DINSHAW TRAPINEX BUILDERS PVT. LTD,MUMBAI vs. ASSISTANT DIRECTOR OF INCOME TAX CIRCLE-5(4)), MUMBAI

The assessee has filed these appeals for assessment years 2011-12 to 2014-15 and 2016-17 to 2017-18. All these appeals are directed against the assessment orders passed by the AO in pursuance to the directions given by Ld Dispute Resolution Panel (DRP).

None appeared on behalf of the assessee. An adjournment letter has been moved the Representative M/s Nimesh Thar & Co., Chartered Accountants stating that the directors/promoters of the assessee company are under judicial custody and hence it is not able to take any decision. We notice that the authorized representative has been taking adjournment citing

The assessee is a builder and developer. The assessee had entered into international transactions with its Associated Enterprise located in Dubai in the form of giving loans. Hence the AO referred the matter of determination of Arms Length Price of interest receivable from the above said loans to Transfer Pricing Officer (TPO) in all the years. The TPO made transfer pricing adjustment and hence the AO has passed draft assessment orders in all these years, which were objected to by the assessee before the Dispute Resolution Panel (DRP). After receipt of directions from DRP, the AO passed final assessment orders. The assessee has challenged the assessment orders for the above said years before the Tribunal.

We shall first take up the appeal relating to AY 2011-12. The only issue urged in this year relate to the Transfer pricing adjustment made in respect of outstanding loan due from AE located in Dubai. The TPO made adjustment of Rs.4.66 crores. The Ld DRP has enhanced it to Rs.10.72 crores. The TPO had taken interest rate @ 10.589% and charged interest on the loan amount of Rs.88.38 crores. Since the assessee had charged interest @ 5.31%, the TPO made transfer pricing adjustment by adopting differential interest rate of 5.279%. The Ld DRP directed the AO/TPO to adopt interest rate of LIBOR + 500 basis points. It also noticed a difference on the quantum of loan. Accordingly, the Ld DRP directed the AO to compute interest on the loan of USD 2,33,02,194 and convert the interest amount in USD to Rupees by adopting the conversion rate of Rs.44.65 per dollar.

We shall now take up the appeal for AY 2012-13. The first issue urged in this year relates to the transfer pricing adjustment made in respect of outstanding loan due from its AE located in Dubai. In this year, the Ld DRP noticed that the assessee has not made provision for foreign exchange rate fluctuation in respect of outstanding loan. Accordingly, Ld DRP presumed that the loan has been converted into rupee loan and accordingly directed the AO to compute interest @ SBI PLR + 300 basis points.

The next issue relates to the disallowance of Travelling expenses. The AO asked for explanations for the expenses of Rs.22,60,521/- incurred towards purchase of foreign exchange. Since no explanation was forthcoming, the AO disallowed the above said amount relating to purchase of foreign exchange. In our view, the assessee may be provided with one more opportunity to offer explanations. Accordingly, we restore this issue to the file of AO for examining it afresh.

The next issue relates to the addition of interest income of Rs.21,947/- from M/s Reliance infrastructure, found in ITS data, but not reported by the assessee in the return of income. We notice that the assessee has accepted this addition before the AO. Hence we dismiss this ground of the assessee.

We shall now take up the appeal filed for AY 2013-14. The first issue relates to the addition relating to transfer pricing adjustment on the outstanding loan. As in 2012-13, the ld DRP directed the AO to compute interest adopting interest rate of SBI PLR + 300 basis points. In 2012-13, we directed the AO to adopt interest rate of average LIBOR + 300 basis points. Following the same, we modify the directions given by Ld DRP and direct the AO to adopt interest rate of average LIBOR + 300 basis points and compute the transfer pricing adjustment accordingly.

The next issue relates to the disallowance made u/s 14A of the Act, which was equivalent to 0.5% of average value of investments. However, we notice that the details of quantum of exempt income were not given. It is well settled proposition that the amount of disallowance u/s 14A should not exceed exempt income. Accordingly, we restore this issue to the file of AO and direct him to restrict the disallowance to the quantum of exempt income.

We shall now take up the appeal filed by the assessee for AY 2014-15. The only issue urged in this year relates to the transfer pricing adjustment made in respect of outstanding loan due from Dubai AE by computing

We shall now take up the appeal filed by the assessee for AY 2016-17. The first issue urged in this year relates to the transfer pricing adjustment made in respect of outstanding loan due from Dubai AE by computing interest at higher rate. As in 2012-13, the ld DRP directed the AO to compute interest adopting interest rate of SBI PLR + 300 basis points. In 2012-13, we directed the AO to adopt interest rate of average LIBOR + 300 basis points. Following the same, we modify the directions given by Ld DRP and direct the AO to adopt interest rate of average LIBOR + 300 basis points and compute the transfer pricing adjustment accordingly.

The next issue relates to the addition made u/s 14A of the Act under normal provisions and u/s 115JB. We notice that the details of quantum of exempt income were not given. It is well settled proposition that the amount of disallowance u/s 14A should not exceed exempt income. Accordingly, we restore this issue to the file of AO and direct him to restrict the disallowance to the quantum of exempt income.

The next issue relates to the addition of Rs.3.36 crores made u/s 41(1) of the Act. The AO noticed that a sum of Rs.3.36 crores was due from M/s Viva Holdings for quite long time. Since the assessee did not furnish relevant details, the AO assessed the same as income u/s 41(1) of the Act towards remission of liability. We notice that the AO has not examined as to whether the above said amount was claimed as expenditure in any of the years, which is the paramount condition for invoking provisions of sec.41(1) of the Act.

The next issue urged by the assessee relates to the disallowance of set off of short term capital gain considering it as bogus/sham transactions. In our view, this issue also requires fresh examination. Accordingly, we restore this issue to the file of AO. We also direct the assessee to furnish all the relevant details to the assessing officer.

The next issue relates to the disallowance made u/s 43B of the Act and reducing the same from closing Work in Progress. We notice that the interest was payable to Punjab and Maharashtra Co-operative Bank. We also notice that the interest payable to a co-operative bank was brought within the ambit of sec.43B of the Act with effect from AY 2018-19. Accordingly, we direct the AO to delete this disallowance and consequently, the same is not required to be deducted from the value of Work in Progress.

The last issue relates to the disallowance of claim of set off of brought forward loss. In our view, this issue requires re-consideration. Accordingly, we restore this issue to the file of AO. We also direct the assessee to furnish all the relevant details to the assessing officer.

We shall now take up the appeal filed by the assessee for AY 2017-18. The first issue urged in this year relates to the transfer pricing adjustment made in respect of outstanding loan due from Dubai AE by computing interest at higher rate. As in 2012-13, the ld DRP directed the AO to compute interest adopting interest rate of SBI PLR + 300 basis points. In 2012-13, we directed the AO to adopt interest rate of average LIBOR + 300 basis points. Following the same, we modify the directions given by Ld DRP

The next issue relates to the addition made u/s 14A of the Act under normal provisions and u/s 115JB. We notice that the details of quantum of exempt income were not given. It is well settled proposition that the amount of disallowance u/s 14A should not exceed exempt income. Accordingly, we restore this issue to the file of AO and direct him to restrict the disallowance to the quantum of exempt income.

The next issue relates to the addition made u/s 41(1) of the Act. The long outstanding liabilities to the tune of Rs.6.35 crores were added by the AO u/s 41(1) of the Act. We notice that the AO has not examined as to whether the above said amount was claimed as expenditure in any of the years, which is the paramount condition for invoking provisions of sec.41(1) of the Act. Accordingly, we are of the view that this issue requires fresh examination. Accordingly, we restore this issue to the file of AO. We also direct the assessee to furnish all the relevant details to the assessing officer.

The next issue relates to the disallowance of Rs.3,03,000/- made u/s 40(a)(ia) of the Act. We notice that the assessee has accepted this disallowance before the AO and hence we reject this ground of the assessee.

The next relates to the disallowance made u/s 43B of the Act and reducing the same from closing Work in Progress. We notice that the interest was payable to Punjab and Maharashtra Co-operative Bank. We also notice that the interest payable to a co-operative bank was brought within the ambit of sec.43B of the Act with effect from AY 2018-19. Accordingly, we direct the AO to delete this disallowance and consequently, the same is not required to be deducted from the value of Work in Progress.

The last issue relates to the interest disallowance made u/s 36(1)(iii) of the Act. We notice that the AO has made this addition on notional basis and the same has been reduced from the Work in Progress. In our view, this issue requires fresh examination at the end of AO. Accordingly, we restore this issue to his file.

In the result, all the appeals of the assessee are treated as partly allowed. Pronounced in the open court on 06.03.2023.