Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2021 Supreme(Guj) 906

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
J.B.PARDIWALA, ILESH J. VORA, JJ.
HITACHI HI REL POWER ELECTRONICS PVT. LTD. – APPELLANT
Versus
THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), AHMEDABAD – RESPONDENT
SPECIAL CIVIL APPLICATION NO. 23302 of 2019 With CIVIL APPLICATION (FOR VACATING INTERIM RELIEF) NO. 1 of 2020
Decided on : 19-08-2021

Advocates Appeared:
For the Appellant : MR B S SOPARKAR
For the Respondent: MR MR BHATT SENIOR COUNSEL WITH MRS MAUNA M BHATT

Point of law: The amount received on issue of shares is admittedly a capital account transaction not separately brought within definition of income, except in cases covered by Section 56(2)(viib) of act. Thus such capital account cannot be brought to tax as already discussed herein above while considering challenge to the grounds as mentioned in impugned order.

Headnote:
Constitution of India,1950 – Article 226 - Income Tax Act – Section 92CA(1),92CA(2),142(1) and 92B – Loan – Tax - Writ applicant is a limited company - It seeks to challenge reference made by respondent to respondent under Section 92CA (1) of Income Tax Act in relation to computation of Arm’s Length Price on ground of being erroneous, illegal and contrary to law - Writ applicant further seeks to challenge notice under Sections 92CA(2) and 92D(3) respectively issued by respondent on ground of being erroneous, illegal, contrary to law and without jurisdiction - 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. writ applicant had availed an unsecured External Commercial Borrowing (ECB) rupee loan from Hitachi International Treasury Limited, for the purpose of working capital - This loan carries an interest at the rate of 7.19% per annum - Writ applicant filed Form 3CEB, wherein there is a requirement in clause 14 to make a disclosure about loan or borrowing of money and amount paid / received in transaction - Whether it was incumbent on the AO to have given Petitioner an opportunity of being heard before making a reference to the TPO under Section 92 CA (1) of Act.
Finding of the court: Court find substance in the contention raised by learned counsel that A.O. could be said to have overlooked or rather ignored jurisdictional requirement of a satisfaction in accordance with of instruction referred to that there ought to be an income or potential of an income arising and/or being affected on determination of A.L.P. of an international transaction or specified domestic transaction - In the absence of such satisfaction being recorded in order disposing of the objections, reference to T.P.O. would also be without jurisdiction – Court take notice of the fact that in objections, a specific plea in this regard was taken, Court do not find a word in this regard in order disposing of the objections - On this issue, the only reply of learned Senior Counsel appearing for Revenue is that same is self-serving and adherence the record - In other words, the only argument is that Arm’s Length Price on interest paid would have bearing on the income – Court are not convinced with such stance of Revenue.
Result: Writ application allowed

JUDGMENT :

J.B.PARDIWALA, J.

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;

(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 “Any 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/-. Expla

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