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Income Tax Appellate Tribunal, BANGALORE BENCHES “ A ” BENCH: BANGALORE
Before: SHRI A.K. GARODIA & SHRI PAVAN KUMAR GADALE
O R D E R PER BENCH : These are the Cross appeals filed by the Assessee and Revenue against the order of CIT (Appeals) and Order/sec143 (3) r w s 144C (13) of the Act. And C.O. in revenue appeal by the assessee. Since the issues in these appeals are common and identical, hence, they are clubbed and heard and common consolidated order is passed. For the sake of convenience, we shall take up the Assessee appeal in for the Assessment Year 2009-10 and facts narrated therein.
The assessee has raised the following grounds of appeal :
3 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015
4 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015
The Brief facts of the case are that the assessee is in the business of manufacture and export of readymade garments, and filed the Return of Income for the Assessment Year 2009-10 on 30.09.2009 with net loss of Rs.81,72,35,289. Subsequently, the case was selected for scrutiny and Notice under Section 143(2) of the Act was issued.
The learned Authorized Representative appeared from time to time and submitted the information before the authorities. The Assessing Officer found that there are international transactions which are exceeding the limit; therefore the matter was referred to the Transfer Pricing Officer (TPO). Whereas TPO has 5 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 passed the order dt.23.01.2013 and not suggested any Transfer Pricing Adjustment under Section 92CA of the Act. The Assessing Officer on perusal of the Balance Sheet as on 31.03.2009 found that the assessee has made advances to the sister concerns i. Gokaldas Images Infrastructure Pvt. Ltd. of Rs.20,19,58,023 and ii. Hinduja Realtors Pvt. Ltd. of Rs.85,87,05,910. The assessee has submitted the details of interest expenditure and explained the reasons for the advances to the sister concerns on commercial expediency and surplus funds available to the assessee. The Assessing Officer dealt on the issues in respect of the advances and on the claim of deduction under Section 10B of the Act. Whereas Ao is of the opinion that the assessee has diverted funds to the sister concerns without charging any interest over a period. Therefore the Assessing Officer worked out the interest disallowance @ 12% p.a on the 80% of the amount advanced Rs.84,85,31,146 beingRs.10,18,23,738 and disallowance under Section 10B of the Act on the adjustment of profits and Assessed the total income of Rs.15,77,21,683 and passed the order under Section 143(3) r.w.s. 92C of the Act dt.11.03.2013. Aggrieved by the order, the assessee has filed an appeal with the CIT(Appeals).In the Appellate Proceedings the CIT(Appeals) considered the grounds of appeal and findings of the Assessing Officer, and dealt on the financial statements of earlier years in respect of advances to the sister concerns and observed that the assessee has not furnished the details of advances and justifican of commercial expediency. Hence the CIT (Appeals) directed the Assessing Officer to recalculate interest on 6 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 incremental advances made to the Gokaldas Images Infrastructure Pvt. Ltd. and Hinduja Realtors Pvt. Ltd. Further in respect of allocation of expenses, the CIT(Appeals) has directed the Assessing Officer to rework the disallowance on the rule of consistency. Whereas for setoff of profit of EOU Units, the CIT(Appeals) relied on the Hon’ble jurisdictional High Court decision of CIT Vs. Yokogawa India Ltd 341 ITR 385 (Kar) and directed the Assessing Officer to recompute the eligible deduction under Section 10B of the Act and partly allowed the appeal of the assessee. Aggrieved of the order of CIT(Appeals), the assessee has filed an appeal with the Tribunal.
5. At the time of hearing, the learned Authorized Representative submitted that the CIT(Appeals) has erred in directing the Assessing Officer to recompute the interest, irrespective of the fact that the advances were provided to sister concerns for business activities on commercial expediency. Further the advances are out of surplus funds available with the assessee and supported his arguments with the decision of Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. 313 ITR 430 (Bom) , and the presumption that, advances are made out of surplus funds. The Ld. AR also relied on the decision of Hon'ble Karnataka High Court in the case of CIT Vs. Golf View Homes Limited 394 ITR 540 (Kar) for advances provided to the sister concerns on commercial expediency. And in assessee own case, the co-ordinate bench of this Tribunal for the Assessment Year 2008-09 dealt on this issue. Further the Ld. AR submitted that the Ground Nos.4,
7 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 5, 6, 7 & 8 are in respect of the grounds of appeal raised before the CIT(Appeals) which were not adjudicated by the CIT(Appeals) and prayed for allowing the appeal. Contra,the learned Departmental Representative supported the orders of the Assessing Officer and referred to the facts dealt by the Assessing Officer at page 5 Para 8 of the assessment order and relied on the CIT(Appeals) order.
6. We heard the rival contentions and perused the material on record. On the first disputed issue of disallowance of interest by the AO, the learned Authorized Representative submitted that the CIT(Appeals) has erred in directing the Assessing Officer to rework the interest disallowance overlooking the facts that the advances made by the assessee to sister concerns are out of surplus funds available with the assessee, and no borrowed funds were utilized. Further there is also reimbursement of expenses on commercial expediency of business transactions. The Ld. AR referred to the order of CIT(Appeals) at paras 4.5 and 4.6 where the CIT(Appeals) has considered the submissions, findings of the AO and has directed the Assessing Officer to recalculate interest on advances considering the incremental increase in the current year. we found the co-ordinate bench of this Tribunal in assessee own case in and C.O. No.97/Bang/2013 dt.26.09.2014 for the Assessment Year 2008-09 (Gokaldas Images Pvt. Ltd. Vs. Addl. CIT) has dealt on the disputed issue at page 12 para 11(a) which is as under :
8 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 w We find the Ld AR relied on judicial decision of Cit vs. Reliance Utilities and Power Ltd. (supra) and Cit Vs Golf View Homes Ltd (Supra).which are not applicable to the disputed issue, in view of findings of Coordinate Bench of tribunal that loans are given out of barrowed funds and not own funds, which could
9 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 not be controvert by Ld. AR even in the present year. Accordingly, we are not inclined to interfere with the findings of CIT(A)on the issue. Whereas in respect of advances to Hinduja Realtors Pvt. Ltd., the Tribunal observed at pages 13 to 15 para 11(c) which is read as under :
10 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 We, follow the judicial precedence and observations of the Tribunal, which are identical to the present case on hand, and restore the disputed issue to the file of the Assessing Officer for fresh consideration on the similar directions to decide as per provisions of law and a provide adequate opportunity of hearing to the assessee and allow the grounds of appeal of assessee for statistical purposes.
7. Further the Ld. AR submitted that the CIT(Appeals) has not adjudicated, the Grounds of appeal nos.4 to 8 raised before the authority. We found CIT(Appeals) has referred the grounds of appeal in his order at pages 3 & 4 but there is no finding or observations of the appellate authority. Accordingly, we restore the 11 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 grounds of appeal
, to the file of CIT(Appeals) to give appropriate findings and pass a speaking order, and allow the grounds of appeal for statistical purposes.
8. In the result, the assessee appeal is partly allowed for statistical purposes. Now we shall take up Revenue’s appeal in ITA No.1557/Bang/2014.
The Revenue has raised the following grounds of appeal as under :
12 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015
At the time of hearing, the learned Departmental Representative submitted that the Ground No.1 is general in nature and Ground No.2 is in respect of the observations of the CIT (Appeals) on calculating the interest on Advances. Whereas the Ld.AR submitted that the CIT (Appeals) has dealt on the issue and has directed the Assessing Officer to recalculate the interest disallowance on advances at para 4.6 of the order. We found the assessee in in above paragraphs could not substantiate with evidence on commercial expediency of advancing the loan. We relied on assessee own case, for the Asst. Year 2008-09 and restored the matter to the file of Assessing officer with the directions to rework the interest calculations on advances. Accordingly, we
13 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 consider it appropriate to restore the disputed issues in grounds of appeal raised by the revenue, to the file of Assessing officer as the issues are inter-related and allow the ground of appeal of revenue for statistical purposes.
11. On the Ground Nos.3 & 4, the learned Departmental Representative submitted that the CIT (Appeals) was not correct in directing the Assessing Officer to compute, deduction under Section 10B of the Act without setting off of the loss, depreciation / Business pertaining to non-10B Units placing reliance on the decision of jurisdictional High Court in the case of CIT Vs. Yokogawa (supra). Whereas The Ld. AR supported the order of CIT (Appeals) on this ground of appeal.
12. We heard the rival submissions and perused the material on record. We found that the CIT (Appeals) has relied on the jurisdictional High Court decision which was confirmed by the Hon'ble Supreme Court in Civil Appeal No.8498/2013. The learned Departmental Representative could not controvert the observations of the CIT (Appeals) with cogent evidence. Accordingly, we are not inclined to interfere with the order of CIT (A) on this disputed issue and confirm the same and dismiss the grounds of appeal of the Revenue.
13. In the result, the Revenue’s appeal is partly allowed for statistical purposes.
Now we shall take up the Revenue’s appeal in IT(TP)A No.77/Bang/2015 for the Asst. Year 2010-11 and C.O. of the assessee in ITA No.82/Bang/2015.
14 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 15. The Revenue has raised the following grounds of appeal :
16. At the time of hearing, the learned Departmental Representative argued Ground No.2 is in respect of claim of deduction under Section 10B of the Act. We
15 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 have already dealt on this issue for the Asst. Year 2009-10 in Revenue’s appeal and the same decision shall apply. The learned Departmental Representative could not controvert the observations of the DRP with cogent evidence. Accordingly, we are not inclined to interfere with the finding of the DRP on this disputed issue and confirm the same and dismiss the grounds of appeal of the Revenue.
17. In Revenue’s appeal Ground Nos.3 & 4 are in respect of directions of the DRP to the TPO/Assessing Officer .
The learned Departmental Representative submitted that the DRP has erred in its observations and directions to TPO/AO on no transfer pricing adjustment. We found that DRP at page 3 considering the objections of the assessee in Transfer Pricing has dealt on the issue in detail on Transfer Pricing Adjustment at page 3 and 4 of the order which is read as under :
16 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 We found the learned Departmental Representative could not controvert the observations of the DRP and relied on the TPO order. Accordingly, we do not find merits in the submissions and confirm the observations of the DRP and dismiss these grounds of appeal of revenue.
The assessee has filed C.O. No.82/Bang/2015 in support of the DRP. Since the Revenue appeal is dismissed, C.O. is infructuous and dismissed . In the result, the Revenue appeal and C.O. of the assessee are dismissed.
For the Asst. Year 2011-12 in ITA 439/Bang/2016, the assessee has filed grounds of appeal as under :
“On the facts and circumstances of the case, the learned Assessing Officer erred in disallowing notional interest of Rs.14,21,84,775 on the 17 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 receivable amount outstanding from Gokaldas Images Infrastructure Pvt. Ltd. on the ground that the same is capital in nature.”
The learned Authorized Representative has made submissions in respect of disallowance of interest and learned Departmental Representative has supported the orders of the DRP. We found that this issue on usage of funds is dealt in assessee own case for the Asst. Year 2009-10 in where the matter was restored to the file of Assessing Officer for fresh consideration. Accordingly, we restore the disputed issue to the file of the Assessing Officer on the similar directions for fresh consideration and decide as per provisions of law and a provide adequate opportunity of hearing to the assessee and allow the grounds of appeal
of assessee for statistical purposes. .
22. The revenue has filed appeal in IT(TP)A No.582/Bang/2016, the grounds of appeal raised by Revenue are as under :
23. At the time of hearing, the learned Departmental Representative has submitted that DRP has erred on observations and adopting of assessee objections
18 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 for no Transfer Pricing Adjustment. We found the DRP in order at pages 2 & 3 has held as under :
We have already dealt on this issue for the Asst. Year 2010-11 in Revenue’s appeal and the same decision shall apply. The learned Departmental Representative could not controvert the observations of the DRP
19 IT(TP)A Nos.1502&1557/Bang/2014; 439 & 582/Bang/2016; 77/Bang/2015 & CO No.82/Bang/2015 with cogent evidence. Accordingly, we are not inclined to interfere with the order of DRP on this disputed issue and confirm the same and dismiss the grounds of appeal of the Revenue.
25. In the result, the assessee's appeal is allowed for statistical purposes and revenue’s appeal is dismissed.
26. Net Result, the IT(TP)A Nos.1502/Bang/2014 Assesse appeal & the IT(TP)A1557/Bang/2014 Revenue appeal for Asstyear2009-2010 are partly allowed for statistical purposes. IT(TP)A No.77/Bang/2015 revenue appeal and C.O. No.82/Bang/2015 Assessee Co for Asst Year2010-2011 are dismissed. For Asst year 2011-2012 IT(TP)A No. 439/Bang/2016 of Assessee is allowed for statistical purposes and IT(TP)A No. 582/Bang/2016 of Revenue is dismissed. Pronounced in the open court on the date mentioned on the caption page.