TaxTMI 
TaxTMI 
2021 (10) TMI 506
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....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. 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....
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.... The learned AO as well as the learned DRP erred in fact and in law in making an addition of Rs. 1,45,65,207 by invoking section 50C of the Act. 16 The learned AO as well as the learned DRP erred in 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. ....
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....RL and Rubaco SPRL are engaged in the business of manufacturing of cobalt concentrates from cobalt Ore and copper concentrate from copper Ore and mineral exploration and extraction respectively. Thus, the Rubamin group consists of the various companies. The details 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 ....
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....(Email on different dates 31- 10-2011, 23-08-2012, 17-09-2012, 03-10-2012 etc) v. The policy for hedging the copper cannot be changed without the approval of Shri AD and to this effect a confirmation from the parties was obtained. There was also a discussion for the regular report from DRC based company to this effect. (Email dated 04-10-2011) vi. There was also a conversation about the 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, ....
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....d a supply contract agreement between Rubamin SPRL and Kirby Building Syatem Kuwait dated 11 July 2007 which was duly stamped by Rubamin SRPL. v. There were certain letter of appointment/ contract of the RFZC/DRC employees which were found from the office of Rubamin Ltd at Baroda. vi. The salary chart for the employees based in DRC was found from the premises of Rubamin Ltd at Baroda. vii. There was the appointment letter of Shri Rajesh Agarwal, the vice president (Commercial) of RFZC which 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 produ....
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....epted by the Income Tax Department under the provisions of transfer pricing requiring the determination of ARM length price. iv. The assessee under protest submitted that the RFZC was having the business transactions with the assessee and other parties. The profit earned by RFZC on the business transactions carried out with other parties cannot be taxed in the hand of the assessee. Therefore, the profit earned by RFZC with the business transactions carried on with the assessee should only be considered for the purpose of tax instead of its entire 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 ....
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....osted at DRC. These persons were highly qualified and performing critical functions of the company after drawing huge salaries with definite responsibilities. As such these employees were not carrying out the clerical activities. It is the normal practice for a holding company being a shareholder to keep the information by way of MIS report for the activities carried out by the subsidiaries. But that does not give the authority to infer that the controls and managements are based in India with the holding company. Some of the controls indeed have been exercised in India but with respect to group policies. 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....
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....ty for routing all the transactions for purchase and sale of the products except financial transactions from RFZC. vi. Shri AD has admitted in a statement recorded dated 28th April 2013 that Rubamin Ltd exported machineries to Rubamin SPRL and Rubaco SPRL and payment was made by RFZC up-to July 2010. Thereafter the payment was received by Rubamin Ltd directly from Rubamin SPRL, UAE bank account. Accordingly, it was alleged that once the assessee is able to export the goods to the companies present DRC that there was no reason to involve RFZC with respect to the purchase and sales of transaction. As such the assessee was in a position to import the goods directly without 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 le....
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....or the year under consideration. v. The email dated 06th March 2009 written by AA which explains how to improve the financial position of Rubamin Ltd with respect to the loan given to the subsidiary, debt equity ratio and interest cost reduction. For this purpose, there was a discussion for the arrangement of the funds in the hands of the subsidiaries by obtaining the finance facilities from the bank. As such this email relates to the financial position/balance sheet of Rubamin Ltd and it has nothing to do with the operation of RFZC. It is a quite normal practice in the industries for the parent company to discuss the group policy in order to cut down the cost, improvement of the profitability of the group, 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 i....
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....ility on such dividend would be of Rs. 21 only but ultimately paid tax amount would be paid to Indian authority for Rs. 7 only after getting benefit of withholding tax of Rs. 14 @ 20% on such dividend. It is explained as under: Tax Comparison Pre-Amendment Post- Amendment A. With FZC No FZC With FZC No FZC Total Combined Profits 100.00 100.00 100.00 100.00 Profits at DRC 40.00 100.00 40.00 100.00 Profits at UAE 60.00 - 60.00 - Tax Payable at DRC Corporate Income Tax 12.00 30.00 12.00 30.00 Withholding tax 5.60 14.00 5.60 14.00 Net Remitted to India 82.40 56.00 82.40 56.00 Tax Payable in India Tax Dividends in India 26.40 21.00 15.84 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 ....
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.... c) Cost cutting measures on the expenses of entire group including Rubamin FZC & subsidiaries decided by assessee. 4) The books of account of Rubamin FZC maintained at the office of Rubamin Ltd. 5) The HR functions of Rubamin FZC was performed from India by Rubami Ltd. He has highlighted evidence to show that: a) Appointments for Rubamin FZC are made by Rubamin Ltd. Even the details of salary payments was maintained by Rubamin Ltd. b) Appointments, targets, salary other incentive of Sh. Navin Dalmia MD of Rubamin FZC are decided by Rubamin Ltd. c) Salary cutting of all employees of Rubamin FZC by 10% is decided by Rubamin Ltd. as a part of cost cutting measure 6) There was no working office of Rubamin FZC at UAE for about 6 years 7) No apparent reason for establishing Rubamin FZC 19. The learned DRP based on the emails and the documents found during the search proceedings elaborated in the preceding paragraph reached to the conclusion that affairs of RFZC 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, fina....
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.... out the transactions within its group companies in such a manner that there should not be any tax liability either in DRC or India viz a viz in UAE being a tax heaven zone. In all these affairs of the group companies the entity namely RFZC is acting as a corporate veil in order to avoid the payment of taxes. 23. It was also pointed out by the learned DRP that during the initial phase when the RFZC was formed, its office was confined to one room and with one employee only and without having any telephone/Internet connection. As such the office of RFZC was in operation just like a post office. 24. The assessee was directly procuring the zink from the Middle East through its own employee but on papers it was shown as purchased through the office of RFZC. As such, even the procurement of zink was not done by the office of RFZC in actuality. 25. The business of copper and cobalt was being carried out by the companies based in DRC which were mainly supplying to the assessee and a company based in China through the RFZC. As such 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 re....
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.... In giving our final findings, we have also been considerate of the decision of Hon'ble Supreme Court in the case of Vodafone International Holding B. V. (supra) that in the application of a judicial anti-avoidance rule, the Revenue may invoke the principle of "substance over form" or "piercing the corporate veil" test only after it is able to establish on the basis of the facts and circumstances surrounding the transaction that the impugned transaction is a sham or tax avoidant. 7.21.1 To sum up, following the direction of Hon'ble Supreme Court, we have considered the entire facts & circumstances together without dissecting approach. In our opinion the facts and evidences discussed in detail clearly established that: (a) The competences of Executive Directors'of Rubamin FZC are transferred to assessee though Shri Atul Dalmia & others and his decision making has become fully subordinate to the assessee. (b) (b) A less obvious but arguably more important factor which to be taken into consideration for considering an entity as colourable device is that where one entity acts through another v'ithout maintaining proper separation and a c....
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.... 7.21.2 Accordingly in this case, the revenue can apply test of phsical nullity and discard interpositioning of this entity. Hon'ble Supreme Court has also upheld the position that once the device is proved as colourable in nature it has to be ignored as physical nullity. 7.21.3 The next question comes as to what is to be done treated, once the existence of Rubamin FZC is ignored after holding it a colourable device. As the company is a subsidiary of assessee and its functions are controlled by the assessee, and its employees therefore all its transactions are held to be merged with assessee. Therefore, the profit shown in Rubamin FZC will merge with profit of assessee company and should be taxed accordingly. 7.21.4 As the existence of Rubamin FZC has been ignored, the AO is once again directed )t te|male any addition arising as a result of transaction between assessee and Rubamin FZC on substantive basis. However as the finding is not accepted by the assessee and is likely to be contested before the court, the additions arising from the transactions between assessee and Rubamin FZC may be separately considered on protective basis. 27. Being aggrieved by....
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....Thus RFZC was well recognised as a body corporate and the status of the same was neither challenged nor disturbed. The purpose of establishing the RFZC was to avoid the banking difficulties which were prevailing in the DRC. Considering the banking difficulties in the DRC, the approval was granted by the RBI. ii. It has employed certain numbers of employees ranging 'between' 52 to 132 who were working exclusively for RFZC. It had its own CEO and CFO besides employees. The salary paid to all the employees including the CEO and CFO were admitted and allowed as deduction. All the contract for the employment were executed between RFZC and the employees in the respective names and under the signature of the respective parties. It is of no relevance to form any opinion based on the location of the employees whether they are placed in UAE where the legal entity of RFZC is based or DRC where the operational base of RFZC is located. iii. All the contracts relating to sales with the 3rd parties were executed by RFZC independently and under the signature of respective parties. The RFZC has shown huge turnover in its audited financial statements which were duly audited and acc....
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....view of the above the learned AR contended that RFZC is an independent and legal entity which was approved by the RBI Viz A Viz after complying the rules and regulations of the UAE. Therefore it cannot be treated as a paper/shell company and its profit cannot be clubbed with the assessee company. 37. The learned AR further contended that onus is upon the Revenue to establish that the particular entity is a paper company which is to be discharged with the facts and figures. The learned AR in support of his contention relied on the following judgements: I. CIT vs. Ram Rawatmull [1973] 87 ITR 349 (SC) II. CIT vs. Pragati Co-operative Bank Ltd [2005] 149 Taxman 149 (Gujarat)/[2005] 278 ITR 170 (Gujarat) III. Vodafone International Holding B.V. vs. Union of India [2012] 17 taxman 202 (SC) 38. Without prejudice to the above it was also pointed out by the learned AR that the provisions of section 153 of the Act provides the time limit for passing the assessment order. The provisions of subsection 4 to section 153 of the Act provides that where a reference under subsection 1 of section 92CA of the Act has been made to the TPO then the time limit provided un....
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....ther hand, Shri Mahesh Shah, the ld. DR for the Revenue while appraising us with the facts and circumstances of the case very eloquently submitted that as a result of search various documents incriminating nature were found which are sufficient enough to establish that RFZC is a paper company and used as a colourable device to divert the profit. He submitted that the cumulative effect of all the documents found during the search should be taken into consideration while deciding the issue on hand instead by considering each single fact in isolation. 44. The contentions raised by the learned DR to prove his point that RFZC is a paper company which is used as a colourable device are based on the documents found during the search which are giving rise to believe that there was no activity carried out at RFZC and its affairs are controlled and managed by Rubamin Ltd in India. The contentions of the learned DR can be summarised in the compartments as detailed under: A. There is no actual office of RFZC in UAE. B. The activities shown in RFZC on papers are Controlled and managed in India. C. Other contentions/ arguments/ points requiring attention. A. Ther....
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....o not clear whether these invoices were prepared in the office of RFZC or anywhere else. It is because there is no operation in the office of RFZC UAE. This fact can be verified from the copies of the invoices placed on pages 36 to 68 of the paper book 2-TPO for the AY 2011- 12. vi. There was no board meeting held in RFZC as admitted by Shri ND in the statement furnished under section 131(1A) of the Act dated 6 June 2013 vide question No. 17 placed on pages 27 paper book 4- RUB for the assessment year 2008-09 to 2013-14. However, the board meetings were held in RFZC dated 1 March 2012 and 5th September 2012 which were related to the dividend only. However such board meeting was not signed at UAE and there was no information about the persons who attended such board meetings. Likewise there was no mentioned about the place where the board meeting was held. This fact can be verified from pages 105 and 108 of the paper book 3-FZC. B. The activities shown in RFZC on papers are Controlled and managed in India. i. There were various emails/documents pertaining to RFZC found from the premises of the assessee during the search. These documents/ emails primarily contain....
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....investment made by ND was without any consideration. Thus Shri ND was acting as director and representing himself as shareholder on papers only. Otherwise, he was working under the supervision of AD in the capacity of the manager. This fact can be verified from the remand report of the AO placed on pages 148 of the paper book -4 RUB. Therefore it cannot be said that Shri ND was acting in the capacity of independent director. Furthermore, Shri ND has signed the financial statements in the capacity of the manager only. This fact can be verified from the financial statements of RFZC which are placed on pages 57 of the paper book 1-GEN for A.Y. 2008-09. ii. There were banking facilities available in DRC. This fact can be verified from the report of the International Monitoring Fund which is placed on pages 118 to 146 of the paper book 4-RUB. Accordingly the contention of the learned AR that there was lack of banking facilities is not tenable. iii. It was explained by the learned AR that there is not available liberalised exchange system in India. For example, the DRC is purchasing the goods from Tanzania and the payment was directly made by RFZC to Tanzania on behalf ....
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....tment letter dated 23rd March 2009 of Shri Rajesh Agarwal as vice president commercial for Rubamin SPRL was issued by the HR head of Rubamin Ltd. Accordingly the learned DR contended that the appointments of the employees of DRC companies and RFZC was made in India. viii. There was a target fixed for Shri ND for the financial year 2010-11 and on achieving such targets there was the incentive proposed for him. Accordingly it was contended that the directors of DRC and RFZC were acting as the puppet. ix. Likewise there was an email written by AD to Shri Rajesh Aggarwal (RA) along with to Shri Navin Dalmia (ND) and Shri Ajay Aggarwal (AA) in CC, wherein it was directed that the hedging activity with respect to the copper will be controlled only by AD and nobody else. If such policy is not adhered to 100% then it will be considered a gross indiscipline. Such email reflects that that the affairs were controlled only by Shri AD. x. Similarly there was an email written by AD to ND and also to marked CC to Ajay Agarwal and Rajesh of wherein it was directed to hold the board meetings with respect to DRC operations. The copy of the email is placed on page 75 paper ....
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....e subsidiary company namely RFZC (RFZC) located in UAE a shell/paper company. As per the Revenue, the company RFZC was incorporated by the assessee for diverting its profit by using the colourable device. The company based in UAE is free from any tax liability. 48. In other words, the company namely RFZC was situated in a tax-free zone and the assessee was diverting its income to such company with the motive to avoid the tax. The necessary facts arising from the order of the authorities below have already been elaborated in the preceding paragraph. Therefore we not inclined to repeat the same for the sake of brevity and convenience. 49. The 1st issue that arises before us for our adjudication so as to whether the company namely RFZC located in UAE was a paper company. On perusal of the financial statements of the company as on 31 March 2011, we note that it is engaged in trading activity and has shown turnover in AED 19,13,10,114/- (Approx 229 crores in Indian currency). It has also shown receivables, payables, loans from the banks, administrative expenses in the financial statements. Thus if we see the financial statements, it is transpired that the company (RFZC) in dispute is....
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....o were performing different functions such as fitter, electrician, Geologist, Chemist, Operator, Supervisor, Shift in charge, sampler etc so on so forth. It is very surprising a trading company is keeping such kind of persons. Thus what appears that such employees are working for the DRC companies and not for RFZC. vii. It is also difficult to understand that how RFZC is operating its bank accounts for the reason that none of the employee except one is based in UAE. Thus it is transpired that RFZC has availed Internet banking facility and its directors are using the same sittings from DRC/ or from anywhere else. viii. On perusal of the balance sheet of RFZC for the year under consideration, it is seen that it has fixed assets worth of AED 4749/- equivalent in Indian currency Rs. 56,988/- (1AED = 12/- Rs. Approx) only. Again it is surprising that a company operating at such a big scale showing a turnover worth of Rs. 229 crore has fixed assets of negligible value. A question also comes to our mind that the company, RFZC, being a trading company does not require any fixed assets. In other words it is just buying the goods from its wholly owned subsidiary companies b....
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....dia are only incurring losses whereas company based in UAE is generating huge profit which is situated in tax free zone. Again this appears to be an abnormal situation. In all the years right from the assessment year 2008-09 up to the assessment year 2013-14 there were only losses in DRC-based companies and Indian-based companies except in one year (AY 2013-14) where an amount of profit of Rs. 2.15 Crore was shown by the assessee but that too on account of the reversal of the expenses claimed by it for the fraud committed by the employee of the assessee. xii. It is also available on record that the customer of RFZC has written an email dated 24th February 2009 to the director, Shri AD of Rubamin Ltd with regard to the purchase of material Cobalt Concentrate from RFZC. This appears bit abnormal why the consumer of RFZC shall raise the query to the Rubamin Ltd in India instead of RFZC xiii. It was also found that CFO of RFZC has also written an email dated 03-04- 2009 to the director of Rubamin Ltd namely Shri AD about the profit on sale of copper products. 50. From the above, it is transpired that there was not any major activity carried out by the RFZC except o....
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.... is formally registered, incorporated, or legally organized in the economy." 53. Similarly, the U.S. Securities and Exchange Commission defines a "shell" company as follows: Shell company: The term shell company means a registrant, other than an asset-backed issuer as defined in Item 1101(b) of Regulation AB (§ 229.1101(b) of this chapter), that has: (1) No or nominal operations; and (2) Either: (i) No or nominal assets; (ii) Assets consisting solely of cash and cash equivalents; or (iii) Assets consisting of any amount of cash and cash equivalents and nominal other assets 53.1 Recently the Hon'ble High Court of Guwahati in its judgment in the case of Assam Co. India Ltd vs. Union of India reported in [2019] 103 taxmann.com 160 (Gauhati) also referred the shell Companies as detailed under: "company having only nominal existence i.e. it exists only on paper without having any office and employee. Such company is a corporate entity without having active business operation or significant assets. Such company may be used as deliberate financial arrangement providing service as a tool or vehicle of others without ....
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....ssment years, the assessment was completed based on the information furnished in the return and books of account submitted along with return of income. Now there was a search action under section 132 of the Act carried out at the premises of the assessee and new facts emerged and in view of the new facts the Revenue changed its stand. Therefore we are of the view that the learned AR's contention to this extent is not maintainable. 58. The second controversy arises as to whether it was necessary for the assessee to establish a company for carrying out its business activities in DRC. In this connection we note that the assessee in its submission before the AO vide letter dated 16th December 2016 and 20th December 2016 has also submitted that the company in UAE was incorporated for the reason that there was political and economic disturbance in DRC viz a viz banking facility was very poor. The submission of the assessee before the AO reads as under: 2 Background of Setting up of Rubamin FZC as an Entity 2.1 It would be worthwhile to take your kind office through the historical background of setting up Rubamin FZC. Rubamin Limited is in the business of processing m....
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....ut 4 years prior the first year under your assessment), that the Company set up Rubamin FZC. 2.4 It may be worthwhile for you to note that at the time when the Company had set up this structure, the Reserve Bank of India, did not encourage the system of step down subsidiaries and encouraged only the direct subsidiaries. The intermittent holding or trading companies were subjected to specific approval and only where the Company which had a genuine case would get such approval on a case to case basis. For your ready reference, we give in Annexure - 1, the Master Circular 2 / 2003 dated July I, 2003 issued by the Reserve Bank of India. Your attention is invited to Para B-l, which specifically provides that the setting up investment under a two tier structure would require specific approval of the Reserve Bank of India. 2.5 It is with this restriction, the Company made a specific application to the RBI requesting it to grant specific approval for setting up the UAE Subsidiary and then in turn set up the DRC Subsidiary. We request you to kindly go through the said application which is enclosed marked as Annexure 2 to this letter. It may be worthwhile to have a look at ....
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....pproached to Durban, South African country or Tanzania where better banking facilities were available. Thus a conjoint reading establishes the fact that the banking facility in DRC was poor. Thus to cope up with the uncertainty prevailing in DRC and safeguard its business and financial interest the assessee has to rout the transaction through third party or intermediary. At the same time liberalized exchange for third party payment were not available in India for the type of transaction it (RFZC) was carrying out i.e. exporting goods directly from DRC to ultimate customer in third country but routing the bill through RFZ to final customer. In other words, at that time it was not possible from India to export the goods directly from DRC to third country but issue bill from India and receive the remittance against such export from DRC in India. 60. Without prejudice to the above, the question also arises whether the paper company as discussed above is engaged in any tax evasion. Any company falling within the definition of paper/shell company in the manner as discussed above does not mean that it is engaged in the activity which is illegal in nature. In other words the formation o....
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....r, if- (i) it is an Indian company; or (ii) its place of effective management, in that year, is in India. Explanation.-For the purposes of this clause "place of effective management" means a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made. 61. The above provisions requires that a company can be resident in India if it is affairs are controlled and managed wholly and exclusively in India. Indeed, certain documents and emails were found by the revenue during the search proceedings, but those were not sufficient enough to draw any inference that the affairs were controlled and managed wholly and exclusively in India. Thus, the revenue has not invoked the provisions of section 6 of the Act. It was alleged by the revenue that RFZC has been used as the colourable device for diverting the profit. However, we find that there was no violation of any provisions of the law leading to draw the inference the assessee has acted in a manner which was prohibited under the provisions of law. Any transaction which is within the four corners of the law cannot be termed as co....
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....rofit attributable to RFZC with respect to the transactions carried out by it with the company based in China namely Trafigura Beheer BV belongs to DRC companies. Likewise, the profit attributable to RFZC with respect to the transactions carried out by it with the assessee company has already been subject to transfer pricing provisions. Therefore, no inference can be drawn that the profit of the assessee company got diverted. Hence the ground of appeal of the assessee is allowed. 66. The next issue raised by the assessee in ground No. 8 and 9 is that the learned DRP erred in confirming the order of the AO by not allowing the deduction of the loss of Rs. 1,50,87623/- for the reason that it was not crystallized in the year under consideration. 67. The learned AR before us submitted as under: "If the Assessee succeeds in Ground No. 4 to 7 and the Hon'ble Bench holds that profits of Rubamin FZC are not to be included in the income of the Assessee, then in such case the fraud loss incurred by Rubamin FZC would not be allowable to the Assessee. However, if Grounds No. 4 to 7 are decided against the Assessee, then fraud loss amounting to Rs. 1,50,87,623 incurred by....
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....ack from the AE after furnishing the bank guarantee with respect to the loan obtained by the AE. As per the assessee, the fund provided by it (the assessee) was an expensive affair than arranging the loan from the international bank for the AE after furnishing the corporate guarantee. Thus such guarantee was provided as a measure of commercial expediency. 74. Furthermore, the transaction of providing the bank guarantee to the AE is nothing but shareholding activities. Likewise, the impugned transaction represents the quasi capital transaction which shall not be regarded as services to the AE for the purpose of determining the ALP. Consequently, it has no bearing on the income of the assessee. 75. As per the assessee, there was no commercial or financial element present in the transactions carried out by it with AE by way of furnishing the corporate guarantee in pursuance to the guidelines issued by the OECD. Under the OECD guidelines the term international transaction has not been used in the context of corporate guarantee, rather it refers to commercial or financial relations which was not present in the impugned transaction. Accordingly the assessee contended that the activ....
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....into consideration while determining the credit rating with considerable emphasis on evaluating busyness risk and management related factors as well. While evaluating financial risks, large number of financial ratios including Operating margins, Net margins, ROCE, Total Debt/OPBDITA, Net Cash Accruals/Total Debt, Net Working Capital/Operating Income, Fund Flow from Operations/ Interest, Fund Flow from Operations-Total Debt, Retained Cash Flows/Total Debt etc. In addition, foreign currency related risks, tenure mismatches and risks relating to interest rates and refinancing, accounting quality, financial flexibility, contingent liabilities/Off-balance sheet exposures are also taken into consideration. Equal importance is also placed on business and management related risk factor including industry risk, competitive position* management quality and new project risk Thus, the net-worth is only one out of large number of the parameters taken into consideration wink determining the credit rating. The assessee company in its submission has taken a very myopic view in concluding that the credit rating of the AE is equal to that of the assessee company on the basis of net-worth. If the cre....
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....hat the assessee was not correct in not benchmarking the transaction. The assessee had incurred risks in providing guarantees to the AE and accordingly it should have benchmarked the transactions for determination of the arm's length price. The TPO thus rightly proceeded to benchmark the transaction. 13.13 The approach adopted by assessee of evaluating its own credit rating as similar to that of the AE suffers from serious defect of wrong comparison. The comparison should have been ( for interest saving approach) interest rates on which AE with such credit rating will get loan in that market with and without guarantee. Such data base are available in open market e.g. Bloomberg's data. Implicit-credit support cannot be used in arm's length price calculation and stand alone credit rating of AE was to be used for this purpose. Thus computation with wrong base and computation without considering database of guaranteed and non-guaranteed loans is j incorrect and rightly rejected by TPO. 13.14 The contention of the assessee that the credit rating of the AE and equal to that of the assessee company on the basis of networks does not in any manner explain the f....
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....mmission by holding that the same is not an International Transaction. However, the ld. CIT-DR has relied on the decision of Hon'ble Madras High Court in the case of PCIT v. Redington (India) Ltd. [2021] 430 ITR 298 wherein the High Court held that corporate guarantee would be covered by the definition of International Transaction u/s 92B. Without prejudice to our reliance on decision of Hon'ble ITAT in assessee's own case for AY 2008-09, if the Hon'ble Bench is inclined to follow the decision of Hon'ble Madras High Court in case of Redington (supra), we request the Hon'ble Bench to direct the ld. TPO to restrict the amount of adjustment to 0.43% considering the decision of Hon'ble ITAT, Mumbai in the case of Greatship (India) Ltd. v. DCIT [2021] 126 taxmann.com 47. The ITAT, Mumbai held as under: 10. Insofar the adequacy of the ALP of the corporate guarantee fees determined by the assessee at 0.43% of the amount of loan is concerned, the same, as observed by us hereinabove is the average of the guarantee fees that was paid by the assessee to various banks for standing guarantees on its behalf for certain third parties. As observed by the Hon'ble High....
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....ined by the assessee at 0.43% p.a by adopting Internal CUP method. In the backdrop of our aforesaid observations we are unable to persuade ourselves to subscribe to the determination of the ALP of the corporate guarantee at 2% p.a by the A.O/TPO. We, thus, uphold the ALP of corporate guarantee as determined by the assessee at 0.43% p.a and direct the A.O/TPO to vacate the upward transfer pricing adjustment of Rs. 28,69,70,745/- made in the hands of the assessee. The Grounds of appeal Nos. 1 to 7 are allowed in terms of our aforesaid observations. (emphasis supplied) The Hon'ble ITAT, Mumbai has held that after considering the all the judicial precedents on the arm's length rate for corporate guarantee commission, 0.43% is the appropriate arm's length rate for corporate guarantee commission and the same would be applicable in the present case as well, if the transaction of corporate guarantee is held to be an International Transaction. Considering the same, we request the Hon'ble Bench to direct the ld. TPO to apply the rate of 0.43% for computing the adjustment in respect of corporate guarantee commission. The ld. CIT-DR has contended that in the case of Greatship....
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....first based on the FAR analysis and its analysis by the TPO to determine the ALP based on the facts of this case 84. We have heard the rival contentions and perused the materials on record. At the outset we note that the fact of the issue on hand has been elaborated in previous paragraph, therefore we are not inclined to repeat the same for the sake of brevity. Hence we proceed to adjudicate the issue accordingly. 85. The provisions of section 92B of the Act defines the parameters of what constitutes an international transaction. Although the ambit of international transaction was wide enough, yet due to judicial interpretation, certain classes of transactions were being left out of the transfer pricing net. To tackle the same, by the Finance Act of 2012 an Explanation to Section 92B[2] of the Act was brought on the statute with retrospective effect from 1st April 2002. The explanation is clarificatory in nature and added certain categories of transactions, inter alia, the transaction as specified under clause (c) of explanation (i) to section 92B of the Act within the ambit of international transactions which is reproduced as under: [Explanation.-For the removal of ....
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....guarantee, provided by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of Section 92B does not enlarge the scope of the term "international transaction" to include the Corporate Guarantee in the nature provided by the assessee therein. The Tribunal held that in case of default, Guarantor has to fulfill the liability and therefore, there is always an inherent risk in providing guarantees and that may be a reason that Finance provider insist on non-charging any commission from Associated Enterprise as a commercial principle. Further, it has been observed that this position indicates that provision of guarantee always involves risk and there is a service provided to the Associate Enterprise in increasing its creditworthiness in obtaining loans in the market, be from Financial institutions or from others. There may not be immediate charge on P & L account, but inherent risk cannot be ruled out in providing guarantees. Ultimately, the Tribunal upheld the adjustments made on guarantee commissions both on the guarantees provided by the Bank directly and also on the guarantee provided to the erstwhile shareholders for assur....
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....its AE on furnishing the corporate guarantee. Accordingly, it is not acceptable. Furthermore, we note that Mumbai tribunal in the case of Greatship (India) Ltd. vs. DCIT reported in [2021] 126 taxmann.com 47 after considering the plethora of orders has reached to the conclusion that what the assessee would have paid the guarantee commission, had it obtained guarantee from the bank. That rate of commission should be applied to determine the ALP. The relevant extract of the order has already been reproduced in the submission of the learned AR for the assessee. In the order of the Mumbai ITAT in the case of Greatship (India) Ltd. supra, various judgements were referred therein and in all those judgements average rate of commission was ranging from 0.2 to 0.5 percent. Thus we are of the view that the justice will be served to the assessee and the revenue if the addition is restricted to 0.5% of the guarantee amount. We accordingly hold so. Hence the ground of appeal of the assessee is partly allowed. 92. The issue raised by the assessee in ground No. 13 and 14 is that the learned DRP erred in confirming the order of the AO by treating the sales tax subsidy of Rs. 1,71,68,570/- as re....
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.... part of the profits and gains of business derived from the Industrial Undertaking eligible for deduction u/s. 80-IB / 80-IC. 15.4 In case of the assessee, the sales tax incentive is actually a carved out amount of sale consideration for the purpose of tax and thus relying on the CBDT Circular and Supreme Court decision in case of Meghalaya Steels Limited, there is direct nexus between profits and gains of the undertaking / business and the subsidy and such subsidy is part of the profits and gains of business derived from the Industrial Undertaking eligible for deduction u/s. 80-IB / 80-IC. Accordingly, the Panel directs the AO to grant deduction u/s. 80-IB in respect of Daman unit after due verification. 97. Being aggrieved by the direction of learned DRP the assessee is in appeal before us. 98. The learned AR before us submitted as under: It is submitted that identical issue was involved in Assessee's own case for AY 2008-09 wherein the Hon'ble ITAT has decided the issue against the Assessee. If the issue is decided against the Assessee, we request the Hon'ble Bench to allow deduction u/s 80IB on the said income. Kindly refer para 8 on Pg. No. OTHERS-65-66....
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....rial undertaking; consequently, deduction u/s.80IB is to be allowed in favour of the assessee. Respectfully following the Hon'ble Supreme Court judgments in the case of M/s. Shree Balaji Alloys & M/s. Meghalaya Steel Ltd (supra), this ground of the assessee is allowed." 101. Respectfully following the same, we hold that the impugned receipt of sales tax subsidy is a revenue receipt which is chargeable to tax. 102. Before parting, in this connection, we note that the learned DRP has already given a direction to allow the deduction under section 80IB of the Act for the amount of sale tax subsidy but after verification. We find that the direction given by the learned DRP is clear and without any ambiguity. Therefore, we do not find any reason to interfere the direction of the learned DRP. Thus the alternate contention of the assessee is allowed. Hence the aground of appeal of the assessee, in terms of above, is allowed. 103. The issue raised by the assessee in ground Nos. 15 to 17 is that the learned DRP erred in confirming the order of the AO by adding the difference between the Jantri Value and the sale consideration under the provisions of section 50C of the Act. 104. T....
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....egislature to make the reference to valuation officer mandatory, even without existence of any cogent reasons as to why the market value of the property should be less than the registration value the word used in the above section would have been "shall or not may". 17.4 Referring to the proviso to sub-section (1) of section 50C, which says that if the date of agreement & date of registration of property are different, the registration value assessable on the date of agreement shall be taken as seemed consideration. The assessee also argued with regard to difference in dates of the transaction and the date on which the stamp duty was paid. The proviso was introduced from 01.04.2016 and was not applicable in the A.Y. in question. Otherwise also, we have noted that the difference in the dates of agreement and registration was less than two months. Moreover the assessee has not provided any evidence to demonstrate that difference in dates could have resulted in different stamp duty value because there was any | revision of circle rates during this intervening period. We are therefore not inclined to accept the assessee's objection in this regard. 17.5 From the de....
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....e Act in adopting stamp price of the relevant capital asset to be its fair market value as against the assessee's stand that the reported sale price was in fact its market price. It has therefore come on record that neither the Assessing Officer nor the CIT(A) have made Section 50C(2) reference to the DVO for determination of the above capital assets' fair market price. Hon'ble Calcutta High Court's judgment in (2015) 372 ITR 83 (Cal.) Sunil Kumar Agarwal vs. CIT holds that such a reference is mandatory even if an assessee does not make the relevant prayer. We rather notice that the CIT(A) justifies the Assessing Officer's action in not making any such reference. The same admittedly goes to the well settled law hereinabove that the impugned addition is not to be made without a necessary reference under the relevant statutory provision. We accordingly restore the instant issue back to the Assessing Officer for proceedings afresh as per law after affording adequate opportunity of hearing to the assessee. The assessee's instant ground is treated as accepted for statistical purposes. Its main appeal ITA No.1402/Ahd/2013 is partly accepted." 110. The facts of the case on hand are ide....
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....ith 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 documents and papers which are wholly irrelevant for the year under consideration and also for coming to the alleged conclusion. Disallowance of Fraud loss incurred by Rubamia Ltd. 8 The learned AO as well as the learned DRP erred in fact and in law by not allowing deduction of Rs. 71,35,142 in respect of fraud loss incurred by Rubamin FZC by holding that such loss is not crystallised during the AY 2012-13. In the facts and circumstances, if the profits of Rubamin FZC are to be included in the hands of Rubamin Limited, the said amount represents loss incurred in the course of business by way of fraud conducted by the employee and allowable u/s. 28 / 37(1) of the Act. 9 The Appellate submits that if the said loss is not allowed on the grounds that it is not crystallised during AY 2012-13, a direction may please be issued to the AO in the year in which it is crystallised. Transfer Pricing Adjustment: 10 The learned AO erred in not following the directions of the DRP by making trans....
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.... 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 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. 47 to 65 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. 115. The next issue raised by the assessee in ground number 3 is that the learned DRP erred in holding the assessment under section 153A as valid without being any incriminating material found. 116. The learned AR at the time of hearing before us submitted that he was directed by the appellant assessee not to press this ground. Accordingly we dismiss the same being not pressed. 117. The next issue raised by the assessee in ground no. 4 to 7 of its appeal is that the learned DRP erred in confirming the order of t....
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....e 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 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. 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 2012-13. Hence, the grounds of appeal filed by the assessee are partly allowed. 123. The next issue raised by the assessee in ground nos. 12 and 13 is that the learned DRP erred in not reducing the dividend income of Rs. 11,48,43,167/- received from Rubamin FZC in the event profit of Rubamin FZC merged with assessee's income. 124. The learned AR before us submitted as under: If the Assessee succeeds in Ground No. 4 to 7 and the Hon'ble Bench holds that profits of Rubamin FZC are not to be included in the income of the Assessee, then in such case the no deduction of dividend income would be allowed. However, if G....
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.... 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 general in nature. Hence the same is dismissed as infructuous. 131. In the result the appeal of the assessee is partly allowed. Coming to the IT(SS)A No. 22/Ahd/2018 an appeal by the assessee for A.Y. 2013-14. 132. The assessee has raised the following grounds of appeal: Validity of the Assessment Order: 1 The assessment order passed by the learned Deputy Commissioner of Income Tax- Central Circle-2, Vadodara ("the AO") is invalid and void-ab-initio as it is barred by time. 2 The assessment order passed by the learned AO is invalid 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 mate....
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....nsidering 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 learned DRP has erred in fact and in law in disallowing fraud loss claim on the ground that the fraud loss did not crystallize during the year under consideration. 15 The learned AO as well the learned DRP has erred in fact and in law in not appreciating the fact that the fraud was detected in the year under consideration. Other Grounds: 16 The learned AO erred in fact and in law in charging interest u/s 234B of the Act. 17 The learned AO erred in fact and in law in charging interest u/s 234C of the Act. 18 The learned AO erred in fact and in law in initiating penalty proceedings u/s 271(I)(c) of the Act. 133. 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 bare....
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....e 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/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. 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 2013-14. Hence, the grounds of appeal filed by the assessee are partly allowed. 141. The next issue raised by the assessee in ground nos. 10 and 11 is that the learned DRP erred in not reducing the dividend income of Rs. 24,55,09,656/- received from Rubamin FZC in the event profit of Rubamin FZC merged with assessee's income. 142. At the outset we note th....
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....,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 claimed as deduction by the assessee in the respective years as discussed above. 149. As per the assessee, the loss on account of the fraud was detected by it in the month of November 2012. Accordingly, the assessee by way of filing the letter withdrew its claim made by it in the respective assessment years which was shown as payment to the suppliers against the purchases/settlement expenses. The AO consequently disallowed the claim of the assessee in the respective assessment years as discussed above. 150. However, the assessee claimed such loss of Rs. 4,80,08,326/- in the year under consideration on account of the fraud committed by the CFO on the reasoning that it wa....
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....e 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 the carrying on of the business and is incidental to it. In the second case the decision is that loss must be deemed to have arisen only when the employer comes to know about it and realises that the amounts embezzled cannot be recovered. 2. In the light of the above decisions of the Supreme Court, the legal position now is that loss by embezzlement by employees should be related as incidental to a business and this loss should be allowed as deduction in the year in which it is discovered. On perusal of the above, your kind office will notice that the CBDT Circular clarifies that the loss by embez....
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....t 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 perused the materials available on record. There is no dispute as to the fact that the loss in question was detected by the assessee in the month of November 2012 as well as last payment was received by the assessee in the year under consideration after putting the efforts for the recovery. For this purpose, we refer to the relevant finding of the learned DRP which is reproduced as under: "In the case under consideration, after detection of fraud by the assessee it was making efforts to recover this amount and the last payment was received by ....
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....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 account of embezzlement was, in fact, discovered." 163. The above judgement of the Hon'ble Gujarat High Court mandates the loss on account of fraud should be allowed as deduction in the year in which it was discovered. Admittedly, the loss was discovered in the year under consideration. 164. The expression detection and discovery have different and distinct implications in law. The expression 'discovery' has to be interpreted so as to mean that loss must be deemed to have arisen only when the assessee comes to....
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....er 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 year under consideration and also for coming to the alleged conclusion. 6. The learned CIT(A) erred in fact and in law in confirming the action of the AO in taxing the profit of Rubamin FZC in the hands of the Appellant despite the fact that no pan of profit of Rubamin F/C was chargeable to lax in India. Without prejudice to above: 7. The learned CIT(A) erred in fact and in law in not adjudicating the ground no. 3 of the appeal per....
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....odify 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 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 2014-15. Hence, the grounds of appeal filed by the assessee are allowed. 170. The next issue raised by the assessee in ground no. 7 is that the learned CIT (A) e....
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....e 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 raised by the assessee in grounds nos. 13 to 17 is either consequential or premature to decide. Thus the same is dismissed accordingly. 178. In the result appeal of the assessee is partly allowed for the statistical purposes. Coming to the ITA 2929/Ahd/2014 an appeal by the assessee for A.Y. 2009-10. 179. The assessee has raised foll....
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....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. 34.53,223 to Rs. 11,73,223. Short term Capital loss: 14. The learned CIT(A) erred in fact and in law in confirming the action of the AO in disallowing short term ca....
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....ith 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 2008-09 by directing the AO to adopt interest rate at LIBOR +0.75%. Hence the ground of appeal of the assessee was partly allowed. 1....
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....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 also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the....
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.... 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 information, the AO resorted to t....
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....estment of the shares. Thus, the transaction cannot be regarded as a colourable device 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 learne....
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....by the order of the learned CIT (A), the assessee is in appeal before us. 217. The learned AR before us contended that the assessee has 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 disput....
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....urisdiction to ignore the device and look through the transaction to find out the true nature of the transaction and ascertain as to what was the real intention 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 Taxm....
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....The assessee time and again before the authorities below has contended that it has acquired the shares of the company namely J and K Pigment Pvt. Ltd which was not connected to it either 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 fo....
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.... paper book. The Appellant had entered into a share purchase agreement with the buyers which was submitted to the A.O. during the course of assessment. 233. In this connection, we have also perused the details available in the 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 provid....
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....407, the Court concluded that for the purpose of computing 'capital gains', there is no necessity for computing the 'fair market value' and, therefore, the Assessing Officer could not have referred the matter to the Valuation Officer. [Para 7] 238. 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 quo....
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....nual return and share sale agreement which are placed on pages 122 to 139, 100 to 113 and 266 to 268 of the paper book. It is also pertinent to note that the lower authorities did not doubt the details of the purchases and sales of the shares. In view of the above, we are not inclined to uphold 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....