GLAMOUR ENTERPRISES (P.) LTD. Vs. DEPUTY COMMISSIONER OF INCOME TAX
LAWS(IT)-2014-7-45
INCOME TAX APPELLATE TRIBUNAL
Decided on July 11,2014

Glamour Enterprises (P.) Ltd. Appellant
VERSUS
DEPUTY COMMISSIONER OF INCOME TAX Respondents

JUDGEMENT

T.R.Meena, Member (A) - (1.) THIS is an appeal filed by the assessee against order of the AO (DCIT, Circle -6), Jaipur dated 21 -10 -2011 for the assessment year 2007 -08. 1.1 The ground No. 1 of the assessee is that the AO is not justified in determining the Arms Length Price of Rs. 35,88,640/ - under CUP Method i.e. 11.40% in respect of interest free advance given to the Associated Enterprises of the assessee and in making addition of the same to returned income. 1.2 The brief facts of the case are that the assessee had advanced interest free loans to its Associate Enterprise. The opening balance was USD 675000. During the year, further advance of USD 300000 and USD 800000 had been received leaving the cash balance of USD 175000 at the end of the year. The auditors report in Form No. 3CEB as required u/s. 92E of the I.T. Act was enclosed alongwith return of income. These International Transactions with the Associate Enterprise were referred to Transfer Pricing Officer u/s. 92CA of the Act. The TPO's order was also confronted with the assessee which has been enclosed as per Annexure - A of the order of AO. The AO has reproduced the finding given by the TPO in his assessment order. The assessee had not charged any interest from its AE. In independent unrelated transaction, the assessee had to charge interest from the party. The AO gave reasonable opportunity of being heard to the assessee. It was submitted before him that there was no risk involved in such loans. The advance had been repaid by the assessee during the year and it was claimed that 8.9% interest applicable to 5 year AAA rated Corporate Bonds should be considered reasonable to determine the ALP of the international transactions. The AO was not convinced with the submissions of the assessee and he held that yield on BBB Bond is 11.4096 for F.Y. 2006 -07, considering the higher risk in the case of the loan given by the assessee to its AE, the interest rate was expected to be higher by at least 20% than BBB Bond interest. Accordingly, keeping in view that no security was offered by the subsidiary and that the taxpayer was not into lending and borrowing money, the ALP of the rate of interest was determined at 14% per annum. Accordingly, the AO calculated the interest on tax free loans given to the subsidiary company at Rs. 44,07,095/ - under CUP Method. It is further observed that ALP has been determined by using CUP Method i.e. compared against a single price and not against multiple prices, the benefit of 5% Bond was not available to the assessee as has been held in the case of Perot Systems TSI (India) Ltd. v. Dy. CIT : [2010] 37 SOT 358 (Delhi). The AO had called for objections against the draft order passed on 29 -12 -2010 from the assessee. The assessee filed the objection before the Draft Resolution Panel -1 (for short 'DRP'), New Delhi on 27 -01 -2011. The DRP passed the order on 12 -09 -2011 and directed the TPO to work out the interest @ 11.40% as against 14% charged by her on the BBB Bonds. In pursuance to the said directions of the DRP, the TPO vide order u/s. 144C(5) dated 13 -10 -2011 worked out the interest which amounted to Rs. 35,88,640/ - as against Rs. 44,07,095/ - worked out by her vide order u/s. 92CA(3) dated 29 -10 -2010. Accordingly, the addition of Rs. 35,88,640/ - was made to the total income of the assessee. 1.3 Being aggrieved by the order of the AO, the assessee is in appeal before us. 1.4 During the course of hearing, the ld. AR argued that the assessee had advanced interest free loan to its subsidiary company. It was a running account and there was a balance as on closing date of the financial year. The assessee has not proposed any interest in its 3CEB auditors report being an international transaction but during the course of submission before TPO as well as DRP it was argued that proposed rate of interest @ 14% is not reasonable. However, the ld. AR of the assessee was agreed to apply 8.9% interest rate on the basis of 5 year AAA rated Corporate Bonds as reasonable to determine the alleged international transactions. Before us also, the ld. AR of the assessee fairly accepted the fact before us and requested to apply interest rate on international transaction @ 8.9%. 1.5 At the outset, the ld. DR heavily relied on the order of the DRP and requested to confirm the order of the AO. 1.6 We have heard the rival contentions and perused the materials available on record. It is a fact that there was international transaction between the assessee and Associate Enterprise during the year under consideration on which no interest has been charged on the loan given to the subsidiary company. The DRP applied 11.40% interest rate on international transaction on the basis of BBB Bond and considering the risk in case of loan given to the Associate Enterprise. The loan given to subsidiary company has a lower risk as the assessee has indirect control on it. Further LIBOR + nominal adjustment has been upheld by various ITAT Benches as reasonable. Therefore, we find that interest rate proposed by the assessee @ 8.90% is reasonable as against 11.40% decided by DRP. Accordingly, the assessee gets the partial relief.
(2.) 1 The ground No. 2 of the assessee is that the AO is not justified in disallowing the belated payment of PF and ESI of Rs. 5,00,941 and in making addition of the same to returned income. 2.2 The facts of the case in brief are that the AO has made an addition of Rs. 5,00,941 by disallowing the employees contribution towards PF of Rs. 4,17,348 and ESI contribution of Rs. 83,593 which had been deposited in Govt. account after expiry of the due dates as prescribed under the relevant statutes which has been upheld by the DRP. However, the assessee submitted that it has deposited both the contributions before due date of filing of return u/s. 139(1) of the Act i.e. 30 -09 -2007. 2.3 We have heard both the parties and perused the materials available on record. This issue has been decided against the Revenue by the Tribunal in the case of Swastik Metal Casting v. ACIT vide order, dated 20 -04 -2011. It will be useful to reproduce paras 3.2 and 3.3 of the above referred order: - - "3.2 The ld. CIT(A) held that the employees contribution to PF and ESI is not to be allowed as the same has not been paid within the stipulated time as provided in respective Act of PF and ESI. The ld. CIT(A) confirmed the action of the AO. E havE hEard both thE partiEs. Hon'blE ApEx Court in thE casE of CIT v. Alom Extrusions Ltd. : [2009] 319 ITR 306 has hEld that thE proviso introducEd by thE FinancE Act, 2003 is curativE in naturE and is rEtrospEctivE. HowEvEr, wE arE concErnEd with thE assEssmEnt yEar 2007 -08. ThE Hon'blE ApEx Court has rEfErrEd to thE Explanation givEn in SEction 36(1)(v)(a) of thE Act. ThE issuE of EmployEE's contribution covErEd u/s. 43B has bEEn considErEd by thE Hon'blE Karnataka High Court in thE casE of CIT v. Sabari EntErprisEs : [2008] 298 ITR 141. ThE Hon'blE ApEx Court has uphEld thE dEcision of Hon'blE Karnataka High Court in thE casE of CIT v. Sabari EntErprisEs whilE dEciding thE appEal in thE casE of CIT v. Alom Extrusions Ltd. (supra). ThE Hon'blE ApEx Court has dismissEd thE SLP in thE casE of CIT v. Vinay CEmEnt, [2009] 313 ITR 1 (St.). WhilE dismissing thE SLP, thE Hon'blE ApEx Court has rEfErrEd to dEcision of Hon'blE Gauhati High Court in thE casE of CIT v. GEorgE Williamson (Assam) Ltd. : [2006] 284 ITR 619. In thE casE bEforE Hon'blE Gauhati High Court, thE issuE was in rEspEct of contribution of PF and ESI rElating to EmployEEs sharEs. It is noticEd from thE audit rEport that all thE paymEnts havE bEEn paid bEforE thE duE datE of filing of rEturn and thErEforE, thE ld. CIT(A) was not justifiEd in not dElEting thE sum of Rs. 150,294/ -. ThE samE is dElEtEd." HEncE, in viEw of thE facts and circumstancEs of thE casE and considEring thE rEcEnt judgmEnt datEd 13th May, 2013 of Hon'blE Jurisdictional High Court in thE casE of CIT v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. : [2013] 35 taxmann.com 616/217 Taxman 64 (Raj.) (Mag.), wE allow ground No. 2 of thE assEssEE. 3. ThE ground No. 3 of thE assEssEE is that thE AO is not justifiEd in disallowing thE prior pEriod ExpEnsEs of Rs. 9,84,862/ - crystallizEd during thE rElEvant prEvious yEar. 3.1 During thE coursE of hEaring bEforE us, thE ld. AR of thE assEssEE has not prEssEd this ground. HEncE, thE Ground No. 3 of thE assEssEE is dismissEd bEing not prEssEd.
(3.) THE ground No. 4 of the assessee that the AO is not justified in restricting the brought forward business losses and unabsorbed depreciation to Rs. 1,62,77,888/ - against that of Rs. 1,92,95,972/ - claimed by the assessee. 4.1 The facts of the case in brief are that the DRP has directed the AO to verify the records and allow unabsorbed depreciation either with the records available with the Department or with the assessee. Accordingly, the AO made exercise and found that assessment records of BCEP for assessment years 1993 -94 to 1997 -98 were not verifiable. The assessee was not able to prove the unabsorbed depreciation on the basis of the evidence before the AO. Thus the AO disallowed the business losses and unabsorbed depreciation at Rs. 1,62,77,888/ -. 4.2 Being aggrieved, the assessee is in appeal before us. 4.3 The ld. AR of the assessee submitted that as per page Nos. 42 to 45 of the paper book, the assessee had filed the copy of return for assessment year 1999 -2000 before the AO wherein the assessee has claimed business loss of Rs. 3,41,750/ - and unabsorbed depreciation of Rs. 19,15,906/ -. He argued that all the details were available with the AO but he has not allowed unabsorbed depreciation of Rs. 1,92,95,972/ - as claimed by the assessee. He further argued that the matter may be sent back to the AO for re -examination. 4.4 At the outset, the ld. DR fairly accepted the assessee's proposal. 4.5 We have heard the rival contentions and perused the materials available on record. The DRP already directed the AO to verify the assessee's claim for brought forward unabsorbed depreciation on the basis of I.T. records or assessee's records and allow the same as per law. We are also of the considered view that this issue requires reconsideration by the AO and the AO is directed to very the assessment records of the assessee and allow unabsorbed depreciation as per law. The assessee is also directed to cooperate and produce the evidence before the AO to decide the issue afresh. Thus Ground No. 4 of the assessee is set aside. In the result, the appeal of the assessee is partly allowed.;


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