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आयकर अपीलीय अिधकरण,च"डीगढ़ "यायपीठ “ए” , च"डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE "ी आकाश दीप जैन, उपा"य" एवं "ी िव"म "सह यादव, लेखा सद"य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ िनधा"रण वष" / Assessment Year : 2016-17 M/s Centrient Pharmaceuticals बनाम The India Pvt. Ltd. Additional/Joint/Deputy/Assistant (earlier known as M/s DSM Commissioner of Income Tax Sinochem Pharmaceuticals Pvt. Ltd.) Income Tax Officer Bhai Mohan Singh Nagar, Vill- National e-Assessment Centre, Delhi Toansa, Dist: Nawanshahar, Punjab, India "ायी लेखा सं./PAN NO: AABCM4314K अपीलाथ"/Appellant ""यथ"/Respondent िनधा"रती क" ओर से/Assessee by : Shri Darpan Kirpalani, Advocate राज"व क" ओर से/ Revenue by : Shri Rohit Sharma, CIT DR सुनवाई क" तारीख/Date of Hearing : 21/03/2024 उदघोषणा क" तारीख/Date of Pronouncement : 18/06/2024 आदेश/Order PER VIKRAM SINGH YADAV, A.M. :
This is an appeal filed by the Assessee against the order passed by the AO under section 144(C)(13) r.w.s 143(3) of the Act, pertaining to Assessment Year 2016-17.
Briefly the facts of the case are that the assessee company is engaged in manufacturing of intermediaries and bulk drugs. During the period under consideration, the assessee company entered into various international transactions with its Associated Enterprises which were referred during the course of assessment proceedings to the TPO for necessary examination and verification.
The TPO in his report has proposed the adjustment in respect of payment of Corporate Service Fee and which has subsequently been confirmed by the DRP and following the directions of the DRP, the same have been followed by the AO and forms part of the adjustment as per final assessment order passed by the AO and the assessee in Ground No. 2 to 7 has assailed the said transfer pricing adjustment.
From the perusal of the records, it is noted that the assessee had benchmarked its aforesaid international transaction by applying Transactional Net Margin method as the most appropriate method which was rejected by the TPO wherein he applied CUP method to benchmark the said international transaction and determined the arm’s length price of the transaction at NIL and made an addition of Rs. 25,83,61,849/-. The TPO after examining the documentation so submitted by the assessee concluded that the assessee has not been able to show that any service have actually been received by the assessee company. 5. Against the said action by the TPO, the assessee filed objection before the DRP and the DRP vide its direction dt 10/03/2021 has dismissed the objections so filed by the assessee and upheld the adjustment and accordingly the AO vide impugned order has made the addition in respect of Corporate Service Fee in terms of the direction so issued by the DRP. 6. During the course of hearing, the Ld. AR submitted that similar TP adjustment in respect of Corporate Service charges were made in A.Y. 2007-08 to 2010-11 and for A.Y. 2011-12 and 2014-15 and in all these years, the assessee carried the matter in appeal before the Tribunal and the Tribunal has consistently decided the matter partly in favour of the assessee by allowing 50% of the gross benefit from financial services received by the assessee.
The Ld. DR supported the order of the TPO and it was submitted that the same have been rightly upheld by the DRP and the objection so raised by the assessee have been dismissed. He accordingly supported the order and the findings of the AO in the impugned assessment order. At the same time, the Ld. DR fairly admitted that identical issue have been decided by the Tribunal in assessee’s own case in earlier years against which the Revenue in appeal before the Hon’ble Punjab & Haryana High Court.
We have heard the rival contentions and perused the material available on the record. During the course of hearing, our reference was drawn to the findings of the Coordinate Bench in dt. 20/01/2022 pertaining the A.Y. 2011-12 wherein the relevant findings reads as under:
“6. Both sides heard, orders of the authorities below examined. In ground No. 2 & 3 of appeal, the assessee has assailed Transfer Pricing Adjustment of Rs.8,05,24,450/- in respect of corporate services fees. The TPO applied CUP as the most appropriate method and determined ALP of the transaction as Nil. The TPO has further observed that no independent party would have made a similar payment in uncontrolled circumstances. We find that this issue is perennial in nature, the TPO has been consistently making TP adjustment in respect of corporate services fee for similar reasons. The co-ordinate bench in appeal by the assessee for AY 2010-11 in (supra) has decided this issue by placing reliance on the earlier orders of the Tribunal for AYs 2007-08 & 2008-09. The relevant extract of Tribunal order is reproduced herein-under: “10. We have considered the rival submissions and perused the orders of the authorities below. We find that the issue before us is the adjustment made on account of determination of ALP of corporate services received by the assessee from its Associate Enterprises (AE). We find that this issue has been adjudicated in AY 2007-08 and 2008-09 wherein the Hon’ble Tribunal held that the assessee was receiving corporate services from its AE's in the area of production and sales, market information, business intelligence, safety, health and investment and finance related strategic planning support. It was further held by the Tribunal that no adjustment was required to be made in respect of normal corporate services. We find that the Tribunal further held at para 110 of its order for AY 2007-08 and 2008-09 that on account of the financial services received by the assessee, regarding issuance of guarantee and sanctioning of various bank limits at lower interest rate, the payment on account of corporate services should be restricted upto 50% of the benefit received on account of these services. Thereafter, the assessee moved a miscellaneous application against the order of the Tribunal for both the year which was adjudicated vide Miscellaneous Application No. 6 & 7/Chd/2015 vide order dt.19/02/2015 dismissing the Miscellaneous Application filed. The issue came up for consideration in AY 2009-10 also where in after taking into consideration the order of the Hon’ble ITAT in AY 2007-08 and 2008-09 and also the order of the Hon’ble Tribunal on the Miscellaneous Application filed by the assessee against the order for AY 2007-08 and 2008-09, the Hon’ble Tribunal gave a direction to allow payment on account of corporate services subject to the rider that 50% benefit received on account of financial services should be reduced from such payment. The Hon’ble Tribunal held at para 12-14 of its order as follows: “12. From the above paras it becomes clear that the Tribunal has given a direction to basically allow the payment made on account of corporate services 8 subject to the rider that 50% benefit received on account of financial services should be reduced from such payments.
This situation further becomes clear from the contentions made in the synopsis filed on 5.6.2014 in this appeal. The brief synopsis in this regard reads as under:- “The appellant also submitted that financial services forming part of the CSC also include provisioning of guarantee(s) by AE on behalf of DSP India (please refer to point b(iii) of Article 4 of the corporate service contract (placed at page 33 of the paperbook). In this regard, the assessee has also submitted the details of an unconditional and irrevocable guarantee provided by DSM N.V., an AE of DSM India, to the bank (Citibank International Plc.) on behalf of DSM India amounting to Euro 10 million (approx 68 crores) in connection with any overdraft, loan, credit facility etc. In this regard, a copy of the letter providing this inter company guarantee facility to DSM India has also been submitted by the assessee to the Ld. TPO as Appendix 6B to the submission dated August 16, 2012 (placed at pages 300 to 303 of paperbook). Furthermore a letter by Royal Bank of Scotland, providing the details of credit facilities existing for DSM India in various financial years wherein security has been provided by Koninklijke DSM NV, was also submitted with the Ld. TPO as appendix 6 to the submission dated September 17,2012(placed at page 338 of the paperbook). The detailed benchmarking report along with credit rating analysis is provided as Appendix 2. It is respectfully submitted that as per the analysis conducted by the appellant, the credit rating was calculated in a scientific manner and the same was determined at B3. The results of the aforesaid benchmarking are as under:- Nature of facility Amount of Equivalent INR Guarantee fee Benefit to the facility appellant (INR in Cr.) Packing Credit EUR to million 68 Crores 2.56% 1.74 LC/Guarantee EUR 30 million 204 Crores 3.50% 7.14 Total 8.88 Your honour would appreciate from the above that the services availed by DSM India resulted in benefit to the assessee and indeed added economic and commercial value to the business of the assessee. In case these services were not provided by the AEs the assessee would have left with no choice but to pay an independent enterprise (third party) for the activity performed for it or would have performed the activity in house for itself.”
The above also clearly shows that how assessee has received the financial services which have led to the benefits to the assessee to the tune of Rs. 8.88 crores. Therefore, we set aside the order of Assessing Officer and direct him to recompute the amount of adjustment by reducing 50% of Rs. 8.88 crores from the total Corporate service charges i.e. Rs. 7,99,31,741/- minus Rs. 4.44 crores (i.e. 50% of Rs. 8.88 crores) i.e. (Rs. 7,99,31,741 – Rs. 4,44,00,000) = Rs. 3,55,31,741/-. The Assessing Officer may also examine the amount of benefit calculated by the assessee and verify the amount if the conclusion is different, the Assessing Officer may decide the issue accordingly. Otherwise adjustment shall be made for Rs. 3,55,31,741/-. Admittedly the facts in the present case are identical to those in the preceding year i.e; 2007-08, 2008-09 and 2009-10 wherein disallowance on account of corporate services was made for the same reason as in the impugned assessment year. Since this issue has already been adjudicated upon by the Hon’ble Tribunal in the preceding year, respectfully following the same in the impugned assessment year also, we remit the matter back to the file of the AO and direct him to compute the ALP of the corporate services charge paid by reducing 50% of the benefit if any received by the assessee from the financial services received. The AO is directed to examine the amount of benefit as calculated by the assesee and thereafter decide the issue as per the direction given.
This ground of appeal
of the assesse is partly allowed.” Since, the facts in the impugned AYs are undisputedly identical, we find no reason to take a different view. Consequently, ground nos. 2 & 3 of the appeal are partly allowed in similar terms.”
9. Admittedly and undisputedly, the facts and circumstances of the case are pari-materia with earlier years where the matter has been decided by the Tribunal. Following the principles of consistency, we see no reason to deviate from the earlier orders of the Coordinate Bench and the same have thus been followed for the impugned assessment year and following the same, we remit the matter back to the file of the AO and direct him to compute the ALP of the Corporate Service charges paid by reducing 50% of the benefit if any received by the assessee from the fee service receipt.
In the result, ground of appeal
s so taken by the assessee are partly allowed in light of aforesaid direction.
11. In Ground No. 8 to 10, the assessee has assailed disallowance of interest expenses under section 36(1)(iii) of the Act in respect of interest expenditure of borrowed fund utilization for capital expansion project.
12. During the course of hearing, the Ld. AR submitted that similar disallowance were made by the AO in A.Y. 2009-10, 2010-11 and 2011-12 and the Tribunal in principle decided the issued in favour of the assessee by observing that if no particular loan has been taken for the asset which has been shown under the head “Capital work in progress” then disallowance could not have been made and the matter was restored to the file of the AO to ascertain details of various loans and their utilization.
13. The Ld. DR fairly admitted that the issue of disallowance of interest expenses in respect of capital expansion has been decided by the Tribunal in assessee’s own case for preceding assessment years and the same has been restored back to the file of the AO for necessary verification and where the Bench so decide, the matter for the impugned assessment year may be restored back to the file of the AO for necessary verification.
14. During the course of hearing, our reference was drawn to the findings of the Coordinate Bench in A.Y 2011-12 and the relevant findings are contained at para 10 and 11 of its order dt. 20/01/2022 and the contents thereof read as under: “10. We have heard the submissions made by rival sides. The assessee had outstanding capital working-in-progress of Rs.5.53 million as on 31/03/2011 and the total interest of Rs.88.56 million was paid on loan of Rs.1203.52 million. The AO observed that no part of expenditure was capitalized by the assessee under proviso to section 36(1)(iii) of the Act. After considering submissions of assessee the Assessing Officer was not convinced and proportionately capitalized interest thereby making addition of Rs.4,06,900/-. Both sides are unanimous in stating that the issue raised by the assessee in ground no.5 of appeal is identical to the one adjudicated by the Tribunal in the appeals filed by the assessee for AYs 2009-10 & 2010-11 in and ITA No. 438/Chd/2015, respectively. We find that in the immediately preceding Assessment Years i.e. AY 2010-11, the Tribunal restored the issue back to the file of AO with a direction to ascertain the utilization of various loans. The relevant extract of the findings of the Tribunal on this issue are reproduced here-in-below: “33. We have heard the rival contention and perused the orders of the authorities below and the documents placed before us. We find that on identical set of facts the Hon’ble Tribunal has adjudicated this issue in AY 2009-10 and has held that in the absence of nexus between interest borrowing funds and investment in capital work in progress, no disallowance u/s 36(1)(iii) can be made. The Hon’ble Tribunal has further remitted the issue back to the file of the AO for verification of utilization of interest bearing loans. The Hon’ble Tribunal at para 33 of the order has held as follows while deciding the issue.
33. After considering the rival submissions principally we find force in the submissions of Ld. Counsel for the assessee that if no particular loan has been taken for the asset which has been shown under the head ‘capital work in progress’ then disallowance could not have been made. However, each loan and its utilization requires fresh examination, therefore, we remand this issue to the file of Assessing Officer with a direction to ascertain details of various loans and how they were fully utilized and then only decide the issue in accordance with law. Respectfully following the same we hold that no disallowance u/s 36(1)(iii) can be made if no loan has been taken for investment in capital work in progress, and further for the verification of this fact, we remit the matter back to the file of the AO with a direction to ascertain the utilization of various loans taken by the assessee and thereafter decide the issue in accordance with law.
34. This ground of appeal of the assessee is therefore allowed.”
11. Thus, in view of parity of facts in the impugned AYs, we deem it appropriate to restore this ground to the file of AO with a similar directions. Consequently, ground no.5 of appeal is allowed for statistical purpose.”
15. Admittedly and undisputedly, the facts and circumstances of the case are pari-materia with earlier years where the matter has been decided by the Tribunal. Therefore following the principles of consistency, we see no reason to deviate from the earlier order of the Coordinate Bench and the same have been applied for the impugned assessment year and we remit the matter back to the file of the AO with similar directions and the ground of appeal is allowed for statistical purpose.