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2022 (8) TMI 1452 - AT - Income TaxTP Adjustment - Notional Interest - Outstanding receivables - DRP directed to allow the credit of 60 days resulting which an amount has been added on account of interest on outstanding receivables by taking 6 months LIBOR 400 basic points - HELD THAT - As decided in assessee s own case 2021 (10) TMI 1420 - ITAT DELHI period of 90 days has been allowed and the amounts have been received within the range of 90 to 95 days. In the absence of any fact to prove that the assessee is liable to payment of interest no adjustment is warranted. There cannot be one straight jacketed formula to allege that the assessee has received interest or the delay was allowed to confer an undue advantage to the other party. See Kusum Health Care Pvt. Ltd. 2017 (4) TMI 1254 - DELHI HIGH COURT wherein held that the inclusion in the Explanation to Section 92B of the Act of the expression receivables does not mean that de hors the context every item of receivables appearing in the accounts of an entity which may have dealings with the foreign AEs would automatically be characterized as an international transaction. There can be a delay in the collection of monies for the supplies made even beyond the agreed limit due to various factors which would be investigated on a case to case basis and also the case of Gillette India Limited 2017 (7) TMI 1188 - RAJASTHAN HIGH COURT wherein affirmed the order of the Tribunal wherein it was held that the transaction of allowing credit period to the AE for realization of its sale proceeds is not an independent international transaction but is closely linked with the sale transactions of the AE. Decided in favour of assessee. Deduction u/s 43B - assessee being the legal successor claimed deduction to discharge of liabilities taken over by the Appellant from companies as pursuant to their amalgamation with the Appellant - HELD THAT - From April 1 2015 onwards all assets rights powers liabilities and duties of the Amalgamating companies were transferred to the Appellant and the Appellant stepped into the shoes as the legal successor of Convergys Stream and Convergys In fowavz from such date. The Scheme of Amalgamation provided that all debts liabilities contingent liabilities duties obligations and guarantees of the Amalgamating companies shall be taken over by the Appellant with effect from April 01 2015. It is a settled law that an order of a High Court approving a scheme of arrangement and amalgamation under Section 391 of the Companies Act does not operate as a mere arrangement but it becomes a statutory force and thus becomes statutorily binding on everyone including statutory authorities. We cannot concur with the observation by the ld. DRP. The liabilities that were taken over by the assessee were in the nature of Leave Encashment Bonus Gratuity and Professional Tax and thus fall within the ambit of section 43B of the Act. Accordingly we hold that the assessee is eligible to claim deduction u/s 43B in respect to discharge of such liabilities taken over by the Appellant pursuant to their amalgamation with the assessee. Credit u/s 115JAA - assessee being the legal successor claimed in its return of income the MAT credit taken over pursuant to the amalgamation while computing its tax liability - AO contended that only the company which paid tax under section 115JB of the Act is entitled to carry forward and set-off the MAT Credit - HELD THAT - DRP unfortunately concurred with the view of the AO and confirmed that non-allowance MAT credit. When all assets and liabilities rights and obligation of company transferred to the assessee with effect from April 01 2015 the MAT credit being an asset of the earlier company would be available to the assessee at its disposal for utilization. There cannot be any dispute on the utilization of the assets of the amalgamated company by the amalgamating company. No doubt MAT credit is one of such assets. Hence the appeal of the assessee on this ground is allowed. Applicability of Section 56(2)(viia) - face value of the shares taken for the purpose of section 56(2)(viia) - DRP has concurred with the view of the AO and observed that the entire valuation was a make-believe exercise thus confirmed the addition proposed by the AO - as argued independent chartered accountant arrived at a valuation of INR 242.03 per share on the basis of Net Asset Value (NAV) Method - HELD THAT - In order to arrive at FMV of such property i.e. unquoted shares the valuation is to be done in accordance with the method prescribed under Rule 11UA of the Income Tax Rules. It is settled law that where the Act prescribes a rule it has to be strictly and mandatorily followed and further if the statute has conferred a power to do an act and has laid down the method in which that power is to be exercised it necessarily prohibits the doing of the act in any other manner than that has been prescribed. The adoption of the face value at INR 250 by the AO/DRP with respect to the above transaction is not inconformity with Rule 11UA which prescribes that in order to arrive at FMV of the unquoted shares. FMV of unquoted equity shares shall be the value on the valuation date of such unquoted equity shares as determined applying formula (A-L)/(PE) (PV) - The adoption of the value at Rs.250/- per share by the ld. DRP is not in accordance with prescribed Rule 11UA of the Rules hence we hold that the addition made is liable to be deleted. Granting of TDS and Advance Tax Credit - HELD THAT - As pertaining to ad judication on the issues of Section 43B and MAT credit u/s 115JAA we hereby direct that the credit for TDS and credit for advance tax pertaining to Convergys Stream and Convergys In fowavz which were taken over by the assessee pursuant to their amalgamation with the assessee be allowed.
Issues Involved:
1. Validity of the assessment order. 2. Upward adjustment for notional interest on outstanding receivables. 3. Deduction under Section 43B. 4. MAT credit under Section 115JAA. 5. Addition under Section 56(2)(viia) for purchase of equity shares. 6. Granting of TDS and Advance Tax Credit. Detailed Analysis: 1. Validity of the Assessment Order: The assessee challenged the validity of the assessment order dated March 30, 2021, framed under Section 144(13) read with Sections 143(3), 143(3A), and 143(3B) of the Income Tax Act, 1961. The Tribunal did not specifically address this issue in the final judgment. 2. Upward Adjustment for Notional Interest on Outstanding Receivables: The Tribunal noted that the DRP directed to allow a credit period of 60 days, resulting in an addition of Rs. 16.24 lakhs for interest on outstanding receivables, applying 6 months LIBOR + 400 basis points. However, it was observed that there is no need to benchmark the interest on receivables if no interest has been charged on either payables or receivables. The Tribunal referenced its previous decision in the assessee's own case for AY 2015-16 and the case of Pr. CIT vs. Kusum Health Care Pvt. Ltd., where it was held that not all receivables automatically qualify as international transactions. Consequently, the Tribunal allowed the appeal on this ground, stating no adjustment is warranted. 3. Deduction under Section 43B: The assessee claimed a deduction of Rs. 1,49,07,493 under Section 43B for liabilities taken over from Convergys Stream and Convergys Infowavz post-amalgamation. The AO and DRP disallowed the claim, arguing Section 43B is specific to 'an assessee' and lacks provisions for amalgamated companies. The Tribunal disagreed, citing judicial precedents that an order approving amalgamation under Section 391 of the Companies Act has statutory force and is binding. It held that the liabilities taken over, such as Leave Encashment, Bonus, Gratuity, and Professional Tax, fall within the ambit of Section 43B, thus allowing the deduction. 4. MAT Credit under Section 115JAA: The assessee claimed MAT credit of Rs. 99,61,130 taken over from Convergys Infowavz post-amalgamation. The AO and DRP denied this, stating Section 115JAA does not explicitly allow such transfer of MAT credit. The Tribunal held that all assets and liabilities, including MAT credit, transferred to the assessee post-amalgamation should be available for utilization. Thus, the appeal was allowed on this ground. 5. Addition under Section 56(2)(viia) for Purchase of Equity Shares: The assessee acquired shares of Digital Think at a fair market value (FMV) of Rs. 242.03 per share, as valued by an independent chartered accountant. The AO added Rs. 31,00,122 to the total income, contending the valuation report was unverifiable and the face value of shares was later increased to Rs. 250 per share. The Tribunal found the valuation by the chartered accountant valid and in accordance with Rule 11UA of the Income Tax Rules. It held that the AO's adoption of the face value of Rs. 250 was incorrect, thus deleting the addition. 6. Granting of TDS and Advance Tax Credit: The Tribunal directed that the credit for TDS and advance tax pertaining to Convergys Stream and Convergys Infowavz, taken over by the assessee post-amalgamation, be allowed. Conclusion: The Tribunal allowed the appeal of the assessee on all contested grounds and dismissed the Stay Application as infructuous. The judgment emphasized adherence to legal precedents and statutory provisions regarding amalgamation and the treatment of liabilities and assets, including MAT credit and share valuation.
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