HUNTSMAN INTERNATIONAL (INDIA) P.LTD,MUMBAI vs. ASST CIT 10(1)(1), MUMBAI

In ground no.1, the assessee has challenged disallowance of the corporate and management service charges paid to the Associated Enterprises (AE) amounting to ` 8,40,30,164.

The assessee, an Indian Company, is a wholly owned subsidiary of Huntsman International LLC. During the year under consideration, the assessee had entered into various international transactions with its overseas AE, including payment made towards availing of corporate and management services. In the course of proceedings before him, the Transfer Pricing Officer not only called for various information and details, but also directed the assessee to justify the arm's length nature of payment made towards corporate and management services provided by the AE. Further, The Transfer Pricing Officer called upon the assessee to establish through evidence the nature of service availed and the necessity and commercial expediency of availing such services. After considering the submissions of the assessee and evidences furnished, the Transfer Pricing Officer was of the view that the assessee was unable to establish the necessity of availing services and the benefit derived qua the payment made to the AE. Thus, ultimately, the Transfer Pricing Officer held that the payment made by the assessee towards corporate and management services is not at arm's length and accordingly proposed adjustment of ` 15,95,41,317. The adjustment proposed by the Transfer Pricing Officer was added

Learned DRP, after considering the submissions made by the assessee, granted partial relief to the assessee which resulted in reduction of transfer pricing adjustment to ` 15,67,79,125.

Shri Farrokh Irani, the learned Sr. Counsel for the assessee submitted, the issue is covered by the decision of the Tribunal in the preceding assessment year, wherein, the Tribunal has restored the issue to learned DRP for de novo adjudication. In this context, he drew our attention to the decision of the Tribunal in assessment year 011– 12 and 2011–13. Thus, he submitted, the issue may be restored back to learned DRP for fresh adjudication.

The learned Departmental Representative also agreed that the issue has to be restored back to learned DRP as was done by the Tribunal in preceding assessment years.

We have considered rival submissions and perused the material on record. As could be seen, the allowability of assessee’s claim of payment of corporate and management service charges to the AE is a recurring dispute between the parties since the assessment year 2009–10. The Tribunal while deciding the issue in the preceding

Ground no.2, is not pressed due to smallness of the amount involved. Accordingly, this ground is dismissed as not pressed.

In ground no.3, the assessee has challenged disallowance of depreciation on certain intangible assets, such as, material supply contracts, distribution network and brand usage. As could be seen from the facts on record, noticing that similar claim of depreciation made by the assessee in the preceding years were disallowed, the Assessing Officer proceeded to disallow assessee’s claim of depreciation on the intangibles.

Learned DRP also following its own order in the preceding assessment year sustained the disallowance made by the Assessing Officer.

The learned Sr. Counsel for the assessee submitted, while deciding identical issue in assessee’s own case in preceding assessment years, the Tribunal has allowed assessee’s claim of depreciation on intangibles. In this context, he drew our attention to relevant orders of the Tribunal. Thus, he submitted, depreciation claimed by the assessee has to be allowed.

The learned Departmental Representative, though, agreed that in the preceding assessment years the issue has been decided in favour of the assessee, however, he relied upon the observations of the Assessing Officer and learned DRP.

We have considered rival submissions and perused the material on record. It is evident, the dispute relating to assessee’s claim of depreciation on certain intangible assets, such as, material supply contract, distribution network and brand usage is continuing from the preceding assessment years. However, while deciding the issue, the Tribunal has consistently allowed assessee’s claim of depreciation. In the latest order passed for the assessment year 2012–13 in ITA

In ground no.4, the assessee has challenged disallowance of expenditure under section 14A r/w rule 8D.

Brief facts are, during the assessment proceedings, the Assessing Officer noticed that in the year under consideration, the assessee had earned exempt income by way of dividend amounting to ` 6,84,475. Whereas, it has disallowed an amount of ` 2 lakh under section 14A of the Act. Being of the view that the disallowance made by the assessee is not in accordance with rule 8D, the Assessing Officer proceeded to compute disallowance at ` 21,69,706, under rule 8D. After adjusting the disallowance of ` 2 lakh made by the assessee, he made a net disallowance of ` 19,69,706. The aforesaid disallowance made by the Assessing Officer was also sustained by learned DRP.

The learned Sr. Counsel for the assessee submitted, the disallowance of interest expenditure under rule 8D(2)(ii) amounting to ` 5,35,131, cannot be made as the assessee had sufficient interest free fund available with it. In this context, he drew our attention to the 7 Huntsman International India Pvt. Ltd.

The learned Departmental Representative relied upon the observations of the Assessing Officer and learned DRP.

We have considered rival submissions and perused the material on record. There is no dispute between the parties with regard to primary facts relating to the issue. The assessee has suo motu disallowed direct expenditure of ` 2 lakh. Whereas, the Assessing Officer has computed disallowance under rule 8D at ` 21,69,706. On a perusal of the Balance Sheet of the assessee for the year under consideration, it is noticed that interest free fund available with the assessee by way of share capital, reserve and surplus, far exceeds the investments made in exempt income yielding assets. Therefore, as per the settled principle of law, no disallowance of interest expenditure under rule 8D(2)(ii) can be made. As regards disallowance of administrative expenditure under rule 8D(2)(iii), undisputedly, during the year under consideration, the assessee has earned exempt income

In ground no.5, the assessee has raised the issue of short deduction of tax deducted at source.

Having considered the submissions of the parties, we direct the Assessing Officer to verify the record and grant credit of TDS as per law.

Ground no.6, being general in nature is not required to be adjudicate, hence, dismissed.

In the result, assessee’s appeal is partly allowed. Order pronounced in the open Court on 30.08.2019