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TMI Blog2015 (7) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... n the final list of comparables for comparability analysis. Informed Technologies India Ltd revenues in subsequent years have increased and criteria adopted by the TPO as its sales are on decline cannot be held to be reason for its exclusion. Further, its income from ITES is 99.57% and, therefore, it is a fit case of being comparable company. Regarding turnover filter of less than 5 crores adopted by the TPO, he made his detailed submissions and submitted that the said company should be included in the final comparability. R. Systems International Ltd. (Segmental) - the BPO segment of R Segment should be included in the sales of all financial comparables. Micro Genetic System Ltd. company is engaged in the provision of IT enabled services, which is functionally similar, therefore, this company should be included in the list of final comparables. Fortune InfoTech Ltd. is not undergoing a phase of diminishing revenues. Thus, this company cannot be excluded on the grounds taken by the TPO. Microland Ltd. company has separately reported ITES segment in accordance with the requirements of AS-17, issued by ICAI which clearly states that the purpose of segmental reporting i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot disregarded any apparent transaction and substitute it, without any material of exception circumstance highlighting that assessee has tried to conceal the real transaction or some sham transaction has been unearthed. The TPO cannot question the commercial expediency of the transaction entered into by the assessee unless there are evidence and circumstances to doubt. Here it is a case of investment in shares and it cannot be given different colour so as to expand the scope of transfer pricing adjustments by re-characterizing it as interest free loan. Now, whether in a third party scenario, if an independent enterprise subscribes to a share, can it be characterize as loan. If not, then this transaction also cannot be inferred as loan. Thus subscription of shares cannot be characterizes as loan and therefore no interest should be imputed by treating it as a loan. Accordingly, on this ground alone, we delete the adjustment of interest made by the Assessing Officer.- Decided in favour of assessee. Adjustment on account of interest on advance given to the AE - Held that:- The assessee has filed copies of invoices relating to payment of Advisory Services rendered by the South Afric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in [1974 (10) TMI 3 - SUPREME Court ] had held that the accepted Accountancy Rules for determining the cost of fixed assets is to include all the expenditure necessary to bring such asset into existence and put to them in working condition. Thus, the payment of stamp duty is a cost which is directly attributable to the acquisition of an asset and as per Accounting Standard-10 the same should be included in the cost of fixed assets and, therefore, being part of the capital asset, the assessee is entitled for depreciation. - Decided in favour of assessee. Addition on account of mismatch between Annual Information Report (AIR) and the revenue reported by the assessee - Held that:- The gross income offered by the assessee also far exceeds the amount appearing in the AIR. That apart the assessee’s books of account have been duly audited and no discrepancy as such have been found by the Assessing Officer, that any transaction has not been entered by the assessee. If the assessee had categorically denied any transaction with those two parties by showing it from its own records, then the onus heavily lies upon the Department to show that the assessee had actually transacted with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o its sister concern from its own funds. Thus, following the ratio laid down by the Hon’ble jurisdictional High Court in the case of Reliance Utilities and Power Ltd (2009 (1) TMI 4 - BOMBAY HIGH COURT ) which have been followed in various other decisions, we hold that no disallowance of interest is called for. - Decided in favour of assessee. Addition on account of Foreign exchange gain on redemption of preference shares - Held that:- we hold that the approach of the TPO as well as Assessing Officer is not correct. Such a foreign exchange gain, which has been separately accounted in the books, cannot be taxed as business income here in the case of the assessee, because same was on account of shares and therefore, same shall be considered while working out capital gain or loss as per section 48. Thus we hold that the gain arising to the assessee, shall be taxable under the head “capital gains” because the foreign exchange gain has been account of capital asset i.e. on account of shares and any such claim would also be of a capital in nature. The Assessing Officer has erred in law in making the said addition as normal business profits of the assessee. - Decided in favour of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of notional interest expense Arising out of lease payments 89,716 5 Disallowance of interest expenses claimed 78,60,025 6 Addition of exchange gain on repayment of loan 8,71,00,937 Total 18,77,88,730 (iii) Levy of interest u/s 234B 234C; (iv) Additional grounds of appeal filed vide petition dated 21st October, 2014, which are alternative grounds for T.P. adjustments on guarantee commissions raised vide ground Nos. 1, 2 3, which are as under: 24. Without prejudice to above, making double addition on account of guarantee commission, since the Appellant has cumulatively recovered guarantee commission from its AEs in AY 2012-13 at 1% including guarantee commission for AY 2009-10; 25. Without prejudice to above, if the addition of on account of guarantee commission is upheld in the year under consideration , the guarantee commission offered to tax in AY 2012-13 should be excluded from the taxable income. 3. We will discuss the issues as raised in ground wise. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 007-08, 2006-07. As a result of transfer pricing exercise, the assessee s margin and comparable margins were reported as under in the Transfer Pricing Study Report: Sr. No. Nature of international transaction Aegis India s Margin Comparables margin No. of comparables 1 Provision of IT Enabled services (for third party contracts) 16.14 Percent 13.58 Percent 6 2 Provision of IT Enabled services (for In-house campaigns) 12.13 Percent 13.49 Percent 6 3 Provision of Receivable management services 15.83 Percent 14.15 percent 6 5. However, the Ld. Transfer Pricing Officer (TPO), to whom the matter was referred by the Assessing Officer for analyzing the ALP of the international transactions with the AEs, did not concur with the assessee s transfer pricing analysis and proceeded to modify the same. Firstly, he merged the three segments of provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Cepha Imaging Private Limited 20.30% 2.06% 2.06% 4 CG Vak Software Exports Limited( Seg.) -1.41% 5 Fortune Infotech Limited 7.29% 6 Informed Technologies India Ltd. 19.46% 7 Microgenetic Systems Limited 1.13% 8 Microland Limited (Seg.) -19.13% 9 R Systems International Limited (Seg) 11.84% 10 Accentia Technologie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding Healthcare receivables Cycle Management Services (HRCM) and Software Development Services. The company has stated that its services are in two areas, i.e. HRCM and Software products. It has also substantial earning of its income from coding activities, which is primarily related to software developers. Thus, it is functionally different from IT enabled services companies. Further, there is no segmental information available in the public domain to identify the revenues and costs attributable to various business areas and hence this company cannot be taken as comparable for benchmarking the margins of the assessee. He also referred and relied upon various decisions of the Tribunal, wherein Accentia Technologies Ltd has been excluded from the list of comparables on account of its strategy to acquire companies for inorganic growth and also on account of absence of segmental information for ascertaining the comparability. The list of such decisions are as under: a) Parexel International (India) Private Limited vs ACIT (ITA No. 144/HYD/2014) b) Excellence Data Research Private Limited v ITO ITA No. 159/Hyd/2014 c) Mindteck India Limited v DCIT (ITA No. 70/BANG/2014) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the said company, suggests that Crossdomain is mainly engaged in providing niche and high-end services in the nature of re-engineered payroll services, which ranges from high-end KPO Services, development of products, IT consulting services etc. Further in following cases, this company has held to be not comparable with ITeS companies. (i) Mindcrest India P. Ltd. ITA 7298/Mum/2012; (ii) Symphony Marketing Systems India Pvt Ltd (37 CCH 253); (iii) Market Tools Research Private Limited (ITA 1811/Hyd/2012); (iv) Willis Processing Services India Private Limited (ITA No. 2152/Mum/2014) Therefore, this company should be excluded. (iv) Genesys International Corporation Ltd ( Genesys ) : Mr. Rajan Vohra submitted that, from the perusal of the Annual report of the said company, it would be seen that this company is engaged in the business of Geographical Information Services comprising Photogrammetry, Remote sensing, Cartography, Data conversion, related computer base services and other related services. It mainly operates in niche area of land base mapping and Geographical information services. It is exclusive reseller for Navteq data for enterprise spac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction can be easily deduced then there is no reason for excluding such a otherwise comparable case. Thus, the BPO segment of R Segment should be included in the sales of all financial comparables. iii) Micro Genetic System Ltd. This company too was excluded by the TPO on account of diminishing revenue filter and turnover of less than 5 crores. In this regard, the Ld. Counsel submitted that this company has reported increasing sales and higher profit before tax for three consecutive years and this is indicative of the fact that the company is not undergoing any recessionary phase and operating under normal business circumstance. Its income has been reported mainly from ITeS. As per the Director s report, the said company is engaged in the provision of IT enabled services, which is functionally similar, therefore, this company should be included in the list of final comparables. iv) Fortune InfoTech Ltd. This company was rejected by the TPO on account of having extra ordinary events and diminishing revenue filter. He submitted that the TPO has not cited any instances of functional dissimilarity. In fact the said company is primarily into BPO, claim processing and me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice segment. The average profit margin of the assessee from these ITES segments is 16.16%. Now as discussed above, after the DRP s direction, the arithmetic mean of the eight comparables taken by the TPO comes at 25.99% resulting into upward adjustment of ₹ 9,29,78,668/-. The assessee has finally challenged five comparables included by the TPO for exclusion and has contested six comparables, which was though selected by the assessee, but have been rejected by the TPO. Accordingly, we will take the inclusion and exclusion of some of such comparables for benchmarking the assessee s margin for ITES segment as a whole by treating them as single ITES segment rather than three different segments, as adopted by the assessee. The reason being, no cogent reasons have been canvassed before us, that these services have to separately benchmarked. We will discussed the disputed comparables in brief:- (i) Accentia Technologies Ltd :- This comparable has been disputed by the assessee for exclusion from the list of comparables as selected by the Ld. TPO. From the perusal of the relevant records of the said company as discussed above, we find that this company is mainly engaged in prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of final comparables. The reason being, different business strategies like outsourcing of entire service segment affects many factors which have bearing on the conduct of the business and also the profitability. Accordingly, these two comparables are directed to be excluded from the list of the final comparables. (iv) Genesys International Corporation Ltd: From the perusal of the annual report and information of this company, it is seen that this company is mainly engaged in geographical information services which is mainly engaged in niche area of land base mapping. Its services included GIS consulting, 3D mapping, navigation mapping, LIDAR, photocromatic remote sensing services, image processing, surveying, remote sensing, cartography etc. This company is working closely with Microsoft, Nokia, digital globe and Google earth to provide geographical data. It is exclusive reseller for Navteq data for space enterprise in India. Thus, it is functionally entirely different firm ITES companies like assessee and hence this company is functionally not comparable so as to be included in the comparable list for the purpose of benchmarking the margin of the assessee. Accordingly, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment of ₹ 151,41,11,996/- on account of transfer of equity shares. This issue has been raised vide Ground no. 9 to 11 in the grounds of appeal. 13. The brief facts qua the issue involved are that, the assessee had sold 1,65,28,404 shares of Aegis BPO Services (Gurgaon) Ltd. to Essar Services Holding Ltd. Mauritius @ ₹ 12.72. per share. In order to undertake economic analysis in respect of international transactions of sale of share to its AE, the assessee filed report of a Chartered Accountant for determining the fair value of each equity share of Aegis (Gurgaon) which was valued at nil . Since the transaction was carried out at a price of ₹ 12.72 per equity share, which was higher than the price determined by the Chartered Accountant, it was reported that the transaction undertaken by the assessee with its AE was at arms length. The Ld. TPO observed that the assessee had also issued equity shares to Essar Services Holding Ltd, Mauritius, and Arya International Holding, Mauritius at a price of ₹ 400 per share whose fair market value in accordance with the CCI guidelines was computed to be at ₹ 22.82. Further, BPO Division of Aegis (Gurgaon) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration. Thus, he submitted that this transaction should be seen as stand alone transaction . In the alternative, he stated that if the value is to be taken of DCF valuation then same should be done after taking various factors, which TPO/DRP have not followed the methodology correctly as they have taken the factually incorrect figures and other factors. 15. On the other hand, the Ld. CIT DR submitted that the assessee s objections have been very well taken note of by DRP and whatever corrections was required to be made. has already been done. In any case, if there is some error while valuing the shares as per the DCF method, then the matter should to back to the file of the TPO to verify the figures and other factors and then determine the value of the shares. Regarding other contention, he submitted that the two transactions cannot be separately linked as here what is required to be seen whether the transaction of shares have been done at arms length price. For determination of correct ALP, the TPO has rightly benchmarked it with the other similar transactions made by the assessee, therefore, in principle, the order of the TPO should be upheld. 16. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had valued the shares as per DCF method at ₹ 84.63 the working of each has been given in pages 386 of the paper book and 1/3rd of value of assessee s share comes to ₹ 28 to ₹ 29, if swap ratio of 1:3 is taken into account. Accordingly, we direct the Assessing Officer to verify the working given by the assessee as per DCF Method and determine the correct value of shares and thereafter make suitable adjustments if required. Thus, this issue is restored back to the file of the Assessing Officer for the purpose of verification and examination of the valuation as per the DCF method. The assessee should be given an opportunity to explain the correct figures and valuation. Accordingly, Ground Nos. 9, 10 11 are treated as partly allowed for statistical purpose. 17. The next issue relates to adjustment of ₹ 10,70,78,915/- on account of corporate guarantee fee, which has been raised vide Ground no. 12 13. 18. Brief facts on this issue are that the assessee had entered into certain guarantee arrangements in respect of certain borrowings taken by its AE. The said transaction was not disclosed in the Form 3CEB for the purpose of benchmarking as the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of ITAT Mumbai Bench, wherein, the bank guarantee commission has been charged from 0.5% to 1%. List of such decisions, as relied upon, are as under: Sr. No. Name of case law 1 Glenmark Pharmaceuticals Limited (ITA No. 5031/Mum/2012) 2 Godrej Household Products Limited (ITA No. 7369/Mum/2010) 3 Everest Kanto Cylinder Limited (ITA No. 7073/Mum/2012) 4 Everest Kanto Cylinder Limited (ITA No. 542/Mum/2012) 5 Nimbus Communications Limited (ITA No. 3664/Mum/2010) 6 Reliance Industries Ltd. (ITA No. 4475/Mum/2007) Lastly, he submitted that assessee in AY 2012-13 has charged 1% as guarantee commission from its AE and this charging of 1% has been made retrospectively from FY 2007-08. Hence, charging of 1% should be accepted as ALP for this transaction. 21. On the other hand, Ld. DR strongly relied upon the order of the DRP and submitted that DRP has already scaled down the percentage and guarantee commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer pricing proceedings, the TPO observed that said shares were non-cumulative and redeemable at par without any dividend. Further, the preference shares are equivalent to interest free loan and in an uncontrolled third party scenario, interest would be charged on such an amount, as these are not in the nature of business advances. After making reference to FINMMDA guidelines and conducting enquires from CRISIL u/s 133(6), he assumed the credit ratings of the AE to be BBB(-) and on the basis of bond rate information obtained from CRISIL, he determined the rate of interest at 15.41% and computed the adjustment of ₹ 59,90,19,794/-. The DRP agreed that the TPO s re-characterizations approach into loan and charging of interest thereon is correct. However, they did not agree with the TPO s approach of imputing the interest using credit rating and Indian bond yield. They instead directed the Assessing Officer to charge interest rate as charged by the assessee which was at 13.78% and thereby also directed to add markup of 1.65%, for risks. They directed the adjustment to made accordingly. 25. Before us, Ld. Counsel submitted that the TPO cannot recharacterize the subscription o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48) 7 Dania Oro Jewellery Private Limited (63 SOT 19) 8 Aurionpro Solutions Limited (36 CCH 6) 26. On the other hand, Ld. DR strongly relied upon the order of the TPO and DRP. 27. We have heard the rival submissions and also perused the relevant findings in this regard in the impugned orders. The assessee has subscribed to redeemable preference shares of its AE, Essar Services, Mauritius and has also redeemed some of these shares at par. The TPO has redeemed some of these shares at par. The TPO has re-characterized the said transaction of subscription of shares into advancing of unsecured loan by terming it as an exceptional circumstance and has charged/imputed interest, on the reasoning that in an uncontrolled third party situation, interest would have been charged. We are unable to appreciate such an approach of TPO and under what circumstances, leave above any exceptional circumstances, a transaction of subscription of shares can be re-characterized as Loan transaction. The TPO /Assessing Officer cannot disregarded any apparent transaction and substitute it, without any material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also been confirmed by the DRP. 30. The Ld. Counsel submitted that, it was duly clarified before the TPO that the nature of advance was in fact, payment made for advisory services, which was wrongly classified as advance and therefore, it is an expense to the assessee and no interest can be charged. On the other hand, the Ld. DR relied upon the order of the DRP. 31. After considering the rival submissions, we find that the assessee has filed copies of invoices relating to payment of Advisory Services rendered by the South African based Consultants, for acquiring prospective companies for acquisition in South Africa. This was a cost incurred towards hiring of the consultants and was in the nature of expenditure. Such an expenditure has been booked in the profit and loss account also in the subsequent year, therefore, such an advance given in this year cannot be treated as a loan so as to impute interest thereon. It is purely for business and commercial consideration and hence no interest can be charged on such advance/expenses. Accordingly, the adjustment of interest made by the AO is directed to be deleted. Thus, ground no. 15 is treated as allowed. 32. In ground no. 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessed losses of GVPL post the Order of learned CIT(A), ITAT, Delhi High Court Revised Losses of GVPL available to Appellant, for carry Forward and set-off In AY 2009-10 2002-03 4,61,86,250 4,61,86,250 76,56,312 2003-04 11,80,25,770 10,96,37,145 8,39,79,624 (including unabsorbed depreciation of 2,87,66,909) That apart, during the financial year 2008-09, there was change in holding company of the assessee from Arya infrastructure holdings to Essar Services holdings Ltd. therefore, own business loss of the company were not available for carried forward as per section 79. The Ld. Assessing Officer without taking the note of the subsequent appellate orders for the AY 2003-04 wherein substantial relief was allowed to the GVPL has disallowed the entire losses of 2003-04 and thereafter after applying section 79 Assessing Officer disallowed the claim of carry forward and set off of previous years business losses and unabsorbed depreciation of the GVPL to the assessee. 34. Before us, the Ld. Counsel submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (b) where such loss or unabsorbed depreciation is not directly relatable to the undertakings transferred to the resulting company, be apportioned between the demerged company and the resulting company in the same proportion in which the assets of the undertakings have been retained by the demerged company and transferred to the resulting company, and be allowed to be carried forward and set off in the hands of the demerged company or the resulting company, as the case may be . Thus, by virtue of section 72A(4), in the case of the assessee, the accumulated loss and unabsorbed depreciation of the demerged company shall be allowed to be carried forward and set off in the hands of the resulting company i.e. the assessee. The Assessing Officer has invoked section 79 which apparently is not applicable on the facts of the case; and secondly, it does not have an overriding effect on section 72A(4) which is a specific provision in case of carry forward and set off of accumulated loss and unabsorbed depreciation in case of amalgamation or demerger. Section 79 has only an overriding effect so far as Chapter VI is concerned, however, section 72A(4) has an overriding effect over an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d cost incurred by it (i.e. to acquire an undertaking on slum sale basis) over assets on rational basis and claim depreciation accordingly. As per section 43(1) actual cost means the actual cost of the assets to the assessee. Since the stamp duty is the actual cost incurred by the assessee in order to purchase the assets, it shall be considered as cost to the assessee. As per AS-10 stamp duty relates to the cost of acquisition and hence it should be capitalized. Thus, the principle of apportionment for determining the actual cost of a depreciable assets is embedded in the Act itself. Without prejudice, he submitted that stamp duty is otherwise allowable as revenue expenses and in support, various judicial precedents were cited before us. 40. On the other hand, Ld. DR submitted that the stamp duty in the present case has been paid on business transfer agreement and not for a specific depreciable assets. Even as per accounting standard the stamp duty relatable cost should be capitalized which is also the plea of the assessee. However, no depreciation can be allowed on such a expense. Further, stamp duty cannot be held to be revenue expenditure as explained by subsequent decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee could not get any confirmation from these parties to substantiate its claim, therefore, the same was added. 44. After considering the rival submissions and on perusal of records, we find that all the amounts received by the assessee were through cheques or through banking channels which has been deposited in the bank account of the assessee. The gross income offered by the assessee also far exceeds the amount appearing in the AIR. That apart the assessee s books of account have been duly audited and no discrepancy as such have been found by the Assessing Officer, that any transaction has not been entered by the assessee. If the assessee had categorically denied any transaction with those two parties by showing it from its own records, then the onus heavily lies upon the Department to show that the assessee had actually transacted with the said parties. Thus, in absence of any such material or enquiry done by the Assessing Officer, no addition could be made in the hands of the assessee simply relying upon the uncorroborated AIR Information. Accordingly, addition made by the Assessing Officer is directed to be deleted and ground no. 19 is thus allowed. 45. In ground no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 20 is treated as allowed. 47. In ground no. 21, the assessee has challenged disallowance of interest expense of ₹ 89,716/- arising out of lease payment, u/s 40(a)(ia) on the ground that TDS u/s 194A has not been deducted. 48. The assessee has made lease payment to IBM India Pvt Ltd and Oren Auto Infrastructure. The interest amount aggregating to ₹ 89,719/- was paid to these parties without any deduction of tax. 49. Before us, the assessee s contention has been that no disallowance u/s 40(a)(ia) can be made for the amount paid during the year and in support reliance was placed on the decision of ITAT SB in the case of Malinlyn Shipping and Transport vs Addl CIT, reported in 146 TTJ 1 and Addl CIT vs Victor Shipping Services P Ltd, reported in 357 ITR 642. 50. On the other hand, the Ld. DR relied upon a decision of ITAT Mumbai Bench in the case of ITO vs M/s Pratibhuti Viniyog Ltd, ITA No. 1689/Mum/2011, order dated 22.08.2014 wherein the Tribunal after considering the Vector Shipping and Gujarat and Calcutta High Courts have decided the issue in favour of the Department by holding that provision of section 40(a)(ia) is applicable even on the paid amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, were utilized by these companies for payment of various expenses incurred by them like payment of service tax, sales tax, salary etc. The assessee s case had been that it has advanced the money from its own interest free funds and no borrowed funds have been utilized by the assessee for advancing the money. The detailed break up of own funds as available with the assessee were as under: Particulars No of shares Issue Price(INR) Value (INR) Opening balance of share Capital as on 01.04.2008 616,345,000 Opening balance of share premium as on 01.04.2008 2,845,559,000 Total (INR) 3,461,904,000 Shares issued during the year for cash i. On July 15, 2008 219,642 400 87,856,800 ii. November 4, 2008 2,884,200 400 1,153,680,000 iii Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from its own funds. Thus, following the ratio laid down by the Hon ble jurisdictional High Court in the case of Reliance Utilities and Power Ltd (supra) which have been followed in various other decisions, we hold that no disallowance of interest is called for. Accordingly, ground no. 22 is treated as allowed. 58. In ground no. 23, the assessee has challenged the addition on account of Foreign exchange gain on redemption of preference shares aggregating to ₹ 8,71,00,937/-. 59. The assessee has subscribed to certain preference shares of Essar Services Mauritius during the financial year 2004-05, the details of which are as under: Date of Investment No. of Preference shares subscribed Amount Remitted (USD) Exchange rate at the time of remittance Amount Remitted (INR) 27.10.2004 30,601,000 30,601,000 40.58 1,394,793,580 27.10.2004 2,660,000 2,660,000 45.16 120,125,600 09.12.2004 8,995,333 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce shares cannot be treated as capital and accordingly, the same was assessed under the head business income . As admitted by both the parties, this issue is similar to Ground No. 14 and 20 and, therefore, in view of the finding given therein, we hold that the approach of the TPO as well as Assessing Officer is not correct. Such a foreign exchange gain, which has been separately accounted in the books, cannot be taxed as business income here in the case of the assessee, because same was on account of shares and therefore, same shall be considered while working out capital gain or loss as per section 48. Thus we hold that the gain arising to the assessee, shall be taxable under the head capital gains because the foreign exchange gain has been account of capital asset i.e. on account of shares and any such claim would also be of a capital in nature. The Assessing Officer has erred in law in making the said addition as normal business profits of the assessee. Accordingly, Ground no. 23 as raised by the assessee is treated as allowed. 61. Ground nos. 24 25, relates to levy of interest u/s 234B 234C, which has been admitted by both the parties that they are consequential in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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