THE DY.CIT., CENTRAL CIRCLE-1(1),, AHMEDABAD vs. PRIYA BLUE INDUSTRIES PRIVATE LIMITED, BHAVNAGAR

ITSSA 29/AHD/2023Status: DisposedITAT Ahmedabad28 June 2024AY 2019-2055 pages
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What were the facts?

The appeals concern assessment years 2019-20 and 2020-21, arising from assessment orders passed under Section 153A read with Section 144C(3) of the Income Tax Act, 1961. A search action under Section 132 was conducted on the assessee, Priya Blue Industries Pvt. Ltd. (PBIL), and Hoogly Ship Breakers Ltd. (HSBL), on November 19, 2019. The Transfer Pricing Officer (TPO) made an upward adjustment of Rs. 1,54,77,374/-. The Assessing Officer (AO) passed a final assessment order, determining the income at Rs. 22,06,39,716/-, disallowing unexplained rental expenses of Rs. 5,00,000/-, unaccounted profit of Rs. 11,29,61,022/-, and suppression of sale of gas turbine of Rs. 3,41,34,100/-, among other adjustments. The Commissioner of Income Tax (Appeals) [CIT(A)] passed separate appellate orders, which are now under challenge.

What did the Tribunal hold?

The Tribunal addressed the issues as follows: Regarding the benchmarking of provision of services to AE (Rs. 67,96,987/-), the Tribunal noted that the CIT(A) had confirmed the addition made by the AO. The CIT(A) observed that employees and directors of the assessee company were working for BOL, an AE, and that expenditure related to their services should have been charged. The CIT(A) found the assessee's contention of no fees being recovered to be without basis and that mere retraction of statements by employees did not suffice without other evidence. The Tribunal, in its common order, did not explicitly overturn the CIT(A)'s finding on this specific issue, implying it was upheld. Regarding the addition on account of unaccounted profit from ship breaking activity (Rs. 11,29,61,022/-), the Tribunal found that the ship breaking yard V-2 was owned by HSBL, not PBIL. The income from ships 'Arena' and 'Opportunity' was accounted for in HSBL's books. The AO had made a 'cut and paste' addition for both HSBL and PBPL, failing to consider HSBL's declared income and statutory payments. The assessee provided evidence of purchase values, port charges, and customs duties paid by HSBL for these ships. The Tribunal concluded that the ship breaking activities were carried out by HSBL, not under the JVA with PBPL. Therefore, the entire addition of Rs. 11,29,61,022/- was liable to be deleted from HSBL's hands. The assessment order was set aside for HSBL, directing the AO to verify HSBL's return and frame a fresh assessment. Consequently, the ground raised by the assessee was partly allowed, and the ground raised by the Revenue was partly allowed. The Tribunal also noted that the assessee was not pressing Ground No. 1 regarding the assumption of jurisdiction under Section 127(2), and this ground was dismissed.

What were the issues?

The Tribunal had to decide five issues: 1. **Question of Law:** Whether the CIT(A) erred in confirming the addition of Rs. 67,96,987/- made by the TPO on account of benchmarking the provision of services rendered to an Associate Enterprise (AE), contrary to the assessee's contentions. * **Assessee's Contention:** The assessee argued that employees and directors were performing back-office work for M/s. Best Oasis Limited (BOL), an AE, and that no fees were recovered as BOL was an offshore company in Hong Kong and not subject to tax there. They also contended that some employees had retracted their statements taken under duress and that the work for BOL was minimal. * **Revenue's Contention:** The Revenue, through the TPO and AO, argued that since employees and directors of the assessee were utilized for BOL's work, an opportunity cost was incurred, and fees should have been charged. They relied on statements from employees and directors admitting to working for BOL and the principle that companies work for profit, not charity. The TPO applied a weightage of 58:42 for the assessee and BOL respectively and a markup of 5.58%. 2. **Question of Law:** Whether the CIT(A) erred in deleting the addition of Rs. 7,19,61,022/- out of the total addition of Rs. 11,29,61,000/- made on account of unaccounted income from ship breaking activity in the V2 Shipbreaking Yard, despite seized material indicating profit for AY 2019-20. * **Assessee's Contention:** The assessee argued that there was no incriminating material found during the search and that statements recorded from employees could not be relied upon. They further contended that the ship breaking activities for ships 'Arena' and 'Opportunity' were carried out by HSBL, not pursuant to the Joint Venture Agreement (JVA) with PBPL, and that HSBL had declared and paid taxes on this income. * **Revenue's Contention:** The Revenue argued that the CIT(A) ought to have upheld the AO's order, relying on seized material (sheet named 'ACCOUNT SETTLED AS ON 12.07.2018 UP TO OPPORTUNITY') which indicated a profit of Rs. 11,29,61,022/- for AY 2019-20 from ship breaking activities for both parties. They also argued that the assessment year was not abated, so incriminating material was not strictly required.

Which sections of the Income-tax Act were involved?

Section 153A,Section 144C(3),Section 132,Section 143(1),Section 92CA(1),Section 92CA(2),Section 92CA(3),Section 127(2)

AI-generated summary — verify with the full judgment below

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER Sl. Asst Appeal(s) filedby : No. IT(SS)A Nos. Years Appellant -Vs- Respondent 04/Ahd/2023 2019-20 Priya Blue Industries DCIT 1. & & Pvt. Ltd. Central Circle-1(1), 33/Ahd/2022 2020-21 504 Swara Parklane, Ahmedabad.

2.

Opp. Joggers Park Atabhai Road, Bhavnagar-364001 PAN : AABCP2808B Priya Blue Industries DCIT 29/Ahd/2023 2019-20 Pvt. Ltd. Central Circle-1(1) 3. & & Ahmedabad 504Swara Parklane, 39/Ahd/2022 2020-21 Opp. Joggers Park

4.

Atabhai Road, Bhavnagar-364001 PAN : AABCP2808B

18/Ahd/2023 2019-20 Hoogly Ship DCIT

5.

Breakers Ltd., Central Circle-1(1), 323 Giriraj, Iron Ahmedabad Market Sant Tukaram Road, Mumbai 400009 Maharashtra, India PAN : AAACH6191C Hoogly Ship DCIT 27/Ahd/2023 2019-20 Breakers Ltd., Central Circle-1(1),

6.

Ahmedabad 323 Giriraj, Iron Market Sant Tukaram Road, Mumbai 400009 Maharashtra, India PAN : AAACH6191C

Assessee(s) by : Shri Tushar Hemani, Sr.-Advocate with Shri Parimalsinh B Parmar, AR Revenue by: Shri Kamlesh Makwana, CIT-DR Date of Hearing : 03/04/2024 Date of Pronouncement : 28/06/2024

IT[SS]A 4, 29/A

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