APAR INDUSTRIES LTD,MUMBAI vs. DCIT CC 6(1), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1. Addition of Rs.1,15,06,800/- on account of commission on corporate guarantee given for AE as per order u/s 92CA(3) of the Income Tax Act: 1.1 On facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of Ps. 1,15,06,800/- made by AO on account of Commission of Corporate Guarantee. The learned CIT(A) A.Y.2011-12 erred in not appreciating that the said Corporate Guarantees given for M/s Petroleum Specialties Pte Ltd (PSPL), the AE, do not have any impact on profits, income, losses or assets of the appellant. The learned CIT(A) erred in not appreciating that the guarantee agreement is between the appellant and the Bankers and not with PSPL. Accordingly, the learned CIT(A) erred in not appreciating that said transaction between the Bankers and the appellant does not fall within the scope of the term 'international transaction" u/s 92B of the Income Tax Act. Thus addition of commission of Rs.1,15,06,800/- on notional basis wherein there is no liability and no change in the assets given as security is bad- in-law and must be deleted. 1.2 Without prejudice to the above and without admitting, on facts and circumstances of the case and in law, the learned CIT(A) erred in not appreciating that the issuance of Corporate guarantee for PSPL is inextricably linked with the transaction of import of oil from PSPL. Thus the learned CIT(A) erred in not appreciating that when the price at which imports are made is at arm's length then issuance of corporate guarantee will also be at arm's length. 1.3 Without prejudice to the above and without admitting, on facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the benchmarking rate of guarantee commission @ 2.58% p.a. when similar guarantee commission is paid by the appellant on other transactions @ 0.495%. 1.4 Without prejudice to the above and without admitting, on facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that the calculation of guarantee commission should be for the period of utilization of the said guarantee to avail credit facilities and not for the entire year.”

3. The brief facts of the case are that the assessee filed its return of income on 29.11.2010 declaring total income to the tune of Rs.72,710,364/- under the normal provisions of the I.T. Act, 1961 and Rs.1,265,764,744/- u/s 115JB of the I.T. Act, 1961. Thereafter, the assessee again revised its return of income on 11.10.2012 declaring total income to the tune of Rs.Nil after claiming deduction u/s 80IC of the Act of Rs.146,851,875/- under the normal provisions of the Act 2 A.Y.2011-12 and Rs.1,265,764,744/- u/s 115JB of the I.T. Act, 1961. The assessee again revised its return of income on 27.02.2013 declaring total income to the tune of Rs.Nil after claiming deduction u/s 80IC of Rs.146,851,875/- under the normal provisions of the Act and Rs.988,351,173/- u/s 115JB of the I.T. Act, 1961. The return was accompanied with audit report u/s 44AB in Form No.3CA & 3CD along with computation of income, P&L Account, Balance-Sheet and Schedules thereon. The assessee has also filed the report in Form 3CEB u/s 92E r.w. Rule 10E in connection with the International transaction with its Associates concerns. The case was selected for scrutiny, therefore, the notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company is engaged in the business of manufacturing of conductor, oil and rubber. The company was having oil divisions at Silvassa and Rabale wherein the company was manufacturing Transformer Oil and other oils. The conductor divisions of the company were situated at Silvassa and Nalagarah. In the year consideration, M/s. Uniflex Cable Ltd. was amalgamated with the assessee M/s. Apar Industries Ltd. w.e.f. 01.04.2010 vide order dated 13.09.2012 from Board for Industrial and Financial Re-construction (BIFR) under case No.28/2010. Thereafter, the company revised its return of income on 31.03.2011. M/s. Uniflex Cable Ltd. had entered into various International transaction with „AE‟. Thereafter, the matter was referred to the TPO, Mumbai for determining the „Arm‟s Length Price‟ (ALP). The TPO passed the 3 A.Y.2011-12 order u/s 92CA(3) of the I.T. Act, 1961 and made adjustment in sum of Rs.1,15,06,800/- in connection with the Corporate Guarantee amounting to Rs.44,60,00,000/- with the Petroleum Specialties Ltd. Singapore. Accordingly, the AO passed the order u/s 143(3) r.w. Rule 144C(3) dated 29.01.2015. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who confirmed the order of the AO, therefore, the assessee has filed the present appeal before us.

ISSUE No. 1