2021 (8) TMI 1037 - AT - Income Tax

Re-characterizing the transactions of issue of debentures/CCD to the issue of equity - HELD THAT - We in agreement that the facts and circumstances of these grounds are similar to those of the A.Y. 2014-15. The cross appeals for the preceding year were simultaneously heard. In fact, no fresh arguments were advanced for the year under consideration and both the sides adopted their respective arguments made for the immediately preceding year. We have discussed this issue in our separate order passed for the assessment year 2014-15 2021 (8) TMI 979 - ITAT PUNE - Following the same, we accord our imprimatur to the ld. CIT(A)'s view on reversing the AO's action of re-characterizing the transactions of issue of debentures/CCD to the issue of equity. We also remit the matter of re-determination of the ALP of the transaction to the file of AO/TPO. In view of the remission of the matter for re-determination of the ALP, the assessee's grievance has become infructuous. TP Adjustment - direction of the ld. CIT(A) to treat Marg Limited as a comparable company - HELD THAT - We find from the Annual report of this company, there is no separate segmental information available regarding the stream of income from projects/operations. Since the income from the stream of leasing is also a part of the income from projects and no separate segmental details qua the income from projects stream are available, we are unable to approve the inclusion of this company in the list of comparables. Overturning the impugned order, we direct to exclude it from the list of comparables. Disallowance u/s. 43CA - HELD THAT - Where the difference between the stamp value and sale consideration is up to ten per cent, such a difference is liable to be ignored and cannot be brought within the ken of section 43CA(1). Adverting to the facts of the instant case, we find that the difference between the stamp value and the sale consideration is 7.24%. Such a difference, being less than 10%, is liable to be ignored in terms of the amended proviso to section 43CA of the Act. We, therefore, direct to delete the addition sustained in the first appeal. Interest on debentures/CCDs to its AE - assessee contended that the interest cost was taken to work-in-progress and not claimed as deduction - HELD THAT - The amount of capitalized interest on debentures/CCDs to the work in progress for the assessment year 2013-14, as is in excess of its ALP freshly determined by the AO/TPO, should be disallowed proportionately in the years in which the work-in-progress containing the amount of such interest standing as on 31-03-2013, is reversed on the sale of flats/plots. Seeking deduction of Education Cess and Secondary and Higher Secondary Cess amounting to ₹ 26,66,359/- while computing the total income of the assessee company - HELD THAT - This ground is similar to the additional ground raised for the assessment year 2014-15 wherein a direction has been given to the AO for ascertaining the correct amount of education cess and then allowing a deduction for it, after allowing opportunity of hearing to the assessee. Same view is followed for the year under consideration and the AO is also directed accordingly.

Issues Involved:
1. Condonation of delay in filing the departmental appeal.
2. Re-characterization of debentures/CCDs as equity.
3. Inclusion of Marg Limited as a comparable company.
4. Disallowance under Section 43CA of the Income-tax Act, 1961.
5. Addition of interest on debentures/CCDs for the assessment year 2013-14.
6. Deduction of Education Cess and Secondary and Higher Secondary Cess.

Detailed Analysis:

1. Condonation of Delay in Filing the Departmental Appeal:
The departmental appeal was time-barred by 63 days. The assessee did not object to the condonation of the delay. Consequently, the delay was condoned, and the appeal was admitted for hearing.

2. Re-characterization of Debentures/CCDs as Equity:
The assessee reported international transactions and Specified Domestic Transactions (SDTs) involving payment of interest on CCDs and debentures. The TPO recharacterized these transactions as equity, determining a Nil ALP and proposing a transfer pricing adjustment of ?18,12,37,000/-. The CIT(A) reversed this re-characterization and directed the TPO to verify the ALP determination of the interest on debentures/CCDs at 17.5%, restricting the addition to 1.13% if necessary. Both parties appealed. The Tribunal followed its decision for the assessment year 2014-15, upholding the CIT(A)'s reversal of the AO's re-characterization and remitting the matter for re-determination of the ALP, rendering the assessee's grievance infructuous.

3. Inclusion of Marg Limited as a Comparable Company:
The assessee reported four additional SDTs and applied the TNM method for ALP determination. The TPO recomputed the ALP, resulting in a transfer pricing adjustment of ?10,51,97,830/-. The CIT(A) included Marg Limited as a comparable company. The Tribunal found that Marg Limited's income from operations included both project and leasing income without separate segmental details. Therefore, it directed the exclusion of Marg Limited from the list of comparables.

4. Disallowance under Section 43CA of the Income-tax Act, 1961:
The AO added ?9,18,700/- to the total income based on the difference between the sale consideration and stamp value of a flat sale. The CIT(A) upheld the addition. The Tribunal noted that the first proviso to Section 43CA, inserted by the Finance Act, 2018, provided relief for differences not exceeding 5% of the sale consideration. The Tribunal held that this proviso should be applied retrospectively, following the Supreme Court's decision in CIT Vs. Vatika Township Pvt. Ltd. (2014). Additionally, the Finance Act, 2020, increased the safe harbour limit to 10%. Since the difference in this case was 7.24%, the Tribunal directed the deletion of the addition.

5. Addition of Interest on Debentures/CCDs for the Assessment Year 2013-14:
The AO added ?3,03,72,733/- representing interest expenditure on debentures/CCDs booked for the assessment year 2013-14. The CIT(A) upheld the addition. The Tribunal noted that for the assessment year 2013-14, it had directed the AO/TPO to re-determine the ALP of the interest payment. Consequently, the Tribunal held that the excess interest over the ALP should be disallowed proportionately in the years when the work-in-progress containing such interest is reversed on the sale of flats/plots.

6. Deduction of Education Cess and Secondary and Higher Secondary Cess:
The assessee raised an additional ground seeking deduction of ?26,66,359/- for Education Cess and Secondary and Higher Secondary Cess. The Tribunal directed the AO to ascertain the correct amount and allow the deduction after providing an opportunity of hearing to the assessee, following its decision for the assessment year 2014-15.

Conclusion:
Both appeals were partly allowed, with specific directions issued for each issue. The order was pronounced in the Open Court on 17th August, 2021.

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