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Income Tax Appellate Tribunal, ‘J’ BENCH, MUMBAI
Before: SHRI RAJESH KUMAR, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R PER BENCH : The present appeals filed by the assessee for A.Ys 2005-06 to 2011-12 were earlier disposed off by the Tribunal, vide its consolidated order dated 16.02.2018. However, the Tribunal while disposing off the captioned appeals had inadvertently omitted to adjudicate Grounds no. 5.7 and 5.8 pertaining to transfer pricing adjustment for A.Y 2005-06, A.Y 2010-11 and A.Y 2011-12. Also, similar was the position in respect of the other assessment years, viz. A.Y 2006-07 to A.Y 2009-10, where though no such specific ground was raised, but common arguments assailing the similar transfer pricing adjustment for the said respective years were raised with the leave of the Tribunal in the course of the hearing of the appeal. In the backdrop of the aforesaid facts, the assessee has approached the Tribunal, vide miscellaneous applications for the captioned years. Observing, that the Grounds of appeal
No. 5.7 and 5.8 had remained omitted to be adjudicated, therefore, the Tribunal had vide its order dated 10.05.2019, recalled the matter for the limited purpose of adjudicating the Grounds of appeal No. 5.7 and 5.8.
2. As is discernible from the records, in the appeals for A.Y 2005-06, A.Y 2010-11 and A.Y 2011-12, the assessee had vide its Grounds of appeal Nos. 5.7 & 5.8 assailed the transfer pricing adjustment by raising an alternative ground, as under : “5.7 The learned CIT(A) erred in applying the rate of 40% on the interest income as against the rate prescribed in section l15A of the Act. 5.8 Without prejudice to the above, the learned CIT(A) erred in not appreciating that even if the interest income is considered as part of business income, there should not be any income chargeable to tax since the expenditure paid by the appellant (i.e. marketing service fees paid to ADSIL) is sufficient to absorb its income and accordingly there will be no loss to the revenue.” Insofar, the remaining years are concerned viz. A.Y 2006-07 to A.Y 2009-10, though the assessee while assailing the TP adjustment had not raised any such specific alternative grounds of appeal, however, common arguments in respect of the said issue were advanced by the ld. A.R with the leave of the Tribunal in the course of the hearing of the appeal. As observed
P a g e | 3 Sabre Asia Pacific Lte Ltd. Vs. DCIT-A.Y. 205-06 to 2011-12 ITA No. 7367/Mum/2010, ITA No. 8479/Mum/2011, ITA No.7400/Mum/2012,ITA No. 2120/Mum/2014, ITA No. 1704/Mum/2015 and by us hereinabove, inadvertently the aforesaid grounds of appeal/issue had remained omitted to be adjudicated by the Tribunal while disposing off the said respective appeals.
Before adverting to the issue involved in the present appeals, we shall briefly cull out the facts which would lead us to the genesis of the controversy herein involved. Observing, that the assessee had advanced an interest free loan to its AE in India viz. ADSIL, the TPO determined the arm’s length price (for short ‘ALP’) of interest on the said loan by adopting Indian PLR of 10.50% in all of the aforesaid respective years. On appeal, the contentions advanced by the assessee to support its claim that no TP adjustment was called for in respect of the interest free loan advanced to its AE, did not find favour with the Tribunal. At the same time, the alternative claim of the assessee, that the ALP interest rate was to determined on LIBOR and not as per the Indian PLR rate was accepted by the Tribunal. Accordingly, the Tribunal had directed the A.O/TPO to work out the ALP of the interest on loan advanced by the assessee to its AE viz. Abacus Distribution System (India) Ltd. (for short ‘ADSIL’) as per the LIBOR rate plus 2%. But the alternative contention of the ld. A.R, that in case a transfer pricing adjustment in respect of the interest on the ECB loan was to be carried out, then the interest income on the said loan could safely be held as an income which would be entitled to be adjusted against the marketing service fees paid by the assessee to its AE viz. ADSIL i.e its National Marketing Company (for short ‘NMC’) in India, had remained omitted to be adjudicated by the Tribunal while disposing off the captioned appeals.
It is the omission on the part of the Tribunal to adjudicate the aforesaid common contentions that were raised by the assessee in the course of the original appellate proceedings before the Tribunal by way of specific Grounds of appeal No. 5.7 and 5.8 in A.Y 2005-06, A.Y 2010-11 and A.Y 2011-12, and by way of common arguments for the remaining years i.e A.Y 2006-07 to A.Y 2009-10, which forms the solitary issue in the present appeals before us.
The ld. Authorised representative (for short ‘A.R’) for the assessee, submitted, that in the course of the hearing of the captioned appeals, it had filed ‘charts’ for all of the aforesaid
P a g e | 4 Sabre Asia Pacific Lte Ltd. Vs. DCIT-A.Y. 205-06 to 2011-12 ITA No. 7367/Mum/2010, ITA No. 8479/Mum/2011, ITA No.7400/Mum/2012,ITA No. 2120/Mum/2014, ITA No. 1704/Mum/2015 and respective years i.e A.Ys 2005-06 to 2011-12, wherein it was claimed that in case a transfer pricing adjustment in respect of the interest on the ECB loan was to be carried out, then the interest income on the said loan could safely be held as an income which would be entitled to be adjusted against the marketing service fees paid by the assessee to its ‘AE’ viz. ADSIL in all the said respective years. It was the claim of the ld. A.R, that if the interest income was to be considered as part of the assesse’s business income, there would not be any income chargeable to tax, since the expenditure paid by the assessee i.e marketing service fees paid to its AE viz. ADSIL was sufficient to absorb its income. In order to drive home his aforesaid contention, the ld. A.R had drawn our attention to the respective ‘charts’ for all of the aforesaid respective years. It was further submitted by the ld. A.R, that as a similar submission that was advanced by the assessee in respect of adjustment of the addition made in respect of reimbursement of expenses had been accepted by the Tribunal, vide its order dated 16.02.2018, therefore, the same principle would apply in the present context. It was submitted by the ld. A.R, that contentions in context of the issue under consideration which was uniformly permeating in all the aforesaid years viz. A.Y 2005-06 to A.Y 2011-12, were though raised by the assessee in the course of the hearing of the original appellate proceedings, however, the same were not adjudicated upon by the Tribunal while disposing off the said appeals. In order to buttress his aforesaid claim, the ld. A.R had drawn our attention to Page 27 of the order of the Tribunal, wherein though the specific contentions which were raised by the ld. A.R in the course of the original appellate proceeding were recorded, but the same had not been disposed off. It was further submitted by the ld. A.R, that in case Ground of appeal No. 5.8 is allowed, then the Ground of appeal No. 5.7 would be rendered as academic in nature.
Per contra, the ld. Departmental representative (for short ‘D.R’) relied on the orders of the lower authorities. In fact, we would not hesitate to observe, that no serious effort was made on the part of the ld. D.R to rebut the aforesaid claim of the assessee.
We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the original order of the Tribunal, dated 16.02.2018, as well as the material available on record. As is discernible from the order of the Tribunal, dated 16.02.2018,
P a g e | 5 Sabre Asia Pacific Lte Ltd. Vs. DCIT-A.Y. 205-06 to 2011-12 ITA No. 7367/Mum/2010, ITA No. 8479/Mum/2011, ITA No.7400/Mum/2012,ITA No. 2120/Mum/2014, ITA No. 1704/Mum/2015 and the ld. A.R had in the course of the original appellate proceedings raised an alternative contention i.e in case a transfer pricing adjustment in respect of the interest on the ECB loan was to be carried out, then the interest income on the said loan could safely be held as an income which would be entitled to be adjusted against the marketing service fees paid by the assessee to its AE’ viz. ADSIL. In fact, a perusal of the records reveals, that the assessee in the course of the original appellate proceedings before the Tribunal had filed ‘charts’ in support of its claim that if the interest income alongwith 10% of the reimbursement of expenses was to be considered as part of the assesse’s business income, there would not be any income chargeable to tax, since the expenditure incurred by the assessee i.e marketing service fees that was paid to its AE viz. ADSIL would be sufficient to absorb its income. Similar charts had once again been filed by the ld. A.R in the course of the present proceedings before us. As is discernible from the aforesaid details filed by the assessee, it is claimed, that if ALP of interest on loans advanced to its AE viz. ADSIL is worked out at LIBOR + 200 points, and 10% of the reimbursement of expenses is treated as its income, then there would be a ‘Loss’ in the hands of the assessee for all the aforesaid years, as under:
A.Y Loss 2005-06 (-) Rs. 3,66,91,140/- 2006-07 (-) Rs. 20,18,38,117/- 2007-08 (-) Rs. 18,19,34,123/- 2008-09 (-) Rs. 30,28,11,359/- 2009-10 (-) Rs. 35,28,72,303/- 2010-11 (-) Rs. 31,14,09,914/- 2011-12 (-) Rs. 39,70,52,993/-
We have given a thoughtful consideration to the aforesaid claim of the ld. A.R, and are persuaded to accept his claim. In our considered view, the notional interest income on the interest free loan advanced by the assessee to its AE viz. ADSIL would be assessable as the income of the assessee which has a business connection/PE in India. At the same time, we are P a g e | 6 Sabre Asia Pacific Lte Ltd. Vs. DCIT-A.Y. 205-06 to 2011-12 ITA No. 7367/Mum/2010, ITA No. 8479/Mum/2011, ITA No.7400/Mum/2012,ITA No. 2120/Mum/2014, ITA No. 1704/Mum/2015 and in agreement with the claim of the ld. A.R, that the said notional interest income on the loans advanced by the assessee to its AE would be entitled to be adjusted against the expenditure incurred by the assessee by way of marketing service fees paid to its National Marketing Agency in India, i.e its AE viz. ADSIL. In fact, the said claim of the assessee had been accepted by the Tribunal in context of addition of 10% of reimbursement of expenses, vide its order dated 16.02.2018. Accordingly, we allow the claim of the assessee that the notional interest income would be entitled to be adjusted as against the expenditure incurred by it by way of marketing service paid to ADSIL during the aforesaid respective years. At the same time, we may herein observe, that as the quantification of the aforesaid claim as had been projected by the assessee before us cannot be summarily accepted on the very face of it, therefore, for the limited purpose of making verification as regards the veracity of such quantification the matter is restored to the file of the A.O/TPO. As the Ground of appeal No. 5.8 has been allowed by us as above, therefore, as per the concession of the ld. A.R the Ground of appeal No. 5.7 which is rendered as academic in nature is thus not being adverted to and adjudicated upon by us. Accordingly, the Ground of appeal No. 5.8 is allowed in terms of our aforesaid observations. The view taken by us hereinabove would also be applicable to A.Y. 2006-07 to A.Y. 2009-10, wherein the said issue in the absence of a specific ground of appeal to the said effect was allowed to be raised with the leave of the Tribunal at the time of hearing of the appeal. Insofar, the Ground of appeal No. 5.7 is concerned, the same as observed by us hereinabove, having been rendered as academic in nature is accordingly not being adjudicated upon and is left open.
Resultantly, finding merit in the appeals of the assessee on the aforesaid limited aspect, the same are allowed in terms of our aforesaid observations.