VIVIMED LABS LTD., HYD,HYDERABAD vs. DCIT, CIRCLE 17(2), HYDERABAD, HYDERABAD

ORDER Per Smt. P. Madhavi Devi, J.M. This is assessee’s appeal for the A.Y. 2011-12 against the final assessment order dated 29.01.2016 passed u/s 143(3) r.w.s. 144C(13) of the I.T. Act, 1961. This appeal was taken up for hearing on 16.11.2020 through Video Conferencing and both the parties were heard.

1. Erred in passing the order u/s 143(3) r.w.s 144C(13) dated 29.01.2016, which is beyond one month from the end of the month in which such DRP directions are received.

M/s Vivimed Labs Ltd. Vs. DCIT, Circle 17(2) 2. The AO has erred in law in making the reference to the TPO without meeting the preconditions for such reference under section 92CA of the LT. Act, 1961.

Each of the grounds of appeal is mutually exclusive of, independent and without prejudice to other.

7. We would like to submit that as per the ratio laid down by the Hon'ble Supreme Court of India in the case of National Thermal Power Co. Ltd vs. CIT (1998) 229 ITR 383 (SC) the ITAT has jurisdiction to examine the question of law which though not arose before the lower authorities but arose before the IT AT for the first time.

M/s Vivimed Labs Ltd. Vs. DCIT, Circle 17(2) 8. Erred in adding disallowance calculated u/ s. 14A of the Act of Rs. 5,66,728/ - to the book profits calculated u/ s. 115JB of the Act.

at any time before or at the time of hearing of the appeal. 2.3. At the time of hearing, the Ld.Counsel for the assessee submitted that ground nos. 1 and 2 are not pressed by the assessee. 2.4. With regard to additional grounds of appeal, the Ld.Counsel for the assessee submitted that the assessee is not pressing ground nos. 10 and 11. 2.5. Accordingly, ground nos. 1 and 2, and ground nos. 10 and 11 are dismissed as not pressed.

3. With regard to the additional grounds of appeal nos. 7 to 9, the Ld.Counsel for the assessee submitted that they are legal grounds relating to issues arising out of assessment order and prayed that they be admitted and adjudicated. 3.1. Ld.DR, on the other hand, opposed the admission of additional grounds.

4. After hearing the rival contentions and material placed on record, we find that the AO has added the disallowance made u/s 14A also to M/s Vivimed Labs Ltd. Vs. DCIT, Circle 17(2) book profits calculated u/s 115 JB of the Act which is being challenged by the assessee in these additional grounds of appeal

. Since all the facts are on record and the issue is a legal issue, we admit the same and proceed to adjudicate the same hereunder:

5. As regards ground no.3, the brief facts are that during the transfer pricing proceedings, in the T.P. documentation of assessee, the AO found that the assessee had stated that it had provided working capital advance of Rs.252.06 million to Vivimed Hong Kong and also of Rs.8.41 millions to Vivimed, US i.e. total amount outstanding was Rs.26,01,90,000/- and it was stated that the advance is for administrative convenience and there was no interest accrued during the year and hence determination of ALP is not warranted. AO noticed that assessee had not charged interest from it’s A.E. though interest @ 6% was charged from Vivimed Hongkong in the earlier year, and also that there is no interest charged in this year. Therefore, he proposed to charge interest on the outstanding balances and the taxpayer was issued a letter accordingly. After considering the assessee’s submissions at length, the AO held that the interest is chargeable on the interest free advances given by the assessee to its subsidiaries towards working capital advances. Thus, he charged 12.25% on the working capital advances as rate of interest and brought it to tax. 5.1. Further, he also treated corporate guarantee as an international transaction and proposed addition by charging corporate credit at 2% of the corporate guarantee given by assessee. In accordance with these findings of the TPO, the final assessment order was passed and the assessee has filed second appeal before the Tribunal. 5.2 The Ld.Counsel for the assessee submitted that though TPO has stated that these are working capital advances given to its subsidiaries, they are not advances but are the investments made by assessee in the M/s Vivimed Labs Ltd. Vs. DCIT, Circle 17(2) equity of its subsidiaries and the said companies have also subsequently allotted shares to the assessee. 5.3. Ld.DR, on the other hand, supported the orders of the authorities below and drew our attention to the paper book filed by assessee wherein in its letter addressed to the AO, the assessee had clearly stated and that it had advanced working capital to its sister concerns. Therefore, according to him, the advances were not equity at all. He further submitted that documents filed by assessee towards investment such as board resolutions and evidence of allotment of shares to assessee were never filed before the authorities below nor does the assessment record show that they were on record. Therefore, according to him, these evidences should not be considered at all. 5.4. Having regard to the rival contentions and the material placed on record, we find that the assessee, not only in its T.P. documentation, but also in its reply to notice of the TPO, has clearly stated that these are working capital advances, though at para 2.5 of its submissions before the TPO, assessee had stated that it had invested in its sister concerns. However, neither the TPO nor the DRP have gone into this aspect, nor has the assessee filed any evidence in this context before the authorities below. The board resolutions and the evidence that assessee has been allotted equity shares in the subsequent year were never put before the authorities below. In view of these facts, we deem it fit and proper to set aside the issue to the file of AO/TPO with a direction to consider the evidence filed by assessee to the effect that assessee had invested money in equity shares of its subsidiaries and has not given working capital advances and if it is found that these transactions were in fact investments in equity shares of the subsidiaries, then no T.P. adjustment shall be made. However, if it is found that the funds transferred by the assessee to its subsidiaries during the year were working capital advances, which were later decided 6 M/s Vivimed Labs Ltd. Vs. DCIT, Circle 17(2) to be treated as investments, then the T.P. adjustment already made by the AO shall be revived and the assessment shall be completed accordingly. 5.5. Therefore, assessee’s ground of appeal no.3 is treated as allowed for statistical purposes.

6. As regards ground no.4 regarding corporate guarantee fee, Ld.Counsel for the assessee submitted that the A.Y. before us is 2011- 12 and that amendment to S.92B bringing the corporate guarantee fee into the ambit of international transaction does not apply to the relevant AY. In support of his contentions he submitted before us a copy of the order of this Tribunal in the assessee’s own case for A.Y 2010-11 to which, one of us (J.M) is a signatory and also further relied upon the following other decisions: i) M/s. Batronics India Ltd vss. DCIT in ii) M/s.Cura Technologies Ltd vs. DCIT in ITA No.301/Hyd/2017 iii) M/s.CCL Products P Ltd vs DCIT in ITA No.348/Viz/2018 iv) Assessee’s own case in ITA No.404/Hyd2015 6.1. Ld.DR also placed reliance upon the order of authorities below and placed reliance upon the following decisions in support of his contention that even prior to the amendment to sec 92B of the Act, the Corporate Guarantee was an international transactions: i) ITAT Hyderabad in the case of Four Soft (P) Ltd vs. DCIT reported in 44 Taxmann.com 479 dated 28.3.2014 ii) Prolifics Corporation Ltd vss. DCIT reported in 55 Taxmann.com 226 dated 31.12.2014 6.2. Having gone through the decisions quoted by both the parties, we find that the A.Y before us is 2011-12, i.e. prior to the amendment of Sec 92B of the Act, while in the decisions relied upon by the DR, it has been held that even prior to the amendment, the Corporate Guarantee is an international transaction, in the decisions relied upon by the ld M/s Vivimed Labs Ltd. Vs. DCIT, Circle 17(2) Counsel for the assessee, it has been held otherwise. We find that in the assessee’s own case for the AY 2010-11, this Tribunal has held the issue in favour of the assessee. Therefore, following the principle of uniformity and consistency, we hold that corporate guarantee is not international transaction prior to amendment of S.92B w.e.f. 1.4.2012. Therefore, grounds of appeal no.4 and 5 are allowed.

7. As regards ground no.6, it is case of the assessee that assessee has not earned any exempt income during relevant A.Y. and therefore, no disallowance u/s 14A is called for. He however submitted that even if there is a disallowance u/s 14A under normal provisions of the Act, no addition should be made to the income u/s 115 JB of the Act. He placed reliance upon the following decisions in support of his contention. i) Sri ASL Finvest Pvt. Ltd vs. ITO in ITA No.294/Hyd/2018 ii) ACIT vs.Vireet Investment (P) Ltd reported in 82 Taxmann.com 415. iii)Agila Specialities P Ltd vs. ACIT in ITA No.987/Hyd/2018 7.1. Ld.DR supported the orders of authorities below. 7.2. Having regard to rival contentions and material placed on record, we find that the issue of disallowance u/s 14A where there is no exempt income earned during the relevant financial year, is covered in favour of the assessee by the decision of Hon’ble Supreme Court in the case of CIT (Central)1 vs. Chettinad Logistics (P) Ltd. (2018) 95 taxman.com 250 (SC) wherein it was confirmed that where there is no exempt income earned by the assessee, no disallowance u/s 14A shall be made. 7.3. Further, with regard to computation of income u/s 115 JB of the Act and addition of disallowance u/s 14A to the said income, we find that this issue also is covered in favour of the assessee by the decision of the Special Bench of the ITAT at Delhi in the case of Vireet Investments (cited Supra) which has been followed by us in our orders M/s Vivimed Labs Ltd. Vs. DCIT, Circle 17(2) in other cases cited Supra. Respectfully following the same, we hold that no addition of the disallowance u/s 14A is called for while computing the income u/s 115JB of the Act. Accordingly, ground nos. 6, 7 and 8 are allowed.