Hitachi Hi Rel Power Electronics Pvt. Ltd. Vs DCIT (Gujarat High Court)
A.O. could be said to have overlooked or rather ignored the jurisdictional requirement of a satisfaction in accordance with para 3.4 of the instruction No.3 of 2016 referred to above that there ought to be an income or potential of an income arising and/or being affected on determination of the A.L.P. of an international transaction or specified domestic transaction. In the absence of such satisfaction being recorded in the order disposing of the objections, the reference to the T.P.O. would also be without jurisdiction. We take notice of the fact that in the objections, a specific plea in this regard was taken, however, we do not find a word in this regard in the order disposing of the objections. On this issue, the only reply of the learned Senior Counsel appearing for the Revenue is that the same is self-serving and adherence the record. In other words, the only argument is that the Arm’s Length Price on the interest paid would have bearing on the income. We are not convinced with such stance of the Revenue.
For all the foregoing reasons, we allow the present writ application. The impugned reference by the respondent No.1 to the respondent No.2 is hereby quashed and set aside and the notice dated 20th December 2019 (Annexure : ‘A’ to this writ application) is also quashed and set aside. The proceedings are remitted to the A.O. for fresh consideration of the matter and the issues as discussed in the present order. The A.O. shall give an opportunity of hearing to the assessee and thereafter, proceed to pass a reasoned order or a speaking order dealing with the objections in accordance with law.
Let the aforesaid exercise be undertaken within a period of four weeks from the date of receipt of the writ of this order.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs:
“(a) quash and set aside the impugned reference by Respondent No.1 to Respondent No.2 and the notice dated 20.12.2019 at Annexure ‘A’ to this petition.
(b) pending the admission, hearing and final disposal of this petition, to stay implementation and operation of the impugned notice dated 20.12.2019 at Annexure ‘A’ to this petition and stay the assessment proceedings for AY 2017-18 undertaken by Respondent No.1;
(c) any other and further relief deemed just and proper be granted in the interest of justice;
(d) to provide for the cost of this petition”
2 The case put up by the writ applicant, in his writ application, may be summarized as under:
3 The writ applicant is a limited company. It seeks to challenge the reference made by the respondent No.1 to the respondent No.2 under Section 92CA (1) of the Income Tax Act (for short, “the Act”), in relation to the computation of Arm’s Length Price on the ground of being erroneous, illegal and contrary to law. The writ applicant further seeks to challenge the notice under Sections 92CA(2) and 92D(3) respectively issued by the respondent No.2 dated 20th December 2019, on the ground of being erroneous, illegal, contrary to law and without jurisdiction.
4 The writ applicant is engaged in the business of manufacturing Industrial Automation Solution, Rotating Machine Control, Power Controller, Uninterrupted Power Supply and Power Conditioning products. In relation to A.Y. 2017-18, the writ applicant had availed an unsecured External Commercial Borrowing (ECB) rupee loan from the Hitachi International Treasury Limited, Singapore, for the purpose of working capital. This loan carries an interest at the rate of 7.19% per annum. The writ applicant filed Form 3CEB, wherein there is a requirement in clause 14 to make a disclosure about the loan or borrowing of money and the amount paid / received in the transaction.
5 In the aforesaid context, it is the case of the writ applicant that it had appropriately disclosed the transaction in the Form 3CEB.
6 The respondent No.1 issued a show cause notice dated 18th November 2019 under Section 142(1), which reads thus:
“1. During the previous year, assessee company has taken loan from Hitachi International Treasury limited to the tune of Rs. 20 Crores @ 7.19% interest. Further same was required to be reported in 3CEB but assessee has failed to do so. Therefore you are requested to show cause as to why penalty u/s 271AA of the Act should not be initiated in your case. In addition to that you are request to show cause as to why your case is not referred to TPO for determination of arm’s length on such unreported transaction.
2. On verification of the details submitted by you, it is noticed that certain Creditors are found ideal since last three years and no transactions or payment is being made. Accordingly you are requested to show cause as to addition of u/s 41 of the act should not be made on account of cession of liability.
3. Please explain the Reason for lower deduction of TDS on payment made u/s 194(C) of the Act.
4. On perusal of reply filed by you, it is noticed that you have not furnished the reply to point 25 in prescribed format. Please resubmit the same.
5. On verification of ITR and computation of income, it is noticed that you have Claimed A“ny other amount to be allowable as deduction” i.e. bad debt provision utilization of Rs. 2,23,09,526/-. Please show cause as why such deduction should not be disallowed as it is not debited to P&L account during the previous year.
6. On verification of computation of income it is noticed that you have claimed reversal of mark to market loss of Rs. 4,73,706/-. In this regard please provide copy of computation for FY 2015-16 in which such amount was disallowed.
7. During the previous year the company has utilized inventory provision of Rs. 97,80,041/-. Explain nature of such claim and supporting documentary evidences in support of such claim.
8. On perusal of tax audit report is is noticed that In clause 21(a) of TAR, auditors has reported that amount debited to P & L account being in the nature of capital, personnel etc. and in relation to amortization of lease hold land amount to Rs. 2,27 ,240/-. Further on verification of computation of income it is noticed that the same has not been disallowed. Therefore, you are requested to show cause as why same should not be disallowed.
9. Please submit detailed break up of advances written off of Rs.1,97,076/-. Please show Cause as why to why it should not be disallowed.
10. On verification of the submission made by you it is noticed that there is mismatch in additions to fixed assets as reported in note 12 & 13 of the audited financial statement and per clause 18 of tax audit report. Please reconcile the same.
11. On perusal of clause 18 of the tax audit report, it is noticed that block of asset has been increased due to change in rate of exchange. Details of same area as under:
a. Building:1,13,32,654/-
b. F & F :-3,22,750/-
c. Plant & Machinery (15%): 90,74,176/-
d. Plant & Machinery (60%): 5,11,555
In this regard, you are requested to provide following:
1. Explain such large amount of details addition due to change in foreign exchange rate difference.
b) In audited financial statement value of fixed asset has decreased by Rs. 8,10,920/- due to exchange rate difference
c) Whether foreign exchange rate difference Loss of Rs.2,12,41,135/-debited to P & L account have disallowed or not in computation of total income, if such loss Is capital in nature.
d) Reason for huge foreign exchange loss in respect of block of building.
12. On verification of submission so made by assessee company and on verification of earlier years records, it is noticed that certain additions were made on recurring issues. Therefore, you are requested to show cause as to why similar additions/disallowances should not be made during the year is line of earlier years.”
7 The writ applicant, vide its reply dated 25th November 2019, tried to explain to the respondent No.1 that the disclosure in Form 3CEB is appropriate and the same is not defined in any manner. The writ applicant, in its reply, stated that it had disclosed the factum of obtaining loan and the amount of interest paid / payable as well as the method used to determine the Arm’s Length of the same. The writ applicant further clarified in its reply that there is no obligation of reporting the “loan transaction” amount in the Form 3CEB. Only the interest paid on such loan transaction will have a bearing on the profit / loss and the same is required to be reported at clause 14 of the Form 3CEB.
8 It appears that the respondent No.1, vide order passed by him dated 4th December 2019, overruled the objections raised by the writ applicant and proceeded to make a reference to the respondent No.2.
9 The respondent No.2 issued impugned notice dated 20th December 2019 under Sections 92CA(2) and 92D(3) respectively of the Act.
10 The writ applicant, being aggrieved with the reference made by the respondent No.1 to the respondent No.2 and also with the notice issued by the respondent No.2 under Section 92CA(2) read with Section 92D(3) of the Act, is here before this Court with the present writ application.
