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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
Date of Hearing –13.03.2019 Date of Order – 30.04.2019
O R D E R PER BENCH
The aforesaid appeals, four by the Revenue and three by the assessee, are filed against separate orders passed by the learned
4 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
Commissioner (Appeals)–56, Mumbai, pertaining to the assessment years 2005–06, 2007–08, 2008–09 and 2009–10.
Since, the aforesaid appeals relate to the same assessee and involve common issues, therefore, as a matter of convenience, these appeals were heard together and are being disposed of by way of this consolidated order. ./2016 Revenue’s Appeal – A.Y. 2005–06)
In ground no.1, the Revenue has challenged allowance of assessee’s claim of depreciation on non–compete fee.
Brief facts are, in the previous year relevant to the assessment year 1999–2000, the assessee had acquired the Glass Division from Nicholas Piramal India Ltd. In connection with the said acquisition, the assessee had paid an amount of ` 18 crore towards non–compete fee. The non–compete fee paid by the assessee was capitalized over various fixed assets in the ratio of their values estimated on a fair basis arrived at by the technical experts. In the return of income filed for the assessment year 1999–2000, the assessee claimed depreciation at the applicable rate depending upon the value allocated to the respective block of assets. Following the said methodology, the assessee also claimed depreciation in the impugned assessment year.
5 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
Relying upon his decision in assessment year 1999–2000, the Assessing Officer disallowed assessee’s claim of depreciation on the non–compete fee capitalized over different assets. The assessee challenged the disallowance before the first appellate authority.
After considering the submissions of the assessee, learned Commissioner (Appeals) found that assessee’s claim of depreciation on non–compete fee capitalized over various block of assets was disallowed by the Tribunal in assessment year 1999–2000. Following the same, learned Commissioner (Appeals) disallowed assessee’s claim of depreciation on non–compete fee capitalized over various assets. However, following the decision of the Tribunal in assessee’s own case for the assessment year 2001–02, he allowed assessee’s claim of depreciation on non–compete fee @ 25% by treating it as an intangible asset.
The learned Departmental Representative, though, relied upon the observations of the Assessing Officer, however, he fairly submitted that the issue has been decided in favour of the assessee by the Tribunal in assessment year 2001–02.
The learned Authorised Representative submitted, assessee’s alternative claim of depreciation on non–compete fee as an intangible asset has been accepted by the Tribunal in assessment year 2001–02,
6 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
2006–07 and 2011–12. In this context, he drew our attention to the respective orders of the Tribunal. Further, he relied upon the decision of the Hon’ble Madras High Court in Pentasoft Technologies Ltd. v/s DCIT, [2014] 222 taxman 209 (Mad.) and the decision of the Hon’ble Karnataka High Court in CIT v/s Ingersoll Rand International Industry Ltd., 48 taxmann.com 349.
We have considered rival submissions and perused material on record. The issue before us is, whether assessee’s claim of depreciation on non–compete fee @ 25% by treating it as an intangible asset is acceptable or not. As could be seen, this is a recurring dispute between the parties since the assessment year 1999–2000. Though, while deciding the issue in the assessment year 1999–2000, vide ITA no.4842/Mum./2004, dated 5th April 2013, the Tribunal has disallowed assessee’s claim of depreciation on non– compete fee by treating it as an intangible asset, however, while deciding assessee’s appeal in assessment year 2001–02 in ITA no. 9645/Mum./2004, dated 2nd March 2016, the Tribunal though was conscious of its own contrary decision in assessment year 1999–2000, however, taking note of the decisions of Hon’ble Madras High Court and Hon’ble Karnataka High Court, referred to above, allowed assessee’s claim of depreciation by treating the non–compete fee as an intangible asset. The same view was reiterated by the Tribunal
7 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.) while deciding assessee’s appeal for the assessment year 2006–07 in ITA no.5360/Mum./2010, dated 16th December 2016, and in assessment year 2011–12 in ITA no.157/Mum./2011, dated 4th January 2007. Therefore, facts being identical, following the consistent view of the Tribunal in the orders referred to above, as well as the decision of different High Courts cited supra, we uphold the decision of the learned Commissioner (Appeals) on the issue. Ground is dismissed.
Ground no.2 is on the issue of deletion of disallowance of interest on borrowed funds amounting to ` 1,41,56,808.
Brief facts are, in the financial year 1999–2000, the assessee had invested a sum of ` 25.87 crore in Ceylon Glass Co. Ltd., Sri Lanka, and in financial year 2002–03, it had invested ` 0.12 crore in Gujarat Glass U.S. Inc. USA. In the financial year 2001–02, the assessee had made further investment in Ceylon Glass Co. Ltd. and the total investment stood at ` 28.89 crore. The Assessing Officer was of the view that the investment made by the assessee in the aforesaid entities were not for the purpose of business. Accordingly, attributing interest cost of 4.88% to the funds invested in the aforesaid two entities the Assessing Officer disallowed an amount of ` 1,41,56,880, under section 36(1)(iii) of the Income Tax Act, 1961 (for short “the
8 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
Act”) on the reasoning that such investment of funds was not for the purpose of business. The assessee challenged the disallowance before the first appellate authority.
After considering the submissions of the assessee and taking note of the fact that similar disallowance made by the Assessing Officer in the preceding assessment years were deleted by the Tribunal while deciding assessee’s appeals, learned Commissioner (Appeals) deleted the disallowance made by the Assessing Officer.
The learned Departmental Representative, though, relied upon the observations of the Assessing Officer, however, he fairly submitted that the issue has been decided in favour of the assessee in the preceding assessment years.
The learned Authorised Representative submitted, the issue has been consistently decided in favour of the assessee by the Tribunal in assessment years 2001–02, 2006–07 and 2011–12. He drew our attention to the respective orders of the Tribunal. Further, he submitted, since the subsidiaries in which investments were made are in the same line of business, the investment is for the purpose of business, hence, no disallowance of interest expenditure can be made. In this contest, he relied upon the decision of the Hon'ble Supreme Court in S.A. Builders v/s CIT, 288 ITR 001 (SC). Without prejudice to 9 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
the aforesaid submission, the learned Authorised Representative submitted, since the assessee was having sufficient surplus funds to make the investment, no disallowance under section 36(1)(iii) of the Act can be made. In support of such contention, he relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities And Power Ltd., [2009] 313 ITR 340 (Bom.).
We have considered rival submissions and perused material on record. As could be seen, the Assessing Officer has disallowed a part of interest expenditure on the reasoning that investments made by the assessee in sister concerns are not for the purpose of business. However, it is noticed that while deciding dispute arising out of similar disallowance made by the Assessing Officer in the assessment year 2001–02, the Tribunal in and 9498/Mum./2004, dated 2nd March 2016, has decided the issue in favour of the assessee by holding that the investment of funds in sister concerns are for the purpose of business. The same view was reiterated by the Tribunal while deciding the issue in assessment year 2006–07, vide ITA no.8360/Mum./2010, dated 16th December 2016, and for the assessment year 2011–12 in ITA no.157/Mum./2016, dated 4th January 2017. Facts being identical, following the consistent view of the Tribunal in assessee’s own case as referred to above, we uphold the decision of learned Commissioner (Appeals) on the issue. Ground raised is dismissed.
10 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
Ground no.3 relates to deletion of disallowance made of ` 9,84,533 on account of interest attributable to interest free loan to the sister concern and director.
Brief facts are, during the assessment proceedings, the Assessing Officer while verifying the financial statement of the assessee noticed that outstanding dew of ` 3 lakh from Shri Vijay Shah and ` 1,98,74,850, from Piramal Enterprises Ltd. have been shown as part of loans and advances. Being of the view that the assessee had advanced interest free loan to sister concern and director without any business purpose the Assessing Officer made a disallowance of ` 9,84,533, by computing notional interest @ 4.88% per annum. In appeal proceedings, learned Commissioner (Appeals) after considering the submissions of the assessee and facts and materials on record found that the amount receivable from the sister concern cannot be treated as loan. Further, he observed, loan given to Shri Vijay Shah is out of own funds and was disbursed in the assessment year 1999–2000. Further, noticing that in the assessment year 2001–02 similar disallowance made by the Assessing Officer was deleted by the Assessing Officer, learned Commissioner (Appeals) followed the same and deleted the disallowance made in the impugned assessment year.
The learned Departmental Representative relied upon the observations of the Assessing Officer.
11 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
The learned Authorised Representative submitted, issue has been decided consistently in favour of the assessee by the Tribunal in the preceding assessment years. In this context, he drew our attention to the respective orders of the Tribunal.
We have considered rival submissions and perused material on record. Undisputedly, the Assessing Officer has computed notional interest on certain amounts shown as receivable from a sister concern and one of the directors. However, the learned Commissioner (Appeals) after verifying the facts on record has found that the amount receivable from the sister concern is not in the nature of loan and the loan advanced to one of the directors is out of surplus fund. The aforesaid factual finding of learned Commissioner (Appeals) remains uncontroverted. Further, the Tribunal while deciding the issue in the preceding assessment years, in the orders referred to above, has deleted similar disallowance made by the Assessing Officer. In view of the aforesaid, we uphold the decision of learned Commissioner (Appeals) on the issue.
Ground no.4 is on the issue of deletion of disallowance of employees’ contribution to provident fund (P.F) and pension fund amounting to ` 14,85,755.
12 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
In the course of assessment proceedings, the Assessing Officer noticed that employees’ contribution to PF and pension fund was paid by the assessee after the due date prescribed under Explanation to section 36(1)(va) of the Act. Accordingly, he disallowed the deduction claimed of ` 14,85,755. Learned Commissioner (Appeals) while deciding the issue in appeal, allowed assessee’s claim since the employees’ contribution was paid within the grace period allowed under the PF Act and much before the due date of filing of return of income under section 139(1) of the Act.
We have considered rival submissions and perused material on record. Undisputedly, the assessee has paid the employees contribution to PF and pension fund within the grace period allowed under the relevant Acts. Moreover, such payments have been made by the assessee much before the due date of filing of return of income for the impugned assessment year as per section 139(1) of the Act. That being the case, following the decision of the Hon'ble Jurisdictional High Court in CIT v/s Ghatge Patil Transports Ltd., [2014] 368 ITR 749 (Bom.), we uphold the decision of learned Commissioner (Appeals) by dismissing the ground raised.
In ground no.5, the Revenue has challenged deletion of addition made on account of transfer pricing adjustment on the marketing fee paid to the Associated Enterprises (AE).
13 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
Brief facts are, during the year under consideration the assessee had paid marketing fee to its AE from U.S.A. and Sri Lanka. From the material available on record, the Transfer Pricing Officer observed, the marketing fee paid during the year to the AE in USA is considerably higher compared to the total turnover. Further, he observed that the segmental accounts show that the operative profit ratio of AE at Sri Lanka was showing a margin of 19.61% and third party sales was showing a margin of 17.89%. Whereas, the AE segment in USA is showing negative margin of –36.79%. According to the Transfer Pricing Officer, the negative margin was due to high marketing fee paid by the assessee. After examining the transfer pricing study report and comparables selected therein, the Transfer Pricing Officer was of the view that the lower margin of the company was due to the payment of marketing fee and accordingly proposed an adjustment of ` 1.58 crore. The Assessing Officer made the addition on the basis of transfer pricing adjustment proposed by the Transfer Pricing Officer. While deciding assessee’s appeal on the issue of transfer pricing adjustment, learned Commissioner (Appeals) held that the Transfer Pricing Officer was wrong in holding that the marketing fees are related to sales. He observed, as per the material on record, irrespective of the volume of sales made to the AE, marketing fee does not vary. He observed, sale of glass bottles and payment of marketing
14 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.) fee are separate transactions, hence, cannot be benchmarked together. Thus, ultimately, he accepted assessee’s separate benchmarking of transaction of sales and marketing fee and ultimately deleted the addition made on account of transfer pricing adjustment.
The learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted, since the marketing fee is linked to the sales, the Transfer Pricing Officer was justified in making adjustment to the margin shown by the assessee relating to sales of bottles. In this context, he heavily relied upon the observations of the Transfer Pricing Officer.
The learned Authorised Representative strongly relying upon the observations of learned Commissioner (Appeals) submitted, without assigning any valid reason for rejecting the method applied by the assessee, the Transfer Pricing Officer has proceeded to determine the arm's length price of marketing fee by adopting a different approach not prescribed in the statute. Further, he submitted, when the method applied by the assessee has been consistently followed over the years and accepted by the Department, in the absence of any material change in facts, the Transfer Pricing Officer cannot adopt a different approach in the impugned assessment year. He submitted, the transaction relating to sale of bottles and marketing fee are completely
15 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.) different transactions, hence, cannot be aggregated together for benchmarking. Thus, he submitted learned Commissioner (Appeals) decision on this issue should be upheld.
We have considered rival submissions and perused material on record. As could be seen from the facts on record, in the relevant previous year, the assessee had entered into various international transactions with its AEs, such as, sale of goods to AE in USA, royalty on sales received, sale of goods to AE in Sri Lanka and marketing fee paid to the AE in USA. It is relevant to observe, the assessee has benchmarked each of the aforesaid transactions separately by applying one of the prescribed methods. The Transfer Pricing Officer while determining the arm's length price of marketing services fee paid has aggregated it with the sales made to the AE at USA and while doing so has selected / rejected comparables relating to the sales segment. In our view, the aforesaid approach of the Transfer Pricing Officer is unacceptable. When the Transfer Pricing Officer is examining the arm's length price of the marketing fee paid, he cannot club it with the sales transaction since both are separate and distinct transactions. Further, the agreement between the assessee and the AE clearly establish that the payment of marketing fee is not linked to sales. Therefore, in our view, it has to be benchmarked separately. Moreover, the assessee is following the aforesaid method of benchmarking all the transactions
16 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.) separately consistently over the years. It is also fact on record that the Department has accepted the benchmarking done by the assessee in all other years except the impugned assessment year. Therefore, there being no material difference in facts, following the rule of consistency also assessee’s benchmarking has to be accepted. The ratio laid down by the Hon'ble Jurisdictional High Court in PCIT v/s Vishay Components India Pvt. Ltd., in dated 18th February 2019, supports this view. Even, the Hon'ble Supreme Court in CIT v/s Kargill Foods India Ltd., judgment dated 24th October 2016. has also expressed similar view. In the aforesaid view of the matter, we uphold the decision of the learned Commissioner (Appeals) on the issue.
In ground no.6, the Department has challenged the deletion of disallowance for provision of doubtful debts amounting to ` 2,31,79,785.
Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has debited an amount of ` 2,31,79,785, to the Profit & Loss Account towards provisions for doubtful debts. He noticed that, though, the assessee has added back this amount to the income computed under the normal provisions of the Act, however, it has not done the same while computing the book profit under section 115JB. Referring to the Explanation 1 (c) under 17 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
section 115JB(2) of the Act, the Assessing Officer held that the amounts set–aside towards provision made for making liabilities other than ascertained liabilities have to be added back to the net profit. Accordingly, he added back the amount under dispute while computing book profit under section 115JB of the Act. The assessee challenged the aforesaid decision of the A.O. before the first appellate authority.
After considering the submissions of the assessee in the light of the decisions cited before him, learned Commissioner (Appeals) observed that the provision for doubtful debt made by the assessee is not for meeting a liability but for diminution in the value of the asset. Therefore, relying upon the judicial precedents cited before him the learned Commissioner (Appeals) reduced the disputed amount from the book profit.
The learned Departmental Representative relied upon the observations of the Assessing Officer. Whereas, the learned Authorised Representative strongly supported the view expressed by the learned Commissioner (Appeals).
We have considered rival submissions and perused material on record. As could be seen, the Assessing Officer has added back the provision for doubtful debt taking recourse to Explanation-1(c) to section 115JB(2) of the Act, as it is not set out for meeting any 18 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
ascertained liability. However, the facts on record reveal that the amount in dispute is not a liability but debt receivable by the assessee. That being the case, Explanation-1(c) to section 115JB would not apply. The order passed by the learned Commissioner (Appeals) on the issue is upheld.
In ground no.7, the Revenue has challenged deletion of disallowance of the provisions made for non–moving / obsolete inventory. The reasoning on the basis of which the Assessing Officer made the disallowance is similar to ground no.6.
Therefore, in view of our reasoning in ground no. 6, the decision of learned Commissioner (Appeals) is upheld. Ground raised is dismissed.
In the result, Revenue’s appeal is dismissed. ./2016 Revenue’s Appeal – A.Y. 2007–08
Ground no.1 relates to depreciation on non compete fee. This ground is identical to ground no.1 of ITA no.4777/Mum./ 2016. Following our decision in Para–8 of the order, we uphold the decision of the learned Commissioner (Appeals).
19 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
Ground no.2 relates to deletion of disallowance of interest expenditure under section 36(1)(iii) of the Act. This ground is identical to ground no.2 of ITA no.4777/Mum./ 2016. Following our decision in Para–14 of the order, we uphold the decision of the learned Commissioner (Appeals).
Ground no.3 is on the issue of deletion of addition of interest on interest free loan advanced to sister concern. This ground is identical to ground no.3 of ITA no.4777/Mum./2016. Following our decision in Para–19 of the order, we uphold the decision of the learned Commissioner (Appeals).
Gorund no.4, relates to deletion of disallowance made on account of delayed payment of employees’ contribution to P.F. and pension fund.
This ground is identical to ground no.4 of ITA no.4777/Mum./ 2016. Following our decision in Para–22 of the order, we uphold the decision of the learned Commissioner (Appeals).
In ground no.5, the Revenue has challenged partial relief granted by the learned Commissioner (Appeals) in respect of adjustment made to the arm's length price of interest on interest free loan advanced to the Associated Enterprise (AE) and commission on corporate
20 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.) guarantee provided to the AE. Challenging the decision of learned Commissioner (Appeals) assessee has raised corresponding grounds in its appeal for the very same Assessment Year in ITA no.4598/Mum./ 2016.
Brief facts are, the Transfer Pricing Officer noticing that the assessee has advanced interest free loan to its AE Piramal Glass (U.K) Ltd., was of the view that arm's length interest has to be computed on such loan as no such interest free loan would have been advanced by any third party. The Transfer Pricing Officer observed, the assessee had advanced loan to another AE at the interest rate of 7.3% to 8.4%. He also observed that RBI permits borrowing at a rate equivalent to 8.2% to 8.77%. Thus, he proposed an adjustment of ` 10,45,175, towards arm's length price of the interest on the interest free loan. Further, he noticed that the assessee had provided corporate guarantee without charging any guarantee commission. Thus, he proceeded to determine the arm's length price of corporate guarantee commission @ 3% which resulted in an adjustment of ` 73,19,047. The adjustments proposed by the Transfer Pricing Officer were added back by the Assessing Officer. The assessee challenged the aforesaid additions before the first appellate authority.
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Learned Commissioner (Appeals) after considering the submissions of the assessee directed the Assessing Officer to compute the arm's length price of the interest on loan to AE by applying LIBOR rate instead of Prime Lending Rate (PLR) of RBI. As regards corporate guarantee commission, learned Commissioner (Appeals) directed the Assessing Officer to charge guarantee commission @ 0.5%.
The learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted that the arm's length price of interest as determined by the Transfer Pricing Officer is proper. As regards guarantee commission, the learned Departmental Representative relied upon the observations of the Transfer Pricing Officer.
The learned Authorised Representative, on the other hand, submitted, arm's length price of the interest on interest free loan advanced to the AE may be charged at LIBOR plus 200 basis points. As regards corporate guarantee commission, learned Authorised Representative though submitted that provision of corporate guarantee does not come within the purview of international transaction under section 92B of the Act, however, he supported the determination of arm's length price of guarantee commission at 0.5% as was done by learned Commissioner (Appeals).
22 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
We have considered rival submissions and perused material on record. We are unable to accept the contention of the learned Authorised Representative that transfer pricing provision would not apply to the loan transaction with the AE. In our considered opinion, the provision of interest free loan to the AE comes within the purview of international transaction under section 92B of the Act, hence, transfer pricing provisions will apply. Moreover, since by provision of interest free loan, a benefit has accrued to the AE which may not have been the case if such loan would have been advanced by a third party, determination of arm's length price of the interest on such loan has to be made. However, we agree with the learned Commissioner (Appeals) that interest cannot be charged by applying PLR rate, since, the loan has been advanced to the AE in a foreign country. Therefore, we direct the Assessing Officer to charge interest on interest free loan to the AE at LIBOR plus 200 basis points. As regards guarantee commission for provision of corporate guarantee, we are unable to accept the contention of the learned Authorised Representative that it does not come within the purview of international transaction as defined under section 92B of the Act. In the decisions referred to by the learned Commissioner (Appeals), the Hon'ble Jurisdictional High Court has upheld the decision of the Tribunal in computing corporate guarantee fee @ 0.5%. In view of the aforesaid, we uphold the 23 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
decision of the learned Commissioner (Appeals) on the issue. Grounds are dismissed.
In ground no.6, the Revenue has challenged the deletion of addition made on account of provision for doubtful advances while computing book profit under section 115JB of the Act.
This ground is identical to ground no.6 of ITA no.4777/Mum./ 2016. In view of decision in Para–32 of the order, we dismiss this ground.
In the result, appeal is dismissed. ./2016 Assessee’s Appeal – A.Y. 2007–08)
The grounds raised by the assessee are in relation to determination of arm's length price of interest on interest free loans advanced to the AE and guarantee commission on corporate guarantee provided to the AE.
We have dealt with these issues while deciding corresponding ground being ground no.5 in Revenue’s appeal in ITA no.4778/Mum./2016. Accordingly, these grounds are decided in terms of our decision in para–46 of the order.
In the result, appeal is partly allowed.
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./2016 Revenue’s Appeal – A.Y. 2008–09)
The issue raised in ground no.1, is in relation to allowability of depreciation on non–compete fee.
This ground is identical to ground no.1 of ITA no.4777/Mum./ 2016. Following our decision in Para–8 of the order, we dismiss the ground raised.
In ground no.2, the Revenue has challenged deletion of disallowance of interest expenditure under section 36(1)(iii) of the Act. This ground is identical to ground no.2 of ITA no.4777/Mum./2016. Following our decision in para–14 of the order, we dismiss the ground raised.
In ground no.3, Revenue has challenged the deletion of addition made on account of disallowance of interest charged on interest free loans to the sister concern.
This ground is identical to ground no.3, of ITA no.4777/Mum./ 2016. Following our decision in Para–19 of this order, we dismiss the ground raised.
In grounds no.4 and 5, the Revenue has challenged the partial relief granted to the assessee on account of transfer pricing
25 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.) adjustment on interest on interest free loan to the AE and provision of corporate guarantee to the AE
These grounds are identical to ground no.5 of Mum./2016. Following our decision in Para–46 of the order, we dismiss the grounds raised.
In ground no.6, the Revenue has challenged deletion of addition made to the book profit on account of disallowance of provision of non–moving / obsolete inventory.
This ground is identical to ground no.6 and 7, of Mum./2016. Following our decision in para–32 and 34 of the order we dismiss the ground raised.
In the result, appeal is dismissed. ./2016 Assessee’s Appeal for A.Y. 2008–09
Grounds no.I and II raised by the assessee are in relation to determination of arm's length price of interest on interest free loans advanced to the AE and guarantee commission on corporate guarantee provided to the AE.
We have dealt with these issues while deciding corresponding grounds, being ground no.4 and 5 in Revenue’s appeal in ITA no.4780/
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Mum./2016. Accordingly, these grounds are decided in terms of our decision in para–46 and 51 of the order.
In ground no.(III), the assessee has challenged addition made on account of transfer pricing adjustment to the price paid for purchase of moulds.
Brief facts are, in the course of proceedings before him the Transfer Pricing Officer found that the assessee had purchased moulds from its AE on payment of ` 18,39,048. As alleged by the Transfer Pricing Officer, the assessee did not benchmark these transactions in the transfer pricing study report. He has further alleged that, though, the assessee submitted that he has benchmarked the transaction by applying comparable uncontrolled price (CUP) method, however, no details relating to CUP were furnished. Thus, the Transfer Pricing Officer concluded that the price paid by the assessee towards purchase of moulds is not at arm's length. Further, stating that there is no CUP available, on ad–hoc basis he made a downward adjustment of 25% to the price paid which resulted in an adjustment of ` 4,59,762.
The adjustment proposed by the Transfer Pricing Officer was added back to the income of the assessee. Though, the assessee challenged the aforesaid addition before learned Commissioner
27 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
(Appeals), however, he did not interfere with the decision of the Transfer Pricing Officer.
The learned Authorised Representative submitted, due to non– availability of comparable uncontrolled transaction in public domain, the assessee benchmarked the transaction by obtaining a certificate from an independent valuer. He submitted, the Transfer Pricing Officer has not followed any prescribed method and has determined the arm's length price on the basis of ad–hoc estimation. Thus, he submitted, the adjustment made by the Transfer Pricing Officer is unsustainable. In support of such contention, he relied upon the following decisions:–
i) CLSA India Pvt. Ltd. v/s DCIT, [2019] 101 taxmann.com 388 (Mum.); and ii) ITO v/s Intertoll ICS India Pvt. Ltd., [2016] 180 TTJ 41 (Mum.);
Without prejudice to the aforesaid submissions, the learned Authorised Representative submitted, the Assessing Officer be directed to determine the arm's length price by applying entity level transactional net margin method (TNMM) like other international transactions.
The learned Departmental Representative, though, relied upon the observations of learned Commissioner (Appeals) and the Transfer Pricing Officer, however, he submitted that the issue may be restored
28 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.) back to the Assessing Officer for determining the arm's length price by applying any prescribed method.
We have considered rival submissions and perused material on record. Undisputedly, the assessee was unable to justify its claim that the international transaction relating to purchase of moulds was benchmarked by applying CUP method. Similarly, while determining the arm's length price of the disputed transaction, the Transfer Pricing Officer has not followed any prescribed method, but has determined the arm's length price on purely estimation basis. This, in our view, is legally unsustainable. The Transfer Pricing Officer is duty bound to determine the arm's length price of the international transaction by following any one of the methods prescribed in the statute. The Transfer Pricing Officer has not justified or provided any valid reason why 25% downward adjustment has to be made to the price paid. That being the case, the addition made on account of transfer pricing adjustment is unsustainable. However, considering the fact that the assessee has also not properly benchmarked the transaction, we are inclined to restore the issue to the Assessing Officer for determining the arm's length price of the international transaction relating to purchase of moulds by applying any one of the prescribed methods. In this context, the Assessing Officer should consider assessee’s claim of determination of arm's length price by applying entity level TNMM.
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Needless to mention, before deciding the issue, the Assessing Officer must afford reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes.
In the result, appeal is partly allowed. ./2016 Revenue’s Appeal for A.Y. 2009–10
In ground no.1, the Revenue has challenged allowability of assessee’s claim of depreciation on non–compete fee.
This ground is identical to ground no.1 of ITA no.4777/Mum./ 2016. Following our decision in Para–8 of the order, we dismiss the ground raised.
In ground no.2, the Revenue has challenged the deletion of disallowance of interest under section 36(1)(iii) of the Act.
This ground is identical to ground no.2 of ITA no.4777/Mum./ 2016. Following our decision in Para–14 of the order, we dismiss the ground raised.
In ground no.3, the Revenue has challenged deletion of disallowance of interest on borrowed funds towards interest free loan to the sister concern.
30 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.)
This ground is identical to ground no.3 of ITA no.4777/Mum./ 2016. Following our decision in Para–19 of this order, we dismiss the ground raised.
Grounds no.4 and 5 are on the issue of partial relief granted by the learned Commissioner (Appeals) with regard to adjustment made to the arm's length price of interest on interest free loan to AE Piramal Glass Ltd. and guarantee commission on corporate guarantee.
These grounds are identical to ground no.5 of ITA no. 4778/Mum./2016. Following our decision in Para–46 of this order, we dismiss the grounds raised.
In the result, Revenue’s appeal is dismissed. ./2016 Assessee’s Appeal for A.Y. 2009–10
The grounds raised by the assessee are in relation to determination of arm's length price of interest on interest free loans advanced to the AE and guarantee commission on corporate guarantee provided to the AE.
We have dealt with these issues while deciding corresponding grounds, being ground no.4 and 5 in Revenue’s appeal in ITA
31 Gujarat Glass Ltd. (Now known as Piramal Glass Ltd.) no.4779/Mum./2016. Accordingly, these grounds are decided in terms of our decision in para–46 and 51 of the order.
In the result, appeal is partly allowed.
To sum up, Revenue’s appeals are dismissed and assessee’s appeals are partly allowed. Order pronounced in the open Court on 30.04.2019