TII Instant Update, Tuesday, Jul 18, 2017

Income tax - TP - Sections 69A, 92CA(3), 144, 144C(13) & 271(1)(c).

Keywords - ALP, coupon bonds, corporate guarantee,

Whether an addition u/s 69A is warranted when the Revenue's investigation has established that the assessee is a beneficiary of a cobweb of international transactions underaken by the assessee's sham subsidiaries abroad - YES: ITAT

The assessee company is engaged in the business of television news broadcasting through its three different channels. It is also producing customized software, programmes for broadcasters. It filed its return of income on 30.09.2009 declaring loss of Rs. 64,83,91,422/-. Subsequently, the return was picked up for the scrutiny. During the course of assessment proceedings reference u/s 92CA was also made by the AO to the Transfer Pricing Officer to determine the arm?s length price of international transactions entered into by the assessee with its Associate Enterprises . The Transfer Pricing Officer passed order u/s 92CA(3) proposing adjustment on account of business support segment of assessee of Rs. 1,53,73,846/- against the price received of Rs. 7,46,87,177/- whose ALP was determined at Rs. 9,00,61,023/-. The Transfer Pricing Officer further made an adjustment on account of corporate guarantee of Rs. 10,87,56,000/- wherein, assessee has issued corporate guarantee in favour of its subsidiary for issue of coupon bonds of US$100 million, the TPO computed guarantee commission at 2.70% amounting to Rs. 10,87,56,000/- considering it as international transaction. The Assessing Officer incorporating the above adjustment on account of transfer pricing adjustments passed a draft of proposed assessment order u/s 144C of the Income Tax Act on 30.03.2013 making disallowance on several grounds. The total income was determined at Rs. 64,10,811,990/- against the returned loss of Rs. 64,83,91,422/- in draft of proposed assessment order.

On appeal, the DRP directed the AO to delete certain additions. The DRP also directed the AO to restrict transfer pricing adjustment of Rs. 12,41,29,846/- to Rs. 5,09,65,629/-.

The Dispute Resolution Panel during the course of hearing directed the Assessing Officer further enquiries and consequent to those enquiries an addition of Rs. 254,75,00,000/- was made on account of unexplained unsecured loan u/s 68 on account of failure on part of the assessee to discharge its onus of proving the genuineness of the transaction of raising unsecured loan through its subsidiaries NDTV Networks PLC . All other adjustments/ variations proposed by the AO were directed to be retained in final assessment order.

Consequently, the Assessing Officer passed order u/s 144 read with section 144C(13) of the Income Tax Act on 21.02.2014 determining the total income of the assessee at Rs. 838,33,37,197/- against the returned loss of the assessee of Rs. 64,83,91,422/- making certain additions.

Revenue filed an appeal against the DRP order.

Having heard the parties, the ITAT held that,

++ Tribunal upholds the DRP order confirming demand of USD 150 million against the assessee's Dutch subsidiary which undertook a cobweb of re-structuring transactions and observes that the key beneficiary of such transactions was the assessee and notes that it was a case of abuse of legal form and without any tangible business purpose. The ITAT also observes that the assessee's share was subscribed by a Bermuda-based investor in its Dutch subsidiary and a dividend of Rs 643 Cr was paid in the same year to another assessee's company without any dividend to the investor. Secondly, the Tribunal underlines that the investee company was in existence for less than a year and had no significant business activity to its credit

++ The ITAT dismissed the assessee's plea that the money was received by its subsidiary and it cannot be taxed in its hand u/s 69A. It also noted that the AO found the assessee's books incomplete as it did not submit its subsidiary's details as mandated u/s 212 of the Companies Act, 1956. In such a background, the Tribunal rules that the AO had no choice but to invoke the best judgement method u/s 144.

Revenue's appeal partly allowed