TaxTMI 
TaxTMI 
2021 (10) TMI 506
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....lution Panel-2, Mumbai ("the DRP"). No Incriminating Material Found: 3 The learned AO as well as the learned DRP erred in fact and in law in making additions in the assessment u/s 153 A of the Income Tax Act, 1961 ("the Act"), despite the fact that no incriminating material was found during the course search. Addition in respect of Rubamin Ltd.: 4 The learned AO as well as the learned DRP erred in fact and in law in taxing the profit of subsidiary company of the Appellant viz. Rubamin FZC situated in UAE, in the hands of the Appellant. 5 The learned AO as well as the learned DRP erred in fact and in law by making addition of Rs. 27,05,11,474 by way of taxing the profit of Rubmain FZC in the hands of the assessee by holding Rubamin FZC as a colourable device/shell entity created solely for the purpose of shifting of the Apellant's profit out of India without any basis. 6 The learned AO as well as the learned DRP erred in fact and in law by taxing the profit earned by Rubamin FZC from an activity which has no nexus with India and thus the AO has clearly exceeded his jurisdiction. 7 The learned AO as well as the learned DRP erred in fact and in law in relying on the ....
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....n fact and in law in computing the value of the lands on ad hoc basis. 17 Without prejudice to above, the learned AO as well as the learned DRP erred in fact and in law in not referring the valuation to the valuation officer in terms of section 50C(2) of the Act, despite the fact that the Appellant had objected to the value adopted by the AO during the course of assessment proceedings. Other Grounds: 18 The learned AO erred in fact and in law in charging interest u/s 234B of the Act. 19 The learned AO erred in fact and in law in charging interest u/s 234C of the Act. 20 The learned AO erred in fact and in law in initiating penalty proceedings u/s 271(l)(c)of theAct. 21 Your Appellant craves a right to add to or amend, alter, substitute, delete or withdraw all or any of the grounds of appeal. 2. The assessee in ground Nos. 1 and 2 has challenged the validity of assessment order on the reasoning that it is barred by time. 3. At the outset we note the learned AR before us submitted the issue raised in these grounds of appeal is without prejudice to the issue raised in ground Nos. 4 to 7 of this appeal. It was the contention of the learned AR that if the issue raised in g....
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....tails of such group companies along with the shareholding patterns are detailed as under: S.No. Co. Name Country Share holding Share holding 1 RUBAMIN LIMITED INDIA ---- ---- 2 RUBAMI FZC UAE 90 BY RUBAMIN LIMITED 10 BY NAVIN DALMIA 3 RUBAMIN SPRL DRC(CONGO) 100% BY RFZC NA 4 RUBACO SPRL DRC (CONGO) 100% BY RFZC NA 8. The above group of companies were controlled and managed by different persons as detailed under: SNO NAME OF THE PERSON DESIGNATION IN RUBAMIN LIMITED DESIGNATION IN RFZC DESIGNTION IN DRC BASED CO. 1 ATUL N DALMIA (IN SHORT AD) PROMOTORS, DIRECTOR, MD and CEO NON EXECUTIVE DIRECTOR NA 2 ANIL R PATEL (IN SHORT AP) PROMOTERS AND DIRECTORS DIRECTOR NA 3 AJAY AGARWAL (IN SHORT AA) UPTO MID 2012-013 CFO NA NA 4 SANJAY DUDHORIA FROM FY 2012-13 TILL DATE (in short SD) CFO NA NA 5 MICHAEL HOMAWALLA HR NA NA 6 MILIND THAKKAR NA GM, TAXATION NA 7 NAVIN N DALMIA (IN SHORT ND & EARLIER EMPLOYEE IN RUBAMIN LIMITED) NA MD AND CEO CEO 8 RAJESH AGARWAL (IN SHORT RA & EARLIER EMPLOYEE IN RUBAMIN LIMITED NA CFO CFO There was a search conducted on the ass....
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.... sales realization, profit generation from the sale of the product namely Copper Blister. The RFZC is dealing in such product. (Email dated 01-04-2009) vii. There was a discussion about the sale of cobalt concentrates between Shri Yolong Cui, a customer of RFZC and Shri AD. (Email dated 24-02-2009) viii. There were also conversations about the strategies which Rubamin Ltd as a group should follow in the financial year 2009-10 including the exploration in DRC companies as well as the optimal production of cobalt and copper in Likasi. (Email dated 30-01-2009). ix. There were certain recommendations by Shri Ajay Agarwal which were forwarded to AD for his comments. These recommendations include the discussion about the operating status of DRC based companies, inventory at DRC, transfer pricing of DRC. (Email dated 29-12-2007). x. There was also a conversation between AA and AD regarding the restructuring of the expenses at DRC office with the responsibility to curtail such expenses. (Email dated 11-02-2009) xi. There were certain conversation among the employees of Rubamin group of companies about the SOP for zinc transactions which the assessee was purchasing from Middle Eas....
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....h was issued by Shri Michael Hamawalla who is HR of Rubamin Ltd at Baroda. 11. Besides the above, the AO during the assessment proceedings also noted that there was no telephone/Internet connection up to November 2010 at the office of RFZC at UAE which evidences that the office was not functioning independently and properly. 12. The AO after considering the facts as discussed above opined that all the monetary issues including capital and debt, financial planning, the business affairs, hedging activities, sales realizations, profits of RFZC were controlled and managed by the assessee. Furthermore, the assessee has made policy for hedging the copper and cobalt products of RFZC though it was not dealing in such products. The AO further observed that on analyzing the entire flow of transactions right from the manufacturing of the goods in the companies based in DRC and subsequent sales to the parties were controlled by the assessee. In other words, had the assessee directly made the business transactions from the companies based in DRC, then it would have earned huge profit which would have been subject to tax in India. As such the assessee, to avoid such income tax liability in Ind....
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....tire profit. v. The assessee also submitted that RFZC has independent legal existence, its own assets and liabilities, maintains separate books of accounts. It also has its own board of directors, funds, receivables, payables. It carries out its contract with the 3rd parties including the banks and operation independently. However, the RFZC does not have large number of employees at UAE. Most of its employees are either located in DRC or in Tanzania and carry out the functions of RFZC from there. None of the employees of Rubamin FCZ is based in India. vi. The documents seized during the search proceedings are part of the official records and therefore they cannot be termed as incriminating in nature. Accordingly, based on these documents, it cannot be concluded that the affairs of RFZC are controlled and managed from India. Furthermore, the seized documents demonstrate that these were prepared to provide informations to the stakeholders and for the stewardship purposes/ activities. As such it is quite normal for a holding company to maintain such records to exercise control on the activities of subsidiary companies. In the assessment year 2008-09 there were around 52 employees ....
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....There was no iota of evidence suggesting that there was any decision which has been solely taken by the persons based in India. xiii. The soft copy of the board meetings found in the computer cannot be deciding factor that the board meeting was held in India in the absence of any corroborative information. There were no finding that the minutes with respect to such board meetings are in India. There was no physical copy found of the board meeting. Therefore on the basis of such soft copy, it cannot be decided that meeting was held in India. xiv. All the decisions related to RFZC were taken by Shri ND without taking any direction from Shri AD or any other person. However, Shri ND has sought opinion with respect to certain matters involving principles or general issues. xv. The transactions carried out between RFZC and Indian company have been subject matter of transfer pricing for deciding the ALP. Therefore there is no possibility of shifting the profit from India to its subsidiary company. xvi. The assessee holds 90% shares of RFZC. The dividend received by the assessee from RFZC is subject to tax in India. As such there was no violation of any provision of law and therefo....
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....ut involving RFZC. 16. In view of the above the AO concluded that the sole purpose of creating the RFZC was to shift the profit from India to the tax heaven i.e. RFZC. Furthermore, the RFZC is a paper company carrying out no activity except for recording purchase and sales of the transactions on papers. Thus the AO treated the entire profit of RFZC for Rs. 27,05,11,474/- belonging to the assessee and added the same to the total income of the assessee. 17. Aggrieved, assessee preferred an appeal to the learned DRP and assailed the order of the AO on various grounds which are summarized as under: i. The assessee before the learned DRP submitted that emails and documents found during the search operation have been used against the assessee in the year under consideration though details therein pertains to different assessment years. As such, the documents/emails pertaining to the assessment year 2009-10 corresponding to financial year 2008-09 cannot be used for deciding the issue pertaining to the year under consideration. The control and management of RFZC has to be decided for each year separately and independently based on the documents pertaining to that very year only. As suc....
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...., various risks faced by the group and the suggestion for managing these factors as well as mitigating the risk. vi. Rubamin Ltd provides the supporting services in connection with the recruitment of the employees at RFZC/ DRC and for this it recovers/gets reimbursement of the actual charges incurred by it. Such services are provided for the reason that required skills are not available either in UAE or DRC. However the final interviews are taken by Shri ND who is non-resident and resides in DRC. As such Shri ND has full control over the management of the affairs of RFZC and for this he is remunerated along with incentive. Had the entire work been handled by Shri AD, there was no need to give any incentive to the employees to achieve the targets of the business. vii. The books of accounts of RFZC were prepared by Shri Pardeep Gupta who is the employee of RFZC. However Shri Pardeep Gupta was earlier working with Rubamin Ltd. During the search, no document/invoice relating to RFZC was found except MIS report which was relating to protect the interest of the shareholders, statutory documents required for consolidation, transfer pricing compliance which were required to be maintain....
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.... 12.60 xi. RFZC is another arm of DRC companies and it is not the extension of the assessee company. RFZC was formed to off load certain functions of the DRC companies in order to mitigate the risk attached with the DRC companies on account of political disturbance/lack of banking facilities etc. Furthermore, the transactions between the assessee and the RFZC have been determined at the ALP. As such, the assessee has no role to play with respect to the other transactions carried out between the DRC companies and RFZC. Therefore, there cannot be any allegation against the assessee for shifting of profit of the transactions between the DRC and the RFZC. In any case, even there is a shifting of profit with respect to the transactions between the DRC and the RFZC, then assessee has no role to play in this series of transaction. Accordingly, nothing adverse can be attributed to the assessee. 18. The learned DRP after considering the submission of the assessee and the order of the AO has formulated 7 compartments for deciding the issue. These 7 compartments are listed as under: 1) The assessee was exercising complete control over Banking, Finances, Capital and Debt Restructuring of ....
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....FZC are controlled and managed by the managing director namely AD and Anil R Patel of Rubamin Ltd. The affairs of RFZC include the complete control over banking, finances, capital and debt restructuring, business operations, business agreements and strategies, other functions. It was also noticed that even the books of accounts of RFZC were maintained at the office of Rubamin Ltd. There was no working office of RFZC for about 6 years. Furthermore there was no reason pointed out by the assessee for establishing the company namely RFZC in UAE. 20. In consequence to the observation that the major decisions and the actions regarding the affairs of RFZC are taken by the assessee and its core team, the DRP accordingly was of the view that in the event the existence of RFZC are denied then the profit of RFZC shall merge/belong to the assessee and not with the companies based in DRC. It is because the RFZC is a subsidiary of the assessee company which has no existence without the support of its holding company. In other words RFZC is nothing but an arm of the assessee. Accordingly, the taxes which were payable in India but diverted to UAE being tax heaven zone. Thus the learned DRP reject....
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....h the DRC based companies could have directly supplied to the company based in China and to the assessee without the role of RFZC. As such there was no real need of RFZC. 26. In view of the above the learned DRP disregarded the contention of the assessee and confirmed the order of the AO by observing as under: 7.20 If the entire facts and evidences discussed are viewed in totalilty, it is very clear that e Supreme control of all the companies vests with the assessee and Shri Atul Dalmiya. Their control is extending to even in day to day executive functioning also, which is much beyond the shareholder's control. It is also very clear that the profits in various entities are being shown as per convenience. There are evidences clearly showing shifting of profits. The same is also evident from the final results of the companies. There are evidence to show that the quantum and timing of dividend is decided by the assessee through Sh. Atul Dalmiya. No tax or hardly any tax is paid in India or in fact in any of the countries. There is also no doubt about the fact that the facad of Rubamin FZC has been created with the motive of tax avoidance. The integrity of transactions of Rubami....
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....urable device is that where one entity acts through another v'ithout maintaining proper separation and a corporate entity taking action or making representations inconsistent with its asserted purposes and function. (c) It is most pertinent to note that a company cannot be taken as a separate entity merely because it calls itself a distinct entity with a particular function when it has acted outside of the scope of that function. In organization and supervising affiliated entities, one should ensure they stay within the bonds of their intended purposes. Where interactions with third party is necessary, management and employees should make clear the identity of the entity on whose behalf they are acting, especially if the same individual is an officer or principal of multiple related entities. However, in the case of the assessee it is found that there has been a serious failure to maintain adequate separateness among the entities. Rather the identities and functions of the Rubamin FZC have been severely compromised so as to serve the undue interest of the parent that is the assessee. On the same reasoning, the south Carolina Supreme Court has upheld the principle of piercing ....
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....tective basis. 27. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 28. The learned AR before us filed various paper book which are detailed as under: 1. Paper Book 1 - GEN running from pages GEN-1 to GEN 72 2. Paper Book 2 - TPO running from pages TPO-1 to TPO-121 3. Paper Book 3 - FZC running from pages FZC-1 to FZC-254 4. Paper Book 4 - RUB running from pages RUB-1 to RUB-201 5. Paper Book 5 - Other running from pages 1 to 245 29. Besides this the learned AR also submitted various charts, case laws, synopsis of arguments etc. which are kept on record. The Learned AR accordingly contended that in the case on hand the Revenue has clubbed the profit of its subsidiary company based in UAE. As per the learned AR the clubbing provisions under the Income Tax Act contains section 60 to 65 of the chapter V, which deals with respect to the individuals and the HUF. As such under the provisions of the Act, there is no mechanism/requirement for clubbing the income of 2 entities. Thus in the absence of any enabling provisions the Revenue has exceeded its jurisdiction by clubbing the income of its foreign subsidiary with the income of the a....
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..... RFZC has obtained finance from the bank in its own name on the basis of the documents which were executed by it. The interest paid with respect to such loan has been accepted and allowed as deduction by the Revenue. 32. Therefore, it cannot be alleged merely on the basis of a few emails and documents covering all 6 assessment years that it (FZC) was acting as a conduit for avoiding the tax of the assessee as well as subsidiary companies based in DRC. In fact there was a fraud which has taken place in the company by the erstwhile CEO namely Ajay Aggarwal and therefore the assessee placed a system of check and balance with a view to have a better control on the functioning of the group companies as a whole. Furthermore, the check and balance system was introduced by the assessee being 90% shareholder in RFZC. In fact these check and balance were representing the policy level decision for the group as a whole which were not exceeding more than 10% of the total transactions. In other words more than 90% of the operational transactions and actual activities were carried out by RFZC without any interference of the assessee where the assessee had no control of whatsoever. 33. The good....
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....d by 12 months. In the case on hand, the revenue if treats the income of the RFZC to be taxable in India, then such extended is not available for the assessment. Accordingly, it was contended the assessment is barred by time. 39. On the contrary, the learned DR before us contended that the AO is under the obligation to make the reference to the TPO wherever the international transactions with the associated enterprises exceed Rs.5 crores according to the instruction No. 3/2003 dated 20 May 2003 issued by the CBDT. The instruction No. 3/2003 dated 20th May 2003 was superseded by instruction No. 15/2015 dated 16th October 2015 where the requirement for referring the matter to the TPO for the determination of ALP of the international transactions based on the value of international transaction was dispensed with. 40. Once a reference has been made by the assessing officer, the role of the TPO is limited to the extent of the determination of arm length price in relation to the international transactions referred by him. As in the case on hand the transactions of the assessee with the associated enterprises was exceeding the threshold limit specified by the CBDT, the AO had no choice ....
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....panies based in DRC. Likewise, the RFZC is selling all the goods only to two companies namely Tarifigura based in China and the assessee based in India. The RFZC has not made any value addition in the goods purchased by it which were supplied to two parties as discussed above. The goods purchased by RFZC were directly supplied and delivered to its parties at their respective location. The goods purchased were never received by RFZC at its location. Thus the role of RFZC was just to raise the invoice to the parties and without doing any value addition in the transaction of purchase and sales of the goods. ii. There were 3 directors of RFZC namely Shri Atul Dalmia, Naveen Dalmia and Anil R. Patel. Out of 3 directors, 2 of them namely Shri Atul Dalmia and Shri Anil R Patel were based in India and 1 of them namely Shri Naveen Dalmia was based in DRC. The director Shri Anil R. Patel never travelled to DRC and UAE. As such, there was nobody in RFZC to manage and control its affairs. iii. There was only one employee present in RFZC. Similarly, there was no fixed assets shown in the financial statement of RFZC as on 31 March 2007 whereas there was the turnover for the year ending 31st ....
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....e computer numbered B-0110D in India. e. Bank account of RFZC was operated by AD from India as admitted by AD vide question No. 52 and 55, 58 & 59 in the statement recorded under section 132(4) of the Act dated 20th April 2013 after understanding the business transactions. Based on the above emails/documents, the learned DR vehemently submitted that the affairs of RFZC are controlled and management in India. As such, the office of RFZC has been established in UAE being tax free zone, to divert the income by adopting a colourable device which is not permissible under the provisions of law. The financial statements of RFZC was signed by Shri ND in the capacity of manager not as the managing director. Thus it shows that the director of RFZC is a puppet of Rubamin Ltd. There was an email by ND for changing the salary in the group as a whole but such email does not contain any information about the employees working for RFZC. This email is placed on page 13 of the paper book 3 FZC. In other words the salaries of the companies in DRC were revised from India. The role of ND was designed by the HR head based in India as evident from the email placed on page 58 of the paper book 3-FZC....
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....its consumables to DRC companies. The payment for the same was received from RFZC account up to July 2010 and thereafter from the bank accounts of the companies in DRC which were opened in UAE. Accordingly, it was contended by the learned DR that the argument of the learned AR for the liberalised exchange system not available in DRC is not tenable. It is for the two reasons that firstly it was receiving the money from RFZC UAE which is a 3rd party and secondly the bank account of DRC company was in operation in UAE. iv. There was the purchase contract attached on pages 58 to 65 of the paper book 4-RUB between RFZC and the party namely Trafigura Beheer wherein the date and the name of the person who has signed the contract on behalf of RFZC was not appearing. Likewise, in the agreement there was clearly mentioned that in the event of any change in the organisation, control or management, shareholding etc., there will not be any changed in the contract. In other words the contents and the clauses appearing in the contract shall remain continue in full force and effect. The conditions in the agreement suggests that there was no control of Shri Naveen Dalmia in the company namely RFZ....
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.... DRC. As per the learned DR the transactions were manipulated in such a way to show more profit at RFZC. xii. The books of accounts of RFZC were maintained in India in the financial year 2008-09 as evident from the email placed on page 172 of paper book 3-FZC. xiii. FZC being trading company does not require any manpower such as sampler, geologist, shifting charge, security officer, fitter, electrician et cetera. However, RFZC has shown such employees in its books of accounts but actually all of them were working for the company which is based in the DRC except one employee namely Shri Pillai Presanna kumar Raman in the assessment year 2008-09, 10-11. But in the assessment year 2009-10, 2011-12, 2012-13, 13-14, 14- 15 there was no employee in RFZC. As per the learned DR it was not possible that there is no need of any employee in RFZC despite having turnover of few hundred crores of rupees in Indian currency. 45. The sum and the substance of the arguments advanced by the learned DR was that the whole purpose of creating the RFZC was to divert profit which is evident from the undisputed fact that no operation carried out at RFZC in actual sense and whatever paper transactions h....
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....UAE. However, none of the employee is based in UAE, rather all of them are based in DRC. It was claimed that these employees are working for RFZC sitting in DRC except one. This fact prevails right from the inception of the company and up to the year under consideration i.e. the employees of RFZC are discharging their functions/duties for the company from the DRC. Thus it appears very surprising that how the RFZC is managing its affairs through the employees located in DRC despite having such a huge turnover of AED 19,13,10,114/-( Rs. 229 Crore approximately (1AED= 12/- Rs. in Indian currency). ii. Likewise, on perusal of the financial statement of RFZC, we note that there is not even a computer shown therein which was very essential at least for generating the sales bills. Thus, it appears even the sales bill of RFZC have been issued from the DRC as the directors of the company are based therein. iii. The sales bills have been authorised by the person based in DRC. But there was no document filed suggesting that such person has visited to RFZC at UAE. The copy of the passport was not available on record. Furthermore, the sales bills have been issued on continuous basis through....
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....g its trading function. ix. It is also seen that there was no board meeting conducted in RFZC during the year under consideration. Generally the Board of Directors meet at regular intervals to discuss the affairs of the company. However, in the absence of such meeting, the controversy arises how the decisions are taken by the directors of the RFZC with respect to different affairs such as operations, financials, banking facilities, HR duties etc. On the contrary, the authorities below have pointed out in their orders based on the emails and documents found during the search under section 132 of the Act where various affairs of the company were discussed which have been elaborated in the preceding paragraph that RFZC is a paper company and its affairs are controlled and managed from India. However, for the ready reference, such affairs can be categorised as under: a. Capital and Debt restructuring for the finance b. Payment authorization SOP c. Declaration of dividend d. Board resolution passes for declaration of dividend e. Appointment of employees f. Hedging policy of copper g. Books of accounts maintain in India h. Sale Contract between RFZC and its customer i....
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....res in India, be it in company law, takeover code under SEBI or even under the Income-tax law. When it comes to taxation of a Holding Structure, at the threshold, the burden is on the Revenue to allegeand establish abuse, in the sense of tax avoidance in the creation and/or use of such structure(s). "a parent company exercises shareholder's influence on its subsidiaries does not generally imply that the subsidiariesare to be deemed residents of the State in which the parent company resides. 51. However considering the facts in totality as elaborated in the preceding paragraph, the kinds of emails and the documents found during the search and the other circumstantial evidences strongly suggest that the assessee being a holding company was not collecting the information from the subsidiary for record purposes or to keep the track in the manner of shareholders function. Rather it is seemed that Mr. AD promoter and MD of assessee is formulating and deciding the strategies be it financial or hedging of its subsidiary companies. Therefore it is emerged that neither any effective operations are carried out at RFZC nor any decision were taken. The company RFZC was only used for the ....
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....d by Revenue Secretary of Ministry of corporate affairs which includes representative from Financial Services, SFIO, CBDT, RBI, SEBI, CBEC, CBI, ED, FIU-IND, DG GSTI, and DG-CEIBs. By their efforts there were thousands of shell or paper companies identified who were indulged into the illegal activities and accordingly action have taken against those companies under respective laws. But the existence of shell company is not prohibited or being shell / paper company is not illegal unless and until it engaged any of the any illegal activities. There are instances where shell or paper companies have been used as special purpose vehicle of business under the framework of law. 56. Coming to the issue on hand we note that, indeed the RFZC was incorporated after due compliance of RBI as well as the local laws of UAE. However the approval of RBI and the local laws of UAE do not decide the nature of transactions. The purpose of RBI is to approve the company within the provisions of relevant law which has no role to play with respect to the provisions of income tax Act. Accordingly, in view of the above facts and definitions, we hold that the company namely RFZC is a shell or paper company w....
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....Further, the Company did preliminary survey of markets in DRC and came to conclusion that for ensuring that there is a regularity of supplies from DRC, it is essential that a permanent set up is kept at DRC for sourcing and processing Cobalt Concentrate and import into India. It is with this aspect in mind that the Company decided to set up a subsidiary in DRC. 2.2 The feasibility studies carried out by the Company also suggested that it would be difficult lo achieve long term sustainability of presence in DRC, unless the Subsidiary is able to leverage its position in DRC by doing business of supplying material sourced from DRC to the world market (other than India) and especially China. It may be worthwhile to mention that presently, the subsidiaries in DRC does not supply any material to the Company and its entire business is either within DRC or to countries outside India. It was therefore considered essential to make the structure such that it is possible to do the business internationally in a most efficient manner. 2.3 Having taken the decision to set up a subsidiary in DRC, the Company faced another problem. DRC was fraught with political and economic uncertainties, furt....
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....n that originally subsidiary in UAE was set up as a wholly owned subsidiary with Rubamin Limited as the sole shareholder and accordingly, as per the rules of UAE, it was set up as a Rubamin Free Zone Enterprise (FZE). However, subsequently, 10 % of the shares of the said entity was granted to its Managing Director and Chief Executive Officer Mr. NavinDalmia and accordingly, it was converted to Rubamin Free Zone Company (FZC). 2.6 Suffice it would be for us to state that RBI, which is aware about the international scenario, the necessities for setting up companies outside India and the specific issues of doing business in African Region, understood of our difficulties and approved setting up a two tier structure. RBl having approved the said structure, it would not be appropriate for your kind office to consider the said approval as a mere tax saving device or a shell company or a conduit. It is submitted that such an allegation would not only be an allegation on the Company but also on the RBl's judgement. It is submitted that your conclusions that setting up Rubamin FZC is without any purpose is completely contrary to the facts of the Assessee 's case. 59. From the abov....
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....sed as a paper company within the definition as discussed above. But its activities are not illegal in nature and therefore there will not be any consequences of tax liability. In other words the existence of the paper companies cannot be denied. In practical situations, in many organisation the different companies which carries out the transactions on papers only but for numerous reasons. A company in order to avoid its reputation does not deal directly with the particular company but deals indirectly through a company which is created only for the limited purpose of routing the transactions. To our understanding, such companies do not violate any provisions of law and therefore nothing adverse can be drawn against such companies until and unless the transactions of the paper companies were violating the provisions of law. In the light of the above discussion, we have to see whether RFZC contravenes the provisions of law by using the dubious method in order to avoid the tax liability. In this connection, we find that there was no allegation of the revenue that there was any violation of law except to hold that the assessee by using the colourable device was diverting profit to RFZ....
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....sed in China. Thus the transaction was among the parties based outside India. Accordingly, we are of the view that such profit cannot be attributed to the assessee merely on the reasoning that the assessee is the holding company as well as it was getting the benefit by way of dividend. The substance of the transaction shows that the profit was either belonging to the DRC or RFZC. Even the existence of RFZC is denied then such profit has to be attributed to the DRC. There was no doubt raised by the Revenue on the existence of the DRC which implies that the companies are DRC were properly functioning. Therefore the profit attributable to DRC for the reasons as discussed above cannot be clubbed with the assessee on the reasoning that the assessee has diverted the profit by using the colourable device. In either situation whether the profit belongs to RFZC or the DRC, the position of the assessee cannot be altered. In other words the assessee company can earn from either of subsidiary companies in the form of dividend only which is also a reality that the assessee has taken a dividend. In a situation of holding the profit of RFZC attributable to the DRC companies, the assessee would ha....
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....with respect to the transaction carried out by the assessee with its AE for the purchase of cobalt. 70. At the outset, the learned AR for the assessee submitted that the AO has adhered the direction of the learned DRP by rectifying its order under the provisions of section 154 of the Act. Accordingly the learned AR contended that there is no grievance to the assessee now. Consequently, the learned AR submitted that he has been instructed by the assessee not to press this ground of appeal. Hence, we dismiss the same as not pressed. 71. The issue raised by the assessee in ground No. 12 is that the learned DRP erred in confirming the order of the AO by treating the transaction of corporate guarantee furnished by the assessee to its AE as international transaction and thereby making an addition of Rs. 1,47,85,930/- being guarantee commission. 72. The assessee has furnished corporate guarantee of $ 1,35,50,000/- to the bank in connection with the loan taken by its AE namely Rubamin FZC. It was claimed by the assessee that it has neither incurred any cost nor charged any commission from its AE. As per the assessee the transaction of furnishing the corporate guarantee to the AE is not ....
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....the contention of the assessee by observing that as per the explanation to section 92B of the Act, the activity of furnishing the corporate guarantee is an international transaction which has bearing on the profit, income, losses or assets of the assessee. There is always inherent cost to the assessee and benefit to the AE in furnishing the corporate guarantee to the AE. It is because the assessee by furnishing the corporate guarantee undertakes the risk. Since, the corporate guarantee has been furnished in connection with the loan, the same cannot be assumed/treated as a transaction of shareholding activity. As per the paragraph No. 7.13 of OECD guidelines 2010, whenever the credit rating of the AE goes high due to explicit guarantee by group member, then such transaction shall be treated as intragroup services. The TPO further found that as per revised section 'D' of chapter-1 of Action Plan 8 of the OECD BEPS Project if group synergy arises due to intragroup action then such synergy benefit should be shared by the group in the proportion of their contribution. Similarly due to extension of explicit guarantee by the group member, the benefit arises to AE, then such benefit should....
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....company is determined at BBB level by the ICRA, the credit rating of the AE is taken at one notch down at BB level by this office for the year under consideration. The difference in average coupon rate between the BB and BBB bonds (i.e. risk spread) issued during the year under consideration (as determined from the publicly available US bond data and made available to the assessee company along with the show-cause notice), represents the level of risk being adopted by the assessee company on behalf of its AE on account of issuing the guarantee. Such difference in average coupon rate is computed at 2.456%. Accordingly, the guarantee commission to be charged by the assessee company from the AE is computed at Rs. 1,47,85.930 @2.46%. The upward adjustment of Rs. 1,47,85,930 is accordingly proposed on , this issue. 80. Aggrieved assessee carried the matter to the learned DRP who confirmed the action of the TPO by observing as under: 13.5 The transaction relating to the provision of a guarantee and consequential charging of the guarantee commission from the AE by the assessee clearly falls within the definition of the term international transaction u/s. 92b of the Act. It is pertinent....
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.... AE has improved in the year under consideration as compared to earlier Financial Years. The credit rating of the AE was accordingly taken by the TPO at BB level. The difference in average coupon rate between the BB and BBB bonds (i.e. risk spread) issued during the year under consideration, as determined from the publicly available US bond data which was f communicated to the assessee company by the TPO vide the show cause notice was taken as ; representing the level of risk being adopted by the assessee company on behalf of its AE on ; account issuing the guarantee. The approach of the TPO in taking the guarantee as per such difference in average coupon rate is found to be reasonable and acceptable in the given facts and circumstances of the case. 13.16 We, therefore, do not find any infirmity in the findings of the TPO in this regard and therefore, the objection of the assessee is rejected. 81. Being aggrieved by the order of the learned DRP, the assessee is in appeal before us. 82. The learned AR before us submitted as under: During the course of the hearing before the Hon'ble Bench, in respect of transfer pricing adjustment relating to Corporate Guarantee, we had relied ....
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....tantial force in the claim of the ld. A.R that the aforesaid credit sanction letter too would constitute a CUP for benchmarking the transaction of providing of corporate guarantee by the assessee to the banks for facilitating raising of loans by its AEs. Be that as it may, the adequacy of the ALP of corporate guarantee fee at 0.43% can also safely be gathered by drawing support from the following judicial pronouncements as had been relied upon by the assessee before the lower authorities as well as before us: Particulars Guarantee Commission rate 1. Everest Kento Cylinder Ltd. v. ACIT [2012] 34 CCH 0528 (Mum) [Note : Order of Tribunal upheld by the Hon'ble High Court of Bombay : CIT v. Everest Kento Cylinder Ltd. v. CIT [2015] 378 ITR 57 (Bom). 0.5% 2. Reliance Industries Ltd. v. Addl. CIT (ITA No. 4475/Mum/2007) 0.38% 3. Asian Paints Ltd. v. Addl. CIT [2014]149 ITD 511 (Mumbai) 0.20% 4. Aditya Birla Minacs Worldwide Ltd. v. JCIT [2016] 47 CCH 760 (Mum) 0.5% p.a 5. Godrej Household Products Ltd. v. Addl. CIT 41 taxmann.com 386 (Mum) 0.5 % p.a 6. Nimbus Communications Limited v. Addl. CIT [2014] 149 ITD 0508 (Mumbai) 0.5% p.a 7. Hind....
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....determine that all its transactions with its AE's are at ALP. In this case, the assessee has failed to discharge the primary onus cast on it by the statute. In the case of Greatship India cited and relied upon by the assessee as reproduced hereinabove, the ITAT did not find fault with the methodology adopted. The Hon'ble ITAT stated "we are of the considered view that insofar the adequacy of the ALP of the corporate guarantee fees determined by the assessee at 0.43% is concerned, the same in the backdrop of the aforesaid facts cannot be called in question." It is to be observed here that the value of 0.43% is arrived at after taking into account the facts of that particular case. The facts in the case of the assessee Rubamin are completely different. The arm's length price of any transaction is dependent on the facts and circumstances that affect that transaction. Therefore, this case has no application to the facts of the present case at all. The assessee has submitted without prejudice basis before the DRP that the rate of 0.50% should be adopted for benchmarking this transaction. Therefore, the stand of the assessee is not consistent at all. Considering the same, it is earne....
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....f them held that the transaction of corporate guarantee is outside the purview of the international transaction including the Ahmedabad tribunal in the case of Micro Ink Ltd. vs. Addl. CIT reported in [2015] 63 taxmann.com 353, wherein it was held that the corporate guarantee is not international transaction. Further in the own case of the assessee corresponding to A.Y. 2008-09 bearing ITA No. 1402/Ahd/2013, the ITAT allowed the appeal of the assessee by following the order in case Micro Ink Ltd (Supra). At the time of hearing, the learned AR heavy relied on this order of the tribunal. 87. However we find that the learned DR before us has brought the judgment of Hon'ble Madras High Court in case of PCIT v. Redington (India) Ltd. [2021] 430 ITR 298 where the Hon'ble court held that the corporate guarantee extended to the AE is an international transaction and needs to be benchmarked. The relevant finding of the Hon'ble Court is reproduced here under: 75. The concept of Bank Guarantees and Corporate Guarantees was explained in the decision of the Hyderabad Tribunal in the case of Prolifics Corporation Limited. In the said case, the Revenue contended that the transaction of providi....
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.... 90. The next aspects arises for the determination of the ALP of the impugned international transaction. The TPO in the case on hand has adopted the basis of credit rating of the assessee and AE and accordingly calculated the average coupon rate difference based on such rating as per the data available for US bond. The relevant finding of the TPO/AO reads as under: Since the credit rating of the assessee company is determined at BBB level by the 1CRA, the credit rating of the AE is taken at one notch down at BB level by this office for the year under consideration. The difference in average coupon rate between the BB and BBB bonds (i.e. risk spread) issued during the year under consideration (as determined from the publicly available US bond data and made available to the assessee company along with the show- cause notice), represents the level of risk being adopted by the assessee company on behalf of its AE on account at issuing the guarantee. Such difference in average coupon rate is computed at 2.456%. 91. From the above, it is revealed that the AO has taken the difference in average coupon rate between the BB and BBB bonds in US market for working out the bank guarantee com....
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....ee made alternative claim that if subsidy held as revenue receipt then it should be allowed deduction under section 80IB in view CBDT circular bearing no. 39/2016. The assessee further submitted that the Hon'ble ITAT in its own case for A.Y. 2007-08 allowed its alternative claim. 96. However, the learned DRP held that the subsidy as revenue receipt. Nevertheless, the ld. DRP allowed the assessee's alternate claim by observing as under: 15.2 As regards issue of treatment of sales tax subsidy as capital receipt, the issue is covered by ITAT, Ahmedabad judgment in case of assessee itself where the ITAT has held that it is revenue receipt. Accordingly, the assessee's objection that it should be treated as capital receipt is liable to be rejected. 15.3 As regards alternative claim of deduction u/s. 80-IB, the assessee has placed reliance on the CBDT Circular 39/2016, wherein the CBDT has, after relying upon the decision of Supreme Court in case of Meghalaya Steels Limited, clarified that subsidies of power, transport and interest given by the Government of the Industrial Undertaking are receipts which have been reimbursed for elements of costs relating to manufacture / sale of p....
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....t we note that, the issue of sales tax subsidy has already been decided by this tribunal in own case of the assessee for the assessment year 2007-08 in ITA Nos. 664, 665 &795/Ahd/2012 and also followed in A.Y. 2008-08 in ITA Nos. 1402/Ahd/2013. The relevant extract of the order is reproduced as under: "10. Apropos assessee's other issue pertaining to claim of sales tax exemption/subsidy as capital in nature has fairly considered by the ITAT in ITA Nos.999, 2467 & 3426/Ahd/2008, in which it has been held as Revenue in nature. Accordingly, this ground of assessee is dismissed. 11. Apropos third issue challenging the allowability of deduction u/s. 80IB on the amount of sales tax subsidy, the Ld. Counsel for the assessee contends that the issue in question is squarely covered in favour of the assessee by the Hon'ble Supreme Court judgment in the case of CIT vs. M/s. Shree Balaji Alloys in Civil Appeal No.10061 of 2011 and CIT vs. Meghalaya Steel Ltd, 383 ITR 217. The Ld. DR, on the other hand, supported the order of the Assessing Officer. The ground of sales tax subsidy being Revenue in nature is covered against the assessee by ITAT decision in assessee's own case. Once the sales t....
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....actual value of property been lower than the registration value, it is expected that the value of registration would be challenged. Otherwise also assessee could not demonstrate that the property had any such attribute which would have resulted into deduction of its market value. 17.3 It is also submitted by the assessee that it has objected to adoption of Stamp Duty value before the AO, however, the AO has failed to make reference to the DVO in accordance with Section 50C(2). The above argument of the assessee is not tenable because Section 50C(2) clearly provides that in circumstances fulfilling conditions of Section 50C(2) also, the Assessing Officer may refer the valuation of the capital asset to the Valuation Officer. The Section uses the words 'may' instead of 'shall' and therefore reference to DVO is optional on part of AO and non-reference to DVO is not fatal to the proceedings. As discussed above, the assessee did not give any cogent reason/evidence to show why that the market value of the property was lower than the registration value, which could have been prima facie acceptable to the AO for resorting to provisions of section 50C(2) of the I.T. Act for....
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....itted that similar issue was involved in Assessee;s own case for AY 2008-09 wherein the Hon'ble ITAT has directed the ld. AO to refer the valuation to the DVO. Kindly refer para 9-10 on Pg. No. OTHERS-66-70 wherein findings of Hon'ble ITAT are reproduced. Considering the same, we request the Hon'ble Bench to give appropriate directions. 108. On the other hand the learned DR also agreed with contention of the learned AR to remit the issue to the file of the AO for fresh verification/adjudication. 109. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that the identical issue was raised by the assessee in its own case in the assessment year 2008-09 bearing ITA No. 1348 & 1402/Ahd/13 which was set aside by the ITAT vide order dated 25th January 2018. The relevant extract of the order is reproduced as under: "10. We have heard rival contentions reiterating both parties' respective stands. There can be hardly any dispute about the fact that the assessee has in fact sold the relevant capital assets to its sister concern. The issue before us is that of its fair market value. Both the lower authorities have admit....
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....nvalid and void-ab-initio as it is not passed in accordance with the direction given by the learned Dispute Resolution Panel-2, Mumbai ("the DRP"). No Incriminating Material Found: 3 The learned AO as well as the learned DRP erred in fact and in law in making additions in the assessment u/s 153 A of the Income Tax Act, 1961 ("the Act"), despite the fact that no incriminating material was found during the course search. Addition in respect of Rubamin Ltd.: 4 The learned AO as well as the learned DRP erred in fact and in law in taxing the profit of subsidiary company of the Appellant viz. Rubamin FZC situated in UAE, in the hands of the Appellant. 5 The learned AO as well as the learned DRP erred in fact and in law by making addition of Rs. 38,39,47,216 by way of taxing the profit of Rubmain FZC in the hands of the assessee by holding Rubamin FZC as a colourable device/shell entity created solely for the purpose of shifting of the Apellant's profit out of India without any basis. 6 The learned AO as well as the learned DRP erred in fact and in law by taxing the profit earned by Rubamin FZC from an activity which has no nexus with India and thus the AO has clearly exce....
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.....w.s.!53A of the Act for the purpose of making an assessment. Other Grounds: 15 The learned AO erred in fact and in law in repeating an addition of Rs. 1.45,65,207 u/s 50C of the Act, despite the fact that said addition was already made in AY 2011-12. 16 The learned AO erred in fact and in law in making an addition of Rs. 1,45,65,207 u/s 50C of the Act despite the fact that no transfer of capital asset was made in the year under consideration. 17. The learned AO erred in fact in law in levying interest u/s.234B of the Act. 18. The learned AO erred in fact and in law in initiating penalty proceedings u/s.271(1)(c) of the Act. 19. Your Appellant craves a right to add to or amend, alter, substitute, delete or withdraw all or any ground of appeal. 113. The issue raised by the assessee in ground no. 1 and 2 is that the learned DRP erred in holding the validity of assessment order as the same is bared by limitation. 114. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2012-13 are identical to the issues raised by the assessee in ground nos. 1 and 2 of ITSSA No. 20/AHD/2018 for the assessment year 2011-12. Therefore, the findi....
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....o. 20/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITSSA No. 20/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2012-13. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 68 of this order against the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the grounds of appeal filed by the assessee are dismissed. 121. The issue raised by the assessee in ground Nos. 10 and 11 is that the learned DRP erred in confirming the order of the AO by treating the transaction of bank guarantee furnished by the assessee to its AE as international transaction and therefore making an addition of Rs. 52,88360/- being guarantee commission. 122. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2012-13 are identical to the issues raised by the assessee in ground no12 of ITSSA No. 20/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITSSA No. 20/AHD/2018 shall also be applicable for the ye....
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....me can be revised under the Act if it has been done within time limit as per the provision of the Act. Then it is the duty of Revenue authority to consider the income as per the revised return. Accordingly we direct the AO to consider the income as per revised return if the same is filed within the framework of law. Hence the ground of assessee is allowed in terms of above for the statistical purposes. 128. The issue raised by the assessee in ground nos. 15 and 16 is that the AO erred in making the addition under section 50C for Rs. 1,45,65,207/- which has been already made in A.Y. 2011. And further erred in not following the direction of DRP. 129. At the outset, the learned AR for the assessee submitted that the AO has adhered the direction of the learned DRP by rectifying its order under the provisions of section 154 of the Act. Accordingly the learned AR contended that there is no grievance to the assessee now. Consequently, the learned AR submitted that he has been instructed by the assessee not to press this ground of appeal. Hence, we dismiss the same as not pressed. 130. The issue raised by the assessee in ground nos. 17, 18 and 19 are either consequential, premature or g....
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....act and in law in making addition on account of transfer pricing in respect of corporate guarantee commission of Rs. 19,49,160 to the total income of the assessee u/s 92 of the Act. Double Taxation of Income 10 The learned AO as well as DRP has erred in not reducing the dividend of Rs. 24,55,09,656 received from Rubamin FZC and included in the Returned income despite the fact that entire profit of Rubamin FZC has been included by the AO in the total income of the assessee and thereby taxing the same income twice in the hands of assessee. 11. The learned AO erred in not following the directions of the DRP to include the amount of dividend received from Rubamin FZC on protective basis only. Non-consideration of Revised Return of Income 12 The learned AO as well the learned DRP has erred in fact and in law by not considering the return income as per revised return of income filed 139(5) r.w.s.l53A of the Act for the purpose of making an assessment. Disallowance of Fraud Loss: 13 The learned AO as well the learned DRP has erred in fact and in law in disallowing fraud loss claim amounting to Rs. 4,80.08,326 in the year under consideration. 14 The learned AO as well the l....
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....n ground nos. 4 to 7 of ITSSA No. 20/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITSSA No. 20/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 47 to 65 of this order in favour the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds of appeal filed by the assessee are allowed. 139. The issue raised by the assessee in ground Nos. 8 and 9 is that the learned DRP erred in confirming the order of the AO by treating the transaction of bank guarantee furnished by the assessee to its AE as international transaction and therefore making an addition of Rs. 19,49,160/- being guarantee commission. 140. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2013-14 are identical to the issues raised by the assessee in ground no 12 of ITSSA No. 20/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITSSA No. 20/AHD/201....
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....for the statistical purposes. 146. The issue raised by the assessee in ground 13 to 15 is that the learned DRP erred in not allowing the loss of Rs. 4,80,08,326/- occurred due to fraud on reason that the same not crystallized in the current year. 147. The assessee in the year under consideration has claimed loss of Rs. 4,80,08,326/- on account of the fraud committed by the then CFO of the company namely Shri Ajay Agarwal. As per the assessee, such fraud was committed by CFO in different assessment years including the year under consideration. The details of the same stand as under: Assessment Year Nicomet Glencore Tenke Total 2009-10 2,97,87,621 - - 2,97,87,621 2010-11 30,00,000 - - 30,00,000 2012-13 - 1,73,18,524 - 1,73,18,524 2013-14 - - 1,07,89,802 1,07,89,802 12,12,379 Gross Amount 6,21,08,326 Amount Recovered 1,41,00,000 Net Fraud Loss 4,80,08,326 148. The fraud was committed by the CFO by transferring the fund from the company's bank account to his personal account by fabricating the transactions with the suppliers of the company. In other words, such payment was ....
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....ted. The Assessee had relied upon Circular No. 35D (XLVII-20) [F. NO. 10/48/65-IT(AI)]. The circular is reproduced as under: BUSINESS INCOME SECTIONS 29, A reference is invited to the instructions on the above subject contained in Board's Circular No. 25 of 1939 and Circular No. 13 of 1944. In these circulars it was clarified that losses arising due to embezzlement of employees or due to negligence of employees should be allowed if the loss took place in the normal course of business and the amount involved was necessarily kept for the purpose of the business in the place from which it was lost. Since the above circulars were issued, the Supreme Court has further considered the matter and laid down the law in this regard in the following two cases :- (1) Badri Das Daga vs. CIT (1958) 34 ITR 10 (SC) : TC 14R.202. (2) Associated Banking Corporation of India Ltd. vs. CIT (1965) 56 ITR 1 (SC) : TC 14R.211 In the first case, the Supreme Court has affirmed the view that the loss resulting from embezzlement by an employee or agent of a business is admissible as a deduction under s. 10(1) of the IT Act, 1922 (corresponding to s. 28 of the IT Act, 1961) if it arises out of t....
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....ial with a view to find out if the loss is proved or not. It is not necessary for the assessee to prove that the embezzlement was done by a particular employee. If the loss by way of embezzlement is proved, the assessee is entitled to claim set off. If the loss is not known, and it comes to be known during a particular assessment year, the adjustment can be claimed in the assessment year when it came to be known." On the perusal of the above, it is submitted that the fraud loss incurred by the Assessee is allowable in the year in which it is detected, that is in AY 2013-14. Hence, we request the Hon'ble Bench to direct the ld. AO to allow the deduction in respect of the fraud loss in the year under consideration i.e. AY 2013-14. Without prejudice to above, in case the Hon'ble Bench is not inclined to allow the deduction the year under consideration, then we request the Hon'ble Bench to direct the ld. AO to allow the deduction for fraud loss in AY 2014-15. 156. On the other hand the learned DR before us vehemently supported the order of the AO by filing the written submission which are available on record. 157. We have heard the rival contentions of both the parties and peru....
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.... discernible from the fact of claiming the deduction of the loss as discussed above. 161. The term 'when assessee comes to know that the amount is not recoverable' is a very subjective term and therefore no principles can be laid down to this effects as it depends upon the facts which may vary case to case. It is the decision only of the assessee to arrive at the satisfaction that the amount is not recoverable and therefore the assessee has to resort to the other options such as filing the police complaint. Once the assessee has debited the impugned loss in the books of accounts, it is sufficient enough to hold that the amount is not recoverable. The recovery of the amount cannot be linked with the finding of the FIR. In other words, the act of filing the FIR cannot be a criteria/condition to arrive at the conclusion that the amount is not recoverable. 162. We also note that the Hon'ble Gujarat High Court in the case of Dinesh Mills Ltd. v. Commissioner of Income-tax reported in 254 ITR 673 wherein it was held as under: "it was to be held that the assessee would be entitled to deduction of loss during the year under consideration as that was the year in which the loss on accoun....
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....013-14 in respect of addition of profits of Rubamin FZC, are not applicable to the year under consideration. 3. The learned CIT(A) erred in fact and in law in confirming the action of the At) that there is no material di (Terence on the facts of the case of the Appellant during the year under consideration from the earlier years without bringing any record. documents or reasoning to that effect and thereby making addition of profit of Rubmain FZC by relying upon the order of DRP for AY 2013-14. 4. The learned CIT(A] erred in tact and in law in confirming the action of the AC) in taxing the entire profit of subsidiary company of the Appellant viz. Rubamin FZC situated in UAH in the hands of the Appellant by alleging that the entire control and management of Rubamin F/C is in the hands of the Appellant and thereby " treating Rubamin FZC as a colorable device / shell entity created solely for the purpose of shifting of its profit out of India without any basis. 5. The learned CIT(A) erred in fad and in law in confirming the action of the AO in relying on the documents and papers which are not pertaining to assessment year under consideration as well as wholly irrelevant for the ....
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....f the Act. 15. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in initialing penalty proceedings u/s 271A AB of the Act. 16. fhe learned AO erred in fact and in law in initiating penalty proceedings u/s 271(1 )(c) of the Act. 17. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds 168. The first issue raised by the assessee in ground no. 1 to 6 of its appeal is that the learned CIT(A) erred in confirming the order of the AO by sustaining the addition of Rs. 48,63,67,250/- only by holding that the profit earned by its AE, M/s Rubamin FZC located at Sharjah UAE belongs to the assessee. 169. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2014-15 are identical to the issues raised by the assessee in ground nos. 4 to 7 of ITSSA No. 20/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITSSA No. 20/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2014-15. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 47 to 65 of this order in ....
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.... play, to restore this issue to the file of the AO for fresh adjudication as per the provisions of law. Hence, ground of appeal of the assessee is allowed for the statistical purposes. 175. The next issue raised by the assessee in grounds no. 9 to 10 is that the learned CIT(A) erred in not allowing the fraud loss of Rs. 4,80,08,326/- despite the clear direction of DRP in case of A.Y. 2013-14 to allow the loss in the year under consideration. 176. At the outset we note the assessee has made the claim of same loss incurred due to fraud committed by the CFO in assessment year 2013-14 which was disallowed by the learned DRP by holding that the loss was crystalized in A.Y. 2014-15. Thus the same is allowable in assessment year 2014-15. However the assessee challenged the direction of the learned DRP before us in the appeal filed for A.Y. 2013-14 bearing IT(SS)A No. 22/Ahd/2018 vide ground nos. 13 to 15. We have allowed the appeal of the assessee in its favour vide paragraph no. 68 of this order. Thus the grounds raised by the assessee do not require any separate adjudication. As such the ground raised by the assessee become infructuous. Hence we dismiss the same. 177. The issue raise....
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....ble to the adjustment u/s. 92C of the Act. * 9. The learned CIT(A) erred in face and in law in confirming the action of the TPO in considering 2.85% of total guarantee applying CUP method as the ALP of International Transaction of giving corporate guarantee by the Appellant on behalf of AE. Regular Additions: Subsidy: 10. The learned CIT(A) erred in fact and in law in confirming the action of AO in rejecting the contention of the Appellant that the subsidy granted to the Appellant in the form of sales tax exemption is capital in nature and therefore not chargeable to tax. 11. The learned CTT(A) erred in fact and in law in confirming the action of AO in making an addition of Rs. 1,26,92,000,'- on account of sales lax exemption considering the same as revenue receipt instead of capital receipt considered by the Appellant. Addition u/s 50C: The learned CIT(A) erred in fact and in law in confirming the action of AO in making an addition of Rs. 15,71.061/- on account of sale of land invoking section SOCoftheAct. Long Term Capital Loss: 13. The learned CIT(A) erred in fact and in law in restricting the claim of long term capital loss on sale of shares from Rs. 34.....
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....ny basis to establish the fact that the transactions such as import of goods, interest on loan or other transaction were interlinked with each other. Thus, in the absence of such information, the international transaction has to be benchmarked independently on individual basis. As per the AO, the transactions can be aggregated in pursuance to the OECD guidelines in para No. 1.42 to 1.44 provided if there is a composite/packaged deal/ contract for all the transactions and which is not possible to segregate. Accordingly, the TNMM cannot be adopted for benchmarking the impugned transaction. 185, Subsequently the AO, determined the ALP at LIBOR + 334 basis under CUP method after taking market rate of interest in UAE as provided by the assessee at LIBOR + 184 basis point + 150 basis point for currency fluctuation risk. Accordingly the AO made the upward adjustment of Rs. 1,25,56,591/- to the total income of the assesse. 186. Aggrieved assessee preferred an appeal to the learned CIT (A). The learned CIT (A) allowed the ground of appeal of the assessee in part after placing his reliance on the order of his predecessor in the case of the assessee for the assessment year 2007-08 and 2008-....
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....hall also be applicable for the year under consideration i.e. AY 2009-11. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 84 to 91 of this order partly in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2009-10. Hence, the grounds of appeal filed by the assessee are partly allowed. 195. The next issue raised by the assessee in ground 10 and 11 is that the learned CIT (A) erred in holding the sale tax subsidy of Rs. 1,26,92,000/- as revenue receipt. 196. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2009-10 are identical to the issues raised by the assessee in ground nos. 13 and 14 of ITSSA No. 20/AHD/2018 for the assessment year 2011-12. Therefore, the findings given in ITSSA No. 20/AHD/2018 shall also be applicable for the year under consideration i.e. AY 2009-11. The appeal of the assessee for the assessment 2011-12 has been decided by us vide paragraph Nos. 100 to 102 of this order in favour of the assessee. The learned AR and the DR als....
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....2008 19,00,000 19/01/2007 47,73,750 582 519 112 53,53,223 (-)34,53,223 Long Term 2 Share sof J&K Pigments 50,000 30/06/2008 2,00,00,000 31/03/2008 5,00,00,000 582. 582 100 5,00,00,000 (-)3,00,00,000 Short Term 201. However, the AO during the assessment proceedings observed that the shares have been sold after the purchases within a short span of time and that too to the same party from whom the shares were purchased. Consequently, the AO was of the view that such transaction of purchase and sale of shares is representing the colourable device in order to generate the bogus short-term/long-term losses. 202. In view of the above, the AO sought clarification from the assessee to justify the value for the purchases and sales of the shares. The assessee in response to such show cause notice furnished the annual return of the company namely M/s J and K Pigment Pvt. Ltd. which was filed with the ROC. 203. However, the AO being dissatisfied on the reasoning that the assessee has not furnished the necessary information for the value of the purchase and sales of the shares. Accordingly in the absence of such informatio....
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....as alleged by the AO. 208. Without prejudice to the above, the assessee further contended that the AO has wrongly calculated the purchase value of the shares as on 31st March 2007 under the provisions of rule 11UA by taking the share capital of the company at Rs. 54,75,000/- instead of Rs. 4,75,000/-. As such, the value of share as on 31st March 2007 is of Rs. 2372/- per share whereas the AO has wrongly taken the fair market value of the share at Rs. 206. As such by considering the value of share as on 31st March 2007, it has incurred long term capital loss of Rs. 84,54,670/- for the shares purchased on 19th January 2007. 209. However, the learned CIT (A) after considering the order of the AO and submission of the assessee observed that the shares (4750 shares) were sold to the same parties from whom the shares were purchased. 210. Likewise, the learned CIT (A) also observed that why the shares (50,000 shares) have been sold within a short span of time? As such there was nothing brought on record indicating the reasons for the sale of shares at the loss of Rs.3 crores. 211. The learned CIT (A) has given separate finding for the sale of the shares which were acquired on 19 Janua....
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....furnished all the necessary details with respect to the purchases and sales of the shares along with the parties. Therefore the same cannot be treated as a colourable device. 218. The learned AR further submitted that shares were acquired for the purpose of the expansion of the business but on a later date, due to change in the government policies, the idea of the expansion of the business was abandoned. 219. On the other hand the learned DR before us the loss claimed by the assessee was artificial and the same was not based on the documentary evidences. The learned AR has not provided any basis for valuing the sale price of the shares at Rs.400 per share though the same were purchased at Rs.1000 per share. 220. Both the learned AR and the DR before us vehemently supported the order of the authorities below as favourable to them. 221. We have heard the rival contentions of both the parties and perused the materials available on record. The facts of the case has already been elaborated in the preceding paragraph and there is no dispute with respect to the facts of the case. Accordingly, for the sake of convenience and gravity, we are not inclined to repeat the same. 222. Admitt....
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....ntion of the parties for carrying out the transaction the way they have carried out and why it has been presented the way it has been done? 226. A colourable device is not an instrument or a specific document but it is whole set of series of transaction which create a different impression when they are looked at their form alone or seen from result they create, but when it is looked through and the substance of the transaction is brought into limelight and such substance of the transaction clearly indicates an intention of tax evasion as well as manipulation, dodging, or even fraud, such device has to be ignored and the effect coming out of the substance has to be applied for working out taxable income. It is the task of the Court to ascertain the legal nature of the transaction and while doing so, entire transaction has to be looked at as a whole and not in pieces. In this regard we draw support and guidance from the judgment of Hon'ble Jurisdictional High court "in the case of Banyan & Berry v. CIT reported in [1996] 84 Taxman 515 (Guj.), where it was held that every Act which results in tax deduction, exemption of tax or not attracting tax authorized by law cannot be treated as....
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.... directly or indirectly. The submission of the assessee before the authorities below reads as under: We may like to mention that the shares have been purchased from a third party and sold to third party. The AO has not doubted the sale and purchase of the shares. The party from whom the shares were purchased are not related to the Appellant nor are relatives of the Directors of the Appellant. The transaction has taken place at arm's length. In fact the Appellant had decided to expand its activities in the state of J&K as the state of J & K was enjoying various tax / cess benefits. In pursuance of the said plan the company "JKPL" was acquired. ii. Similarly, it was contended by the assessee before the learned CIT (A) that the shares were acquired for the purpose of expansion of the business. iii. Likewise, the assessee also submitted before the learned CIT (A) that the shares of the company namely M/s J and K Pigment Pvt. Ltd. were sold within in a short span of time for the reason that there were certain benefits granted under the income tax Act to the company namely M/s J and K Pigment Pvt. Ltd. which were withdrawn. Therefore, the assessee has taken a decision to drop t....
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....he form of sale or purchase agreement of share, placed at page 266 to 268 of the paper book. All these details, evident that the necessary details to whom the shares were sold by the assessee were available before the learned CIT (A). Thus to this extent, we hold that the finding of the learned CIT (A) is contrary to the materials available on record. 234. Additionally, we also note that there was nothing brought on record by the Revenue indicating/suggesting that the assessee has received any consideration in cash against the sale of shares. 235. In view of the above and after considering the facts in totality we are not convinced with the finding of the authorities below that the assessee has adopted the colourable device for incurring the impugned losses. 236. The next controversy arises whether the price (Rs.400 per share) at which the shares were sold was supported based on any documentary evidence. The provisions of section 48 of the Act provides for the computation of capital gain by taking the sale consideration and reducing therefrom the cost of acquisition. The provisions of section 48 of the Act reads as under: 8. The income chargeable under the head "Capital gains"....
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....8. We also note that there is no provision under the Act prescribing the guidelines for pricing of the shares unlike the provisions contained under section 50C of the Act concerning immovable properties under the head capital gain. Thus in the absence of any specific provision to determine the sale price of the shares of unlisted company at prevailing point of time, we are inclined to hold that the price declared by the assessee is correct and within the provisions of law. 239. We also find that a new section 50CA of the Act was inserted by the Finance Act 2018 which is applicable from 1st April 2018, the relevant extract of the section is reproduced as under: "[Special provision for full value of consideration for transfer of share other than quoted share. 50CA. Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being share of a company other than a quoted share, is less than the fair market value of such share determined in such manner as may be prescribed 40a , the value so determined shall, for the purposes of section 48, be deemed to be the full value of consideration received or accruing as a result of such transfer.....
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....d the finding of authorities below. Accordingly, we set aside the order of learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 243. The issue raised by the assessee in ground nos. 16 and 17 is premature to decide or general in nature. Hence the same is dismissed accordingly. In the result, the appeal of the assessee is allowed partly for the statistical purposes. Coming to the ITA 2909/Ahd/2014 an appeal by the revenue for A.Y. 2009-10. 244. The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-III, Ahmedabad (CIT(A)' in short), dated 13.08.2014 for AY 2009-10. 245. At the time of hearing, it was submitted by the Ld.AR for the assessee that the appeal filed by the Revenue is hit by recently issued CBDT Circular No.17 of 2019 dated 08/08/2019 revising the previous thresholds pertaining to tax effects. It is inter alia noticed that the CBDT vide Instruction No. F. No. 279/Misc/M-93/2018- ITJ dt. 20/08/2019 has observed that Circular No.17/2019 dated 08/08/2019 relating to enhancement of monetary limits is also applicable to all pendi....