2021 (10) TMI 506 - AT - Income Tax

Tribunal Partially Allows Appeals, Emphasizes Procedural Adherence in Tax Dispute

M/s. Rubamin Limited Versus Deputy Commissioner of Income Tax, Central Circle-2, Baroda, The A.C.I.T., Circle-4, Baroda And The D.C.I.T., Central Circle-2, Baroda Versus M/s. Rubamin Limited

M/s. Rubamin Limited Versus Deputy Commissioner of Income Tax, Central Circle-2, Baroda, The A.C.I.T., Circle-4, Baroda And The D.C.I.T., Central ... Issues Involved:1. Validity of the Assessment Order2. No Incriminating Material Found3. Addition in respect of Rubamin Ltd.4. Disallowance of Fraud Loss incurred by Rubamin Ltd.5. Transfer Pricing Adjustment6. Sales Tax Subsidy treated as Revenue in Nature7. Addition u/s 50C8. Other Grounds including Interest and PenaltyDetailed Analysis:Validity of the Assessment Order:The assessee argued that the assessment order was invalid as it was barred by time and not in accordance with the Dispute Resolution Panel (DRP) directions. The Tribunal noted that the issue was raised without prejudice to the grounds related to the profit of Rubamin FZC. Since the Tribunal decided in favor of the assessee regarding the profit of Rubamin FZC, the ground challenging the validity of the assessment order was dismissed.No Incriminating Material Found:The assessee claimed that no incriminating material was found during the search, making the assessment invalid under section 153A. However, the assessee chose not to press this ground, leading to its dismissal.Addition in respect of Rubamin Ltd.:The main issue was whether the profit of Rubamin FZC, a subsidiary in UAE, should be taxed in the hands of the assessee. The Revenue argued that Rubamin FZC was a shell entity used to divert profits out of India. The Tribunal examined various documents and emails found during the search, which indicated that the affairs of Rubamin FZC were controlled and managed from India. However, the Tribunal concluded that the profits of Rubamin FZC should not be included in the assessee's income, as there was no violation of the law. Thus, the addition of Rs. 27,05,11,474 was deleted.Disallowance of Fraud Loss incurred by Rubamin Ltd.:The assessee claimed a deduction for a fraud loss of Rs. 1,50,87,623. The Tribunal noted that since the profit of Rubamin FZC was not included in the assessee's income, the question of allowing the fraud loss did not arise. Hence, this ground was dismissed.Transfer Pricing Adjustment:The assessee contested the transfer pricing adjustments made by the AO. The Tribunal noted that the AO had not followed the DRP's directions regarding the purchase of cobalt and corporate guarantee commission. The Tribunal directed the AO to adhere to the DRP's directions and restricted the corporate guarantee commission adjustment to 0.5% of the guarantee amount, partly allowing the assessee's appeal.Sales Tax Subsidy treated as Revenue in Nature:The assessee argued that the sales tax subsidy should be treated as a capital receipt. The Tribunal, following its earlier decision, held that the subsidy was a revenue receipt but allowed the alternative claim for deduction under section 80IB.Addition u/s 50C:The AO made an addition of Rs. 1,45,65,207 by invoking section 50C, which the assessee contested. The Tribunal noted that the AO had not referred the valuation to the valuation officer despite the assessee's objection. The Tribunal set aside the issue to the AO for fresh adjudication, directing that the valuation officer be consulted.Other Grounds:The Tribunal dismissed the grounds related to interest under sections 234B and 234C and the initiation of penalty proceedings under section 271(1)(c) as either consequential or premature.Conclusion:The appeals were partly allowed, with specific directions for fresh adjudication on certain issues, and the addition related to Rubamin FZC's profit was deleted. The Tribunal emphasized the need for adherence to procedural requirements, such as referring valuation disputes to the valuation officer and following DRP directions.