M/S SICAL CONNECT LIMITED ,CHENNAI vs. DCIT , COMPANY CIRCLE - 4(1), CHENNAI

आदेश /O R D E R PER MAHAVIR SINGH, VICE PRESIDENT:

This appeal by the assessee is arising out of the directions of the Dispute Resolution Panel-2, Bengaluru dated 08.06.2022. The assessment was framed by the Assistant Commissioner of Income Tax, Corporate Circle 4(1), Chennai for the assessment year 2018- 19 u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order dated 02.08.2022.

- 2 - IT(TP)A No.45/Chny/2022 2. The only issue in this appeal of assessee is as regards to the order of AO/DRP confirming the addition on account of transfer pricing adjustment in connection with remittances of purchase price of dredger in financial year 2011-12 and actual cost price shown as trade debtor and paid in financial year 2017-18 relevant to this assessment year 2018-19. The assessee has filed concise grounds in relation to the above issue vide ground Nos. 2 to 9 as under:- 2. The AO / DRP erred in confirming the addition of Rs. 39 crores as transfer pricing adjustment in connection with remittance of the purchase price of dredger amounting to $20,583,727.45 to the AE at the current prevailing exchange rate.

- 3 - IT(TP)A No.45/Chny/2022 current year cannot be taken as other than ALP requiring transfer pricing adjustment. 7. The AO / DRP ought to have appreciated that as far accounting is concerned, the difference in liability on account yearly fluctuation of Exchange rate, was accounted in the books and depreciation in Books was claimed on the increased amount. However due to the provisions of sec 43A, Depreciation under the Income Tax was claimed only at the original exchange rate at the time of Import.

- 4 - IT(TP)A No.45/Chny/2022 dredger equipments at sea ports and others, operating ships and platform supply vessels and to provide transport & logistics services.

3.1 The TPO vide order u/s.92CA(3) of the Act dated 31.07.2021 noted from Form No.3CEB filed by assessee that the assessee had entered into international transaction during the financial year 2017- 18 as under:- S.No. Description of the Name of the Amount (in MAM transactions AE Rs.) 1 Amount payable on Norsea Global 133,46,49,000 Other method purchase of capital Offshore Pte asset repaid during Ltd., Singapore the year TOTAL 133,46,49,000

According to TPO, the assessee in Form No.3CEB filed for financial year 2017-18 reported transaction involving lending or borrowing of money and accordingly, assessee repaid a sum of Rs.133,46,49,000/- in financial year 2017-18 which had borrowed during financial year 2010-11 & 2011-12 for purchase of dredger. The TPO issued show-cause notice dated 05.07.2021 requiring the assessee to explain as to why the transaction reported in audited financial statement for the assessment year 2018-19 in regard to amount of Rs.142.86 crores in the name of Sical Logistics Ltd., under current liabilities be not considered for ALP adjustment. The

- 5 - IT(TP)A No.45/Chny/2022 TPO also required the assessee to explain the nature of this liability and to clarify whether the repayment made to Norsea Global Offshore PTE Ltd., is out of this liability payable to Sical Logistics Pvt. Ltd. The assessee filed copy of agreement between assessee and Norsea Global Offshore PTE Ltd., for purchase of dredger and tender boat specifying the terms of purchase and conditions for payment of consideration. The assessee explained that Sical Logistics Ltd., is a 100% holding company of the assessee and assessee’s capital base is Rs.5,00,000/- only and hence, could not raise any loan from bank for the purpose of payment for purchase of dredger and tender boat. Further, the assessee was funded by Sical Logistics Ltd., being a parent company, for payment of capital creditors for purchase of dredger and tender boat. The assessee also replied vide email dated 29.07.2021 that “during the financial year 2010-11 and 2011-12, Sical Connect Ltd., (previously known as Norsea India) purchased a cutter suction dredger on 13.12.2010 and tender boat on 01.01.2012 from Norsea Global Offshore PTE Ltd. The amount due on such purchase could not be paid till FY 2016-17 as there was financial difficulties with the assessee company. Amount is payable in USD as per the invoice and the same is shown under other current liabilities in the financial statement of the assessee company as it represents trade creditors. The value of Rs.94 crores payable during

- 6 - IT(TP)A No.45/Chny/2022 FY 2011-12 is US Dollar 2,05,83,727 at the exchange rate of Rs.44.65 per US Dollar. Whereas the payment of said US Dollar 2,05,83,727 was made at the exchange rate of Rs.63.61 per US Dollar on various dates during FY 2017-18. Since, there is variation in exchange rate of Rs. to US Dollar at the time of purchase and at the time of payment, there is difference of Rs.39.36 crores as mentioned in the show cause notice which is due to currency fluctuation.” But the TPO has not considered his reply and taking this as loan transaction and treating the assessee’s business as that of lending made upward adjustment in the year of payment i.e., FY 2017-18 relevant to this assessment year 2018-19 for an amount of Rs.39 crores on this account. The assessee raised objection before DRP and DRP uphold the action of TPO by holding that the assessee failed to produce any evidence except RBI approval and certificate given by Chartered Accountant and hence, in the absence of loan agreement, it is not possible to understand the nature of transaction, currency of transaction and terms of payment and hence, they confirmed the order of TPO by observing in para 3.1 to 3.3 as under:- 3.1 Panel: Having considered the submissions of the assessee and on perusal of all the submissions made by the assessee, it has been observed that the assessee has acquired a Steel Dredger named Sical Portofino on 13/12/2010 for a sum of USD 20,000,000.00 and a Tender Boat named

- 7 - IT(TP)A No.45/Chny/2022 Sical Perugia on 01/01/2012 for a sum of USD 485,705.00 from its associated enterprise M/s. Norsea Global Offshore Pte Ltd as mentioned in the invoices attached in pages 101 and 102 of the assessee's submission. In addition it was also observed that an insurance worth USD 98,022 was taken in the name of the capital goods acquired (no proof submitted) The assessee claims that the total credit of USD 2,05,83,727 amounting to INR 94 crores (dollar exchange rate being Rs. 44.65) was cleared by paying Rs. 133.46 crores (dollar exchange rate being Rs. 63.31) with no levy of interest on the credit.

3.2 However, the assessee has not produced any acknowledgment or any proof of credit clearance issued by the AE. To substantiate the claim of payment the assessee has relied only on the RBI approval (page 26-27) and a certificate given by a chartered accountant (page 25). It should also carefully be noted that the assessee has not included in his submission the Loan Agreement entered with the AE.

3.3 Thus, the Panel is inclined to agree with the stance of the TPO/AO as without the Loan Agreement it is not possible to understand the nature of transactions, the currency of transaction and the terms of repayment. Further, in absence of the Loan Agreement it is not possible to verify whether the loan is interest free and whether the assessee has to bear the forex loss arising on account of the value of outstanding loan. Thus, we find no infirmity in the addition of Rs 39 crore as a TP upward adjustment. The objection of the assessee is thus rejected.

Aggrieved, now assessee is in appeal before the Tribunal.

- 8 - IT(TP)A No.45/Chny/2022 Rs.133,46,49,000/- on account of purchase of capital asset i.e., dredger and tender boat and not on account of any loan as the assessee is not engaged in any money lending or borrowing business. The ld.counsel for the assessee also stated that the payment made by assessee for purchase of capital asset i.e., on account of settlement of payment towards purchase of dredger in the relevant financial year 2017-18 whereas invoice for purchase was raised in financial year 2010-11 relevant to assessment year 2011-12. The AO/TPO cannot make any adjustment in this assessment year i.e., Assessment year 2018-19. He argued that the TPO erred in considering the payment of Norsea Global Offshore PTE Ltd., in FY 2017-18 as an international transaction without recognizing that this was only a delayed payment of dredger and tender boat purchased in FY 2010-11 and if at all, the ALP can be adjusted in AY 2011-12. He further argued that Associated Enterprise i.e., Sical Logisitics Ltd., having received same amount in foreign currency, the exchange difference is merely due to delayed payment by assessee without any benefit or detriment to AE and cannot be subject matter of TP adjustment. The assessee pointed out that there is typographical mistake in the bank remittance certificate in regard to few of transactions wherein it is mentioned as 2017-18 instead of 2010 and for this, assessee relied on copy of

- 9 - IT(TP)A No.45/Chny/2022 chartered accountant certificate and RBI approval to show that the remittances are only against the invoice raised during FY 2010-11. The ld.counsel for the assessee drew our attention to Chartered Accountant certificate enclosed at page 24 and copy of approval granted by RBI for payment against purchase of dredger enclosed at pages 25 to 27.

- 10 - IT(TP)A No.45/Chny/2022 capital asset i.e., dredger and tender boat in assessment year 2011- 12 and the subsequent transaction in the relevant assessment year 2018-19 is merely settlement of payment towards the purchase transaction and it cannot be a separate international transaction in assessment year 2018-19. At the best, the Revenue can contend that this is an international transaction in assessment year 2011-12 because in that year, the assessee has made purchase which is an admitted fact and not denied by Revenue. In our view, the AO/TPO fundamentally erred in ignoring the invoice of payment in US dollar in AY 2011-12 amounting to US $2,05,83,727 and the same amount was paid by assessee in US dollar in AY 2018-19. This being the case, the AE received the same amount of foreign currency as raised in the invoice and exchange difference due to delayed payment was due to the assessee and not to the AE. We noted that the assessee before us produced accounts statements, agreement for purchase of dredger and tender boat and agreement for securing finance from its holding company Sical Logistics Ltd., The allegation of TPO and DRP is that these evidences were not placed before them. Hence for verification purpose, we are remitting this issue back to the file of the AO/TPO, who will verify and accordingly, consider the transaction as held by us in case it is simpliciter transaction of purchase of dredger / tender boat being capital asset, the adjustment cannot be

- 11 - IT(TP)A No.45/Chny/2022 made. Hence for verification purposes, the matter is restored back to the file of the AO/TPO and the orders that of the DRP and AO and TPO are set aside and the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 25th September, 2023 at Chennai.

Sd/- Sd/- (महावीर �सह ) (मनोज कुमार अ�वाल) (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा�य� /VICE PRESIDENT लेखा सद�य/ACCOUNTANT MEMBER चे�ई/Chennai, �दनांक/Dated, the 25th September, 2023 RSR आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� /CIT 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF.