2016 (9) TMI 106 - AT - Income Tax

Tribunal Admits New Evidence, Remands Case for Reconsideration

M/s Brahma Center Development Pvt. Ltd. Versus Income Tax Officer, Ward-5 (2), New Delhi-

The Tribunal admitted additional evidence not available during the original proceedings, setting aside the case to the Assessing Officer/Transfer Pricing ... Disallowance of part of the interest paid by the assessee - addition on the ground that the interest paid on Compulsory Convertible Debenture did not satisfy the arm’s length principle and application of LIBOR rate considering the rupee denominated Compulsory Convertible Debenture as External Commercial Borrowings instead of rupee denominated Compulsory Convertible Debentures - Held that:- The assessee had furnished the additional evidences for the first time before this bench of the Tribunal, those were not available at the time of proceedings before the TPO/AO/DRP. The new evidence now furnished by the assessee, go to the root of the matter and are very much relevant to resolve the present controversy i.e. as to whether the borrowing was the External Commercial Borrowings or not, it is also not clear as to whether the assessee claimed the deduction of the interest paid on issuance of Compulsorily Convertible Debenture in its return of income. In the present case, the assessee carried out analysis on BSE database which provides the details of the comparable instruments and submitted the same as additional/supplementary analysis vide letter dated 27.04.2016 which indicated that the average coupon rate of comparable instruments issued in Real Estate Industry was 14.50% as compared to the average coupon rate of 12.39% of all the instruments issued during the year, which is evident from Annexure 1 attached with the letter dated 27.04.2016. The assessee had also claimed to have collected the details of interest rate offered by nationalized banks in India to the borrowers having similar credit rating as that of the assessee vide Annexure 4 of the letter dated 27.04.2016, first time before this bench of the Tribunal and as per the said document the average lending rate was computed at 13.66%, the assessee claimed that the international transaction of payment of interest on CCD’s entered into by it was at arm’s length. Since the aforesaid documents furnished by the assessee first time before the Tribunal are relevant to resolve the present controversy and the assessee had reasonable cause not to furnish the same before the authorities below because those were not available at the time of framing the assessment or the proceedings before the DRP/TPO. Therefore, the additional evidences furnished by the assessee are admitted. However, these documents are to be considered by the authorities below. Thus we deem it appropriate to set aside this case back to the file of the AO/TPO to be decided afresh - Decided in favour assessee for statistical purposes. Issues Involved:1. Legality and jurisdiction of the assessment order.2. Incorrect computation of total income.3. Jurisdictional error in referring to the Transfer Pricing Officer (TPO).4. Disallowance of interest on Compulsory Convertible Debentures (CCDs).5. Rejection of the economic analysis conducted by the assessee.6. Disregard of the actual transaction structure by AO/DRP/TPO.7. Incorrect application of LIBOR rate for rupee-denominated CCDs.8. Non-allowance of risk factor and other related expenses.9. Incorrect addition of disallowed interest to total income.10. Lack of proper opportunity for the assessee to present evidence.11. Unjust and excessive additions based on conjectures.12. Improper consideration of evidence and judicial interpretation.13. Incorrect charging of interest under sections 234B and 234D and withdrawal of interest under section 244A.14. Premature initiation of proceedings under sections 271(1)(c) and 271G.Detailed Analysis:1. Legality and Jurisdiction of the Assessment Order:The assessee challenged the assessment order under sections 143(3) and 144C, claiming it was illegal, bad in law, based on wrong facts, and without jurisdiction. However, this ground was deemed general and did not require adjudication.2. Incorrect Computation of Total Income:The assessee argued that the total income was wrongly computed at Rs. 7,68,52,550 against a declared loss of Rs. 12,46,029, making the total addition/disallowance Rs. 7,80,98,582. This issue was central to the appeal.3. Jurisdictional Error in Referring to the TPO:The assessee contended that the AO’s reference to the TPO was jurisdictionally flawed as the AO did not record reasons for deeming it necessary to refer the matter to the TPO for computing the arm’s length price (ALP).4. Disallowance of Interest on CCDs:The main grievance related to the disallowance of part of the interest paid on CCDs, which the AO/DRP/TPO deemed excessive and not satisfying the arm’s length principle. The TPO recharacterized the INR-denominated CCDs as External Commercial Borrowings (ECBs) and applied a LIBOR-based rate, resulting in an adjustment of Rs. 7,80,98,582.5. Rejection of Economic Analysis:The AO/DRP/TPO rejected the economic analysis conducted by the assessee, which was in accordance with the Income-tax Act and Rules, and conducted a fresh analysis to determine the ALP, which the assessee argued was against Rule 10B(1)(a) and Rule 10B(2).6. Disregard of Actual Transaction Structure:The AO/DRP/TPO was accused of arbitrarily disregarding the actual transaction structure without fully appreciating the business and economic reasons behind it.7. Incorrect Application of LIBOR Rate:The AO/DRP/TPO applied the LIBOR rate considering the rupee-denominated CCDs as ECBs instead of rupee-denominated CCDs. The assessee argued that the borrowings were in Indian currency, and the interest rate should be the market-determined rate applicable to the currency in which the loan was taken.8. Non-allowance of Risk Factor and Other Expenses:The AO/DRP/TPO did not allow the benefit of risk factors and other expenses like commitment fees, prepayment fees, foreign currency risk hedging cost, and withholding taxes.9. Incorrect Addition of Disallowed Interest to Total Income:The assessee contended that the AO erred in adding the disallowed interest of Rs. 7,68,52,550 to the total income, disregarding that the interest expense was debited to Work-in-Progress (WIP) and should be reduced from WIP.10. Lack of Proper Opportunity for the Assessee to Present Evidence:The assessee argued that it was not provided with a proper and adequate opportunity to present evidence/details to substantiate its claim during the assessment proceedings.11. Unjust and Excessive Additions Based on Conjectures:The additions were claimed to be unjust, unlawful, based on mere surmises and conjectures, and not justified by any material on record.12. Improper Consideration of Evidence and Judicial Interpretation:The assessee argued that the explanation given and the evidence produced were not properly considered and judicially interpreted, which did not justify the additions/disallowances made.13. Incorrect Charging of Interest and Withdrawal of Interest:The AO was claimed to have erred in charging interest under sections 234B and 234D and withdrawing interest under section 244A.14. Premature Initiation of Proceedings:The initiation of proceedings under sections 271(1)(c) and 271G was considered premature and was not pressed.Conclusion:The Tribunal admitted additional evidence provided by the assessee, which was not available during the original proceedings. The case was set aside to the AO/TPO for fresh consideration, taking into account the new evidence and providing a reasonable opportunity for the assessee to be heard. The appeal was allowed for statistical purposes.