DCIT, CHENNAI vs. ROCA BATHROOMS PRODUCTS (P) LTD., CHENNAI

filed by the assessee was, in fact, disposed of by this Tribunal by an order dated 18.12.2015. The assessee filed a Miscellaneous Petition in M.P. No.71/Mds/2016 on the ground that the grounds raised by the assessee in ground Nos.

Shri Raghunathan Sampath, the Ld.counsel for the assessee, submitted that the Transfer Pricing Officer made adjustment in respect of interest rate for compulsory convertible debentures without giving adequate reasons. According to the Ld. counsel, the assessee invested in convertible debentures of the sister concern in foreign country. The Assessing Officer without analysing the facts and by picking up the cases of compulsory convertible debentures issued by other companies, made the disallowance. The assessee in fact determined the arm's length price by using Bank Primary Lending Rate. The Ld.counsel for the assessee further submitted that the main issue with regard to application of Bright Line Test was remanded back to the file of the Assessing Officer, therefore, in respect of the ground raised by the assessee with regard to determination of arm's length interest rate for compulsory convertible debentures may also be remitted back to the file of the Assessing Officer.

Referring to ground No.7, the Ld.counsel for the assessee submitted that the Assessing Officer disallowed the expenses by applying Rule 8D of Income-tax Rules, 1962 on the ground that the expenses were incurred for earning the income which does not form part of total income. The Assessing Officer failed to note that the expenditures incurred by the assessee were not for earning the exempt income. The Assessing Officer assumed himself that the assessee incurred expenditure for earning exempted income. Since the main issue was remitted back to the file of the Assessing Officer, according to the Ld. counsel, this issue may also be remitted back to the file of the Assessing Officer.

We have heard Shri A.B. Maurya, the Ld. Departmental Representative also. As rightly submitted by the Ld.counsel for the assessee, the main issue with regard to application of Bright Line Test was remitted back to the file of the Assessing Officer.

Now coming to the appeal of the assessee in the first issue arises for consideration is computation of arm’s length interest rate for compulsory convertible debentures and the second issue is with regard to disallowance made under Rule 8D. In the earlier part of this order, while considering the assessee’s appeal in I.T.A. No.610/Mds/2015, this Tribunal remitted back the issues to the file of the Assessing Officer for re-examine the matter. In view of the above, this Tribunal is of the considered opinion that the determination of arm's length interest rate for compulsory convertible debentures and disallowance made by the Assessing Officer under Rule 8D need to be reconsidered for this year also. Accordingly, the orders of the authorities below are set aside and the disallowance made by the Assessing Officer by determining the arm's length interest rate for compulsory convertible debentures and in respect of expenditure under Section 14A of the Act read with Rule 8D is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the issues in the light of the material that may be filed by the assessee and thereafter decide the issue, in accordance with law, after giving a reasonable opportunity to the assessee.

Now coming to assessment year 2011-12 in the Revenue has challenged the correctness of the order of the Transfer Pricing Officer. The issue arises for consideration is only in respect of adjustment of interest rate on the compulsory convertible debentures. The assessee claims before this Tribunal that for the assessment years 2010-11 and 2011-12, the adjustment made by the Transfer Pricing Officer was upheld by the Dispute Resolution Panel. However, for the assessment year 2011-12, the adjustment made by the Transfer Pricing Officer was reversed by the Dispute Resolution Panel. Therefore, the Revenue has filed the present appeal. The main contention of the Department is that the DRP directed the Transfer Pricing Officer to determine the arm's length interest rate on compulsory convertible debentures by adopting single year data. Since the issue for earlier year was remitted back to the file of the Assessing Officer, this Tribunal is of the considered opinion that the Assessing Officer shall reconsider this issue along with other assessment years.

Now coming to the cross-objection filed by the assessee, the issue raised by the assessee is only in respect of determination of interest rate on compulsory convertible debentures by adopting sing year data. An identical issue was remitted back to the file of the Assessing Officer on the earlier part of this order. Therefore, this Tribunal is of the considered opinion that the Assessing Officer shall reconsider the matter in the light of the material available.

In the result, all the appeals of the assessee and Revenue and cross-objection of the assessee are allowed for statistical purposes.