred in confirming the addition of ₹ 15,71,061/- by invoking the provision of section 50C of the Act. 198. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2009-10 are identical to the issues raised by the assessee in ground nos. 15 to 17 of ITSSA No. 20/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITSSA No. 20/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2009-11. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 109-110 of this order in favour of the assessee for statistical purposes. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2009-10. Hence, the grounds of appeal filed by the assessee are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 201. However, the AO during the assessment proceedings observed that the shares have been sold after the purchases within a short span of time and that too to the same party from whom the shares were purchased. Consequently, the AO was of the view that such transaction of purchase and sale of shares is representing the colourable device in order to generate the bogus short-term/long-term losses. 202. In view of the above, the AO sought clarification from the assessee to justify the value for the purchases and sales of the shares. The assessee in response to such show cause notice furnished the annual return of the company namely M/s J and K Pigment Pvt. Ltd. which was filed with the ROC. 203. However, the AO being dissatisfied on the reasoning that the assessee has not furnished the necessary information for the value of the purchase and sales of the shares. Accordingly in the absence of such information, the AO resorted to the provisions of Rule 11UA to determine the purchase and sales value of the shares. Consequently, the AO determined the purchase and sales value of the shares in the manner as discussed below: Particulars of Balance sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are applicable to determine the income under this provisions of section 56 of the Act. 207. The assessee also claimed to have made investments in the shares of the company namely M/s J and K Pigment Pvt. Ltd. solely for the purpose of expansion of its business. However, on a later date there was change in the business exigency which compelled the assessee to make the disinvestment of the shares. Thus, the transaction cannot be regarded as a colourable device as alleged by the AO. 208. Without prejudice to the above, the assessee further contended that the AO has wrongly calculated the purchase value of the shares as on 31st March 2007 under the provisions of rule 11UA by taking the share capital of the company at ₹ 54,75,000/- instead of ₹ 4,75,000/-. As such, the value of share as on 31st March 2007 is of ₹ 2372/- per share whereas the AO has wrongly taken the fair market value of the share at ₹ 206. As such by considering the value of share as on 31st March 2007, it has incurred long term capital loss of ₹ 84,54,670/- for the shares purchased on 19th January 2007. 209. However, the learned CIT (A) after considering the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... span of time at ₹400 per share after purchasing the shares at ₹1000 per share. Nothing was brought on record to justify the value of the sale price of the share at ₹400 only. II. No details was furnished to whom the assessee has sold the shares as on 30th June 2008. 215. In view of the above the learned CIT (A) enhanced the addition by ₹23 Lacs and confirmed the order of the AO. 216. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 217. The learned AR before us contended that the assessee has furnished all the necessary details with respect to the purchases and sales of the shares along with the parties. Therefore the same cannot be treated as a colourable device. 218. The learned AR further submitted that shares were acquired for the purpose of the expansion of the business but on a later date, due to change in the government policies, the idea of the expansion of the business was abandoned. 219. On the other hand the learned DR before us the loss claimed by the assessee was artificial and the same was not based on the documentary evidences. The learned AR has not provided any basis for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey are false. It refers to something false, fake or fictitious that purports to be genuine, someone who leads you to believe something that is not true. From the concept of colourable device it is apparent that wherever the parties to the transaction adopt a colourable device, they conceal the true nature of the transaction and purport to show it differently with ostensible intention of avoidance of tax. If the facts of the case so indicate authorities are within their jurisdiction to ignore the device and look through the transaction to find out the true nature of the transaction and ascertain as to what was the real intention of the parties for carrying out the transaction the way they have carried out and why it has been presented the way it has been done? 226. A colourable device is not an instrument or a specific document but it is whole set of series of transaction which create a different impression when they are looked at their form alone or seen from result they create, but when it is looked through and the substance of the transaction is brought into limelight and such substance of the transaction clearly indicates an intention of tax evasion as well as manipulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arwal and Ms. Ritika Agarwal 229. Furthermore, to arrive to the conclusion that the transaction is a colourable device, the authorities below have to do necessary exercise by issuing notices under section 131, 133(6) of the Act to the parties involved in the transactions to dig out the truth. But it has not been done. 230. Besides the above, there are certain undisputed facts which have not been controverted by the authorities below. These facts are elaborated as under: i. The assessee time and again before the authorities below has contended that it has acquired the shares of the company namely J and K Pigment Pvt. Ltd which was not connected to it either directly or indirectly. The submission of the assessee before the authorities below reads as under: We may like to mention that the shares have been purchased from a third party and sold to third party. The AO has not doubted the sale and purchase of the shares. The party from whom the shares were purchased are not related to the Appellant nor are relatives of the Directors of the Appellant. The transaction has taken place at arm's length. In fact the Appellant had decided to expand its activities in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT (A) has categorically submitted that the details of the parties to whom the shares were sold by it. The relevant submission of the assessee before the learned CIT (A) reads as under: 13. The appellant has sold total 54,750/- shares to Mrs. Asha Agarwal and Ms. Ritika Agarwal on 30-06-2008. The shares were sold for a total consideration of ₹ 2,19,00,000/- i.e. ₹ 400/-per share. The agreement in respect of sale of shares is attached at page nos. 247 to 249 of the paper book. The Appellant had entered into a share purchase agreement with the buyers which was submitted to the A.O. during the course of assessment. 233. In this connection, we have also perused the details available in the form of sale or purchase agreement of share, placed at page 266 to 268 of the paper book. All these details, evident that the necessary details to whom the shares were sold by the assessee were available before the learned CIT (A). Thus to this extent, we hold that the finding of the learned CIT (A) is contrary to the materials available on record. 234. Additionally, we also note that there was nothing brought on record by the Revenue indicating/suggesting that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the 'capital gains' arising out of such a transfer have to be computed by looking at the 'full value of the consideration' received or accruing as a result of such transfer. The Court further held that the expression 'full value of sale consideration' is not the same as 'fair market value' as appearing in section 55A. Following the Supreme Court judgments in CIT v. George Henderson Co. Ltd. [1967] 66 ITR 622 and CIT v. Gillanders Arbuthnot Co. [1973] 87 ITR 407, the Court concluded that for the purpose of computing 'capital gains', there is no necessity for computing the 'fair market value' and, therefore, the Assessing Officer could not have referred the matter to the Valuation Officer. [Para 7] 238. We also note that there is no provision under the Act prescribing the guidelines for pricing of the shares unlike the provisions contained under section 50C of the Act concerning immovable properties under the head capital gain. Thus in the absence of any specific provision to determine the sale price of the shares of unlisted company at prevailing point of time, we are inclined to hold that the price declared by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fair market value of the capital asset on the date of transfer was to be taken as the full value of consideration. Therefore, under-statement should be first established and then the Assessing Officer could take the fair market value of the share capital asset as the full value of consideration. 242. We also note that the purchase and sale of the shares by the assessee of the shares of company were duly supported with the relevant documentary evidences such share purchase agreement, copy of annual return and share sale agreement which are placed on pages 122 to 139, 100 to 113 and 266 to 268 of the paper book. It is also pertinent to note that the lower authorities did not doubt the details of the purchases and sales of the shares. In view of the above, we are not inclined to uphold the finding of authorities below. Accordingly, we set aside the order of learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 243. The issue raised by the assessee in ground nos. 16 and 17 is premature to decide or general in nature. Hence the same is dismissed accordingly. In the result, the appeal of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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