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TMI Blog2018 (6) TMI 467X X X X Extracts X X X X X X X X Extracts X X X X ..... income can arise nor any deduction can be allowed on account of such a transaction - AO is directed not to allow the deduction on account of such ‘Loss of Rig Repo’ in the computation of total income. - ITA No. 5921/Del/2010 - - - Dated:- 11-4-2018 - SHRI R.S. SYAL, VICE PRESIDENT AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER For The Appellant : Sh. Piyush Kaushik, Advocate And Sh. Amit Arora, CA For The Respondent : Sh. Sanjay I Bara, CIT DR ORDER PER R.S.SYAL, V.P.: This appeal by the assessee is directed against the final assessment order passed by the Assessing Officer (AO) under Section 143(3) read with Section 144(C) of the Income-tax Act, 1961, (hereinafter also called the Act ) on 26.10.2010 in relation to the Assessment Year 2006-07. 2. Briefly, stated the facts of the case are that the assessee is a joint venture between M/s Mitchell Drilling International Pty Limited and Rajbhara Consultants Pvt. Ltd. in such a way that Mitchell holds 61% of its share capital with Rajbhara holding the remaining 39%. The assessee is engaged in the development of burgeoning CBM industry, directional drilling and innovative turnkey management projects wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil Repossession of Rig 3,02,70,291/- Nil 4. The Assessing Officer in the final Assessment Order found that the Rig was utilized for a limited period of one year and three months as against term of hire purchase agreement consisting of a few years. He opined that the impugned hire purchase agreement dated 1.4.2004 gave ample indication about the actual intention of the assessee and the owner company different from that actually shown through the documents. It was found that that there was no clause of penal payment or any compensation in case of default in payment of hire purchase charges. No hire purchase agreement, in his opinion, would contain such clauses without penal charges, more specifically, when the Rig was to be brought from Australia. He held that absence of such clauses clearly proved the initial intention of the parties was to have the Rig back without any pecuniary liability on the company. In the above factual backdrop, he held that the hire purchase agreement was a sham transaction purposefully designed to avoid not charging/withholding any tax on rental of Rig and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66/-. Then there are Additions for more than and less than 180 days, with amounts of ₹ 5.16 lac and 28.62 lac. Next is Deletion with a sum of ₹ 3,02,70,053/-. Next column is Total with a figure of ₹ 1,04,22,857/-, which has been computed by adding Additions to the Opening balance and then subtracting the amount of Deletion. Next column is Depreciation during the year at ₹ 17,78,123/- on Block A . It is this amount which has been disallowed by the AO, which is subject matter of the instant consideration. 7. The Rig was claimed to have been purchased by the assessee in the preceding year on 1.4.2004 and included in this block A . It is vivid from the Deletion column of Schedule of Fixed Assets, with amount of ₹ 3.02 crore, representing Rig transferred back to the AE during the year, that the assessee purchased further fresh assets amounting to ₹ 33.81 lac. The genuineness of the purchase of other assets made during the year or in the preceding year under this Block, except the Rig in question, has not been disputed by the AO. Under such circumstances, entitlement of the assessee to depreciation on all assets falling within this block ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of the international transaction of Payment of interest under hire purchase agreement . Once we have treated hire purchase agreement as not genuine, it is but natural that the payment of interest made under such hire purchase agreement, cannot be allowed as deduction. However, it is noticed that apart from making addition of ₹ 3.58 crore on account of Transfer Pricing Adjustments in four international transactions, including, Payment of interest under hire purchase agreement at ₹ 8,22,096/-, the AO also separately disallowed the same amount by applying the provisions of Section 40(a)(i) of the Act. It deciphers that there has there resulted double disallowance of the same amount. We, therefore, order to delete ₹ 8,22,096/- from the amount added twice by the AO, once separately and then through the total of transfer pricing additions, so that a single addition of ₹ 8,22,096/- is sustained. 12. Third is Payment of installments of principal under hire purchase agreement amounting to ₹ 47,31,600/-. The TPO determined Nil ALP of this international transaction and the AO accordingly made the addition. The learned AR submitted that no deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s assertion in this regard of not having claimed any deduction of ₹ 47,31,600/- in the computation of total income. If on such verification, it turns out that the assessee did claim deduction, then the amount in question should be disallowed and in the otherwise scenario, the addition should be deleted. 15. The last component of the Transfer Pricing Adjustment is ₹ 3,02,70,291/-, being, the international transaction of Repossession of Rig , whose ALP has been determined at Nil. The assessee declared it as an international transaction of Receipt of the amount. While discussing supra the issue of depreciation, we found that the assessee showed a sum of ₹ 3,02,70,053/- under the head Deletion in the Schedule of Fixed Assets in respect of Block A under the head Plant and machinery . It is this amount at which the Rig was repossessed by its AE. The assessee in computation of the amount of depreciation allowance at ₹ 17.78 lac reduced ₹ 3.02 crore from the Value of assets eligible for depreciation. 16. It is fundamental that for a genuine international transaction of some Receipt, an assessee can offer such amount either as income cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As the determination of the ALP of the international transaction of Repossession of Rig at Nil has the effect of increasing the claim of depreciation and accordingly reducing the income, rather than increasing the same, the transfer pricing provisions need not be given effect to as per the mandate of sub-section (3) of section 92. In any case, we cannot countenance the addition of ₹ 3,02,70,291/-, as has been made by the authorities on determining Nil ALP of the international transaction of Repossession of Rig by the AE. We, therefore, order to delete such an addition. 19. Having dealt with the four transfer pricing additions, we again come back to the view of the AO of a sham transaction of hire purchase of Rig, which has been approved above by us. The net effect of such an approval is that neither an income can arise nor any deduction can be allowed on account of such a transaction. On going through Schedule 9 attached to the assessee s Profit and loss account, it is seen that a deduction of ₹ 13,86,684/- has been claimed under the head Loss on Rig Repo . On a specific query, the learned AR accepted that this Loss is a part of the whole transaction of hire pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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