9911796707
TMI Blog2023 (10) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... 92A(2) of the Act which has not restricted the application of the provision, based on prior or subsequent transaction. In view of the above, we are of the opinion that it makes no difference whether the condition of 51% of the book value of total assets is not fulfilled prior to advancing the loan or subsequent thereto. In view of the above, this objection of the assessee is also without any basis and accordingly dismissed. TPO had applied the real estate filter for selecting the comparables - From the reading of the TP study of the assessee (executive summary) and also the submissions made by the assessee before the DRP it is clear that the assessee is in the business of developing building and leasing of life sciences and bio- technological parks which in our view is nothing but a real estate activity and, therefore, the authorities below have committed no error in taking the real estate filter as an appropriate filter for selecting the comparables. In view of the above, this issue is also decided against the assessee. Credit Rating Filter and Tenor Filter - The credit rating of the enterprise like the assessee is an important criteria/factor which determines the eligibility of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Holdings Pvt. Limited was paying the interest @ 14%. These two comparables selected by the Assessing Officer were excluded by the DRP on the pretext that the NCDs were subscribed by the related parties. As held hereinabove, Gujarat Road Infrastructure Company Limited cannot be compared with the assessee for the reasons mentioned hereinabove and therefore, there is no comparable available with which the rate of the assessee can be compared as DRP has also not relied upon TP Study of TPO as well as assessee for the reasons in conclusive . In this scenario, we deem it appropriate to take a guidance from the Safe Harbour Rule and Section194 LD and hold that 12.275% interest rate (SBI base rate +300 basis points) would be the appropriate ALP for the purposes of benchmarking the interest paid by the assessee on NCD to M/s. DB International as against 13.13%. Thus, the ground nos. 2 to 8 of the assessee are partly allowed. ALP of international transaction involving payment of debenture issue expenses by the Assessee to Deutsche Bank AG (Mumbai Branch) - HELD THAT:- Admittedly, the assessee has benchmarked the expenses paid to its deemed AE as international transaction and therefore, had m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he balance sheet date can also be factored in while finalizing the audited accounts. Our above said view is fortified in Electra Paper and Board Private Ltd [ 2022 (1) TMI 1316 - ITAT CHANDIGARH] held that it is justifiable to accept the unaudited balance sheet as on the valuation date when the same has been audited at a later date with no material variance in the financials. In the present case, the audit of balance sheet drawn as on 31.08.2016 was completed on 31.03.2018 after taking into account financials as on 31.08.2016. In view of the above, we hold that the balance sheet as drawn on 31.08.2016 being the closest approximation to the balance sheet on valuation date (date of transfer) should be considered under Rule 11U(b)(ii) read with Rule 11UA(1)(c)(b). The finding of DRP recorded in paragraphs 2.7.2 and 2.7.3 are not in accordance with law and, therefore, we set aside the same. The assessing officer is duty-bound to calculate the fair market value of the shares as per the balance sheet drawn on 31.08.2016. Therefore, the addition made in the hands of the assessee based on the balance sheet as on 31 March 2016, is held to be without any basis and therefore, we quash the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 14A of the Act means that there should be an actual receipt of income which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. In the present case, no exempt income has been earned by the assessee from the investment made by it and therefore, no disallowance can be made by the Assessing Officer. Therefore we are of the considered opinion that the ground raised by the assessee is required to be allowed as there is no exempt income for the year under consideration. Disallowance of TDS Credit - assessee submitted that as per Section 199 TDS deducted on the income assessed in the hands of the assessee should be considered as the taxes paid by the assessee and TDS credit should be allowed to the assessee to offer the corresponding income, when the genuineness of TDS credit was not in dispute - HELD THAT:- On perusal of the draft assessment order, we find that during the course of assessment proceedings, though the Assessing Officer had not raised any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f secured, rated, listed and Rupee denominated Non-convertible debentures (NCDs") to DB International (Asia) Limited which was, at the time of entering into, an uncontrolled transaction between independent entities. 4. The Ld. AO/Hon'ble DRP erred in law and on facts by alleging that the Assessee has resorted to profit shifting by paying higher rate of Interest on NCDs to DB International (Asia) Limited. 5. The Hon'ble DRP has erred in rejecting the following comparable companies selected by the Assessee: (i) Shree Sukhakarta Developers Pvt Ltd (14%) (ii) Rajesh Estates and Nirman Private Limited (15%) (iii) Total Environment Machine-Craft Private Limited (17%) (iv) Parinee Realty Private Limited (14%) 6. The Ld. AO/Hon'ble DRP erred in law and on facts by not appreciating that credit rating of an issuer of debenture constitute an appropriate filter while benchmarking the arm's length price of interest paid on debenture. 7. The Ld. AO/Hon'ble DRP erred in law and on facts in making an upward transfer pricing adjustment of INR 2,85,70,424/- by determining the ALP of the interest on NCDs paid to DB International (Asia) Limited at 581 base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gust, 2016 for computing the FMV of shares of TTPL. The Hon'ble DRP has erred in not appreciating that the Assessee has requested to consider the audited balance sheet as on the valuation date i.e., 30 September, 2016 for computing the FMV of shares of TTPL. 16. The Hon'ble DRP has erred on facts by denying the impairment loss of INR 64,74,02,716/- in computation of FMV of shares of TTPL, on the premise that the impairment pertains to land parcels, whereas the impairment pertains to buildings. 17. The Ld. AO/ Hon'ble DRP has erred in law and on facts in making a disallowance of INR 37,86,302/- u/s 14A of the Act r/w Rule 80 of the IT Rules without appreciating the fact that in the absence of exempt income, disallowance u/s 14A of the Act based on the notional income is not warranted and is unjustifiable under the law: 18. The Hon'ble DRP has erred in confirming the disallowance under section 14A without appreciating that the disallowance has been made without satisfying the pre-conditions under section 14A(2) of the Act. 3. The grounds raised by the assessee in ITA No.456/Hyd/2022 for A.Y. 2018-19 read as under : "1. The order of the Ld. Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct r/w Rule 8D of the IT Rules without appreciating the fact that in the absence of exempt income, disallowance u/s 14A of the Act based on the notional income is not warranted and is unjustifiable under the law. 9. The Hon'ble DRP has erred in confirming the disallowance under section 14A without appreciating that the disallowance has been made without satisfying the pre-conditions under section 14A(2) of the Act. Grounds relating to Tax Deducted at Source ("TDS") Credit: 10. The Ld. AO has erred in law and on facts in not granting TDS credit of INR 3,11,17,286/-, without verifying the facts and providing an opportunity of being heard. 11. The Ld. AO has erred in law and on facts while not considering the TDs credit of INR 3,11,17,266/- ignoring the fact that the corresponding income has been offered for tax by the Assessee." 4. The assessee has also raised the following additional ground in both the appeals : "Without prejudice to the above grounds, the interest rate on NCDs issued to DB International should be regarded to have been at arm's length as the same is less than the SBI Benchmark Prime Lending Rate (PLR)." 5. Before us, at the outset, bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds to be made in respect of this international transaction. However, the DRP is of the view that provisions of Sec. 56(2)(viia) are applicable in this case and hence, directed the Assessing Officer to apply the provisions of Sec 56(2)(viia). 6.3 Upon DRP directions, the TPO re-determined total adjustment u/s 92CA(3) at Rs. 6,22,79,799/- (interest on NCDs Rs. 2,85,70,424/- plus debenture issue expenses Rs. 3,37,09,375/-). In view of the same, the total income of the tax payer was enhanced by Rs. 6,22,79,799/-. The DRP directed the AO to add an amount of Rs. 89,12,84,761/- to the income of the of the assessee being the difference between the Fair Market Value shares on the consideration paid for acquisition of shares u/s 56(2)(viia) of the Act. Thereafter, the TPO passed a rectification order on 05.01.2022 rectifying the mistake in adopting the number of shares purchased from M/s Takshila Techno Parks and Incubators (India) Pvt Ltd and revising the adjustment towards purchase of shares from the said entity at Rs. 84,88,72,822/-. As the assessee has already offered to tax Rs. 26,96,57,437/- u/s.56(2)(viia) in the case of M/s. Takshila Tech parks & incubators (India) Pvt. Ltd. in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, mere reporting of international transaction in form 3CEB will not automatically lead to determination of the character of M/s. DB International (Asia) Limited as associated entity of the assessee. It was the contention of the AR that M/s. DB International (Asia) Limited is a foreign bank and is in the business of financing, innovative ventures, providing loans etc., to its clients. The said M/s. DB International (Asia) Limited had made investment in various companies including the assessee in the equity/loan however, the said company being the financial institution cannot be termed as the 'AE' within the meaning of section 92A of the Act. 8.2. It was the contention of the ld.AR that Section 92B of the Act defines international transaction and it refers to the transaction between two or more associated enterprises. The transaction referred to in section 92B of the Act should be between two or more existing associated enterprises. It was submitted that the relevant point to determine whether the parties entering into arrangement etc., are AE or not would be at the time of entering into the transaction. In other words, it is required to be understood as to whether the enterpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and given the finding with respect to the TP study in paragraph Nos. 2.11.3 to 2.11.4 and had wrongly concluded that - (i) Appellant is incorrect in applying disputable credit rating filter. (ii) Appellant has not used industrial filter of real estate sector in the benchmarking process. (iii) Tenor of the NCDs of corn parables selected by the Appellant are different. 9.2. It is the contention of the ld.AR that the TPO/DRP, both erred in concluding that the credit rating filter is not the appropriate filter. 9.3. In support of the credit rating filter, the ld.AR submitted that the assessee was having credit rating in the range of BB-(SO). It was submitted that the companies/comparables having different credit rating would be liable to pay different rate of interest to the financial institutions. Therefore, the assessee had prudently applied the credit rating filter of BB-, BB-(SO) to B+, so that the comparables having the similar financial rating would be selected for the comparative analysis for determining the ALP. In this regard, the ld.AR had relied upon the following decisions: I. PCIT v India Debt Management (P) Ltd ITA No 266 of 2017 (Bombay), II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to transfer, will not amount to real estate business." (emphasis supplied) 1.16. It is discernible from above that leasing of the property is not regarded as real estate business by the Government of India. The Appellant had also secured foreign direct investment in from of NCDs. If the Appellant was engaged in the real estate business, the Government / RBI would not have permitted investment by DB International in its NCDs. Thus, it is submitted that the DRP erred in stating that the Appellant should have applied real estate business filter while benchmarking the interest on NCDs." 11. The fourth argument raised by the ld.AR for the assessee was that the authorities below have failed to appreciate that the tenor of the NCD of the selected comparables were different from that of the assessee and were not falling within the same band-width of the tenor of the assessee. Assessee had taken four to six years as tenor for selecting the comparables whereas both the authorities have rejected the comparables of the assessee. The DRP in the remand proceedings had called upon the TPO to provide the comparables and conduct fresh search of suitable comparables by applying the appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ega Industries Ltd v DCIT (2016) TaxCorp (AT.) 53503 (ITAT- KOLKATA) and UFO Movies India Ltd v ACIT (2016) 66 taxmann.com 120 (Delhi - Trib), the transfer pricing officer has argued that credit rating of borrower is to be considered for benchmarking the interest and quantifying the spread. 1.41. Considering the credit rating of the Appellant and other factors such as currency risk, the Appellant submits that a minimum of 300 basis points should be added to the SBI base rate as provided in Rule 10TD(2) to benchmark the interest on NCDs issue to DB International. If so, the rate at which the Appellant has paid interest to DB International [viz., 13.13%] would be at arm's length. It is also submitted that for benchmarking purposes, the rate of interest on NCDs paid to DB International should be considered at 12.50% (and not 13.13%). This is because 0.63% [13.13 minus 12.50] represents grossing up cost arising on account of TDS. Guidance from section 194LD of the Act: 1.42. The Appellant's submission of increasing the spread in excess of 300 basis points is also supported by section 194LD(2) of the Act. Section 194LD(2) provides that the maximum allowable rate of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures) [Para 1.5 of the Annex to ECB Framework]. The debentures in the present case was issued for a period of 5 years. The corresponding yield of the Government of India Bond as on the date of finalisation of terms of NCDs [viz., 16 August 2016] was 7.051 [https://in.investinq.com/rates-bonds/india-5-year- bond-vield-historical-datal. The Appellant submits that the benchmark rate of 7.051 plus 450 basis points should be further increased on account of poor credit rating of (BB-) the Appellant. Once the same is factored, the rate of interest on NCDs paid to DB International Ltd [13.13%] would be less than the benchmark rate of 7.051 plus 450 basis points plus additional basis points for poor credit rating of Appellant. Thus, even if ECB Framework is considered as a benchmarking base, the rate of interest paid to DB International on NCDs is at arm's length. The transfer pricing adjustment made to interest on NCDs should be deleted. Additional ground - Interest rate on NCDs is less than SBI Prime Lending Rate (PLR): 1.46. Without prejudice to the above submissions, the Appellant submits that the interest on NCDs issued to DB International (Asia) Ltd is at arm's length as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view that SBI PLR rate is the rate at which persons other than banks can lend/borrow in India. 1.49. The SBI PLR rate during financial years 2016-17 and 2017-18 are as under [https://sbi.co.in/web/interest-rates/interest-rates/benchmark-prime- lending-rate historical-data]: Date PLR 01.01.2017 14% 01.04.2017 13.85% 01.07.2017 13.75% 01.10.2017 13.70% 01.01.2018 13.40% 01.04.2018 13.45% 1.50. The effective rate of interest paid by the Appellant on NCDs issued to DB International is 13.13%. The rate of interest paid by the Appellant is less than the SBI PLR rate prevailing during the FY 201617 and 2017-18. It is thus submitted that the interest rate on NCDs issued to DB International should be regarded at arm's length. The adjustment made by the lower authorities should be deleted." 14. Per contra, the Ld. DR relied upon the findings of the DRP and stated that the ALP of SBI Base rate + 0.5% is appropriate. 15. We have heard the rival contentions of the parties and perused the material available on record. The assessee in the present appeal has raised the grounds and objections that M/s. DB International (Asia) Limited cannot be considered as AE fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han 51% of the book value of the assets, then the DRP had committed no error in deciding the above said issue against the assessee. The argument of the assessee is that the threshold point for determining the AE would be prior to the point of time when the investment was made. In the present case, the negotiations for NCD were concluded between the Deutsche Bank and LC Core on 16th August, 2016 and thereafter, a formal agreement incorporating the terms of NCD were drawn. After conclusion of the above, a Debenture Trust Deed was executed on 27th September, 2016. Thereafter the investment was made by M/s. DB International (Asia) Limited in the NCDs of the assessee. Though a cursory look of the transaction and the submission of the assessee appears to be correct that the point of determination would be prior to entering into agreement and not thereafter, however, this view is not correct for the following reasons. In this regard, we may reproduce the provisions of section 92A of the Act which read as under: 92A. (1) For the purposes of this section and sections 92, 92B, 92C, 92D, 92E and 92F, "associated enterprise", in relation to another enterprise, means an enterprise-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; or (i) the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced90a by such other enterprise; or (j) where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or (k) where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family or by a relative of a member of such Hindu undivided family or jointly by such member and his relative; or (l) where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals; or (m) there exists between the two enterprises, any relationship of mutual interest, as may be prescribed. 16.1. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es ("CCDs") of 14,50,50,000. The CCDs carried a coupon rate of 10% p.a., with a moratorium on interest for first 2 years. Further, MN Takshila also raised funds of INR 167,50,00,000 by issuing Non-Convertible Debentures ("NCDs") to M/s. DB International (Asia) Limited, and independent investment firm based out of Singapore." 16.3. Further, at page No. 26 of paper book 2A under the heading "executive summary" under 1.1.4 it is mentioned as under: "MN Takshila is held by LC Cerestra Core Opportunities Fund Pte. Ltd ('LC Fund'). The company incorporated in 9 July, 2016, is engaged in the business of developing, building and leasing of life-sciences and bio-technology parks in India. Further, it provides managerial services or any other assistance in relation to the management of the parks." From the reading of the TP study of the assessee (executive summary) and also the submissions made by the assessee before the DRP it is clear that the assessee is in the business of developing building and leasing of life sciences and bio- technological parks which in our view is nothing but a real estate activity and, therefore, the authorities below have committed no error in taking the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited and Share Microfin Limited which have a coupon rate of 15% and 13.75%. Since these data belong to year 2013, the assessee had made minor tenor adjustment to factor the time period to arrive at interest rate of 15.97% and 14.05% giving a mean rate of 15.01%. Though the assessee was required to benchmark its transaction by taking the financial year data for year 2009-10, but, if such a data were not available then it cannot be held that such a tenor adjustment for taking into time period cannot be made under CUP, if it has been made quite accurately taking into account the material factors relating to time of the transaction affecting the price. We though agree that, a high degree of comparability is required under CUP, but in absence of such a comparable data, a minor adjustment can be made to eliminate the material effect of time difference for arriving at a comparable uncontrolled price. Now before us, the assessee had filed two comparable transactions for the year 2009, that is, for the same financial year in the case of Shriram Transport Financial Company Ltd. and Tata Capital Ltd., wherein, for credit rating of AA Enterprises the coupon rate of interest per annum was betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. Interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters. Interest rates payable on currency specific loans/deposits are significantly universal and globally applicable. The currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115 states as under:- "The existing differences in the levels of interest rates do not depend on any place but rather on the currency concerned. The rate of interest on a US $ loan is the same in New York as in Frankfurt-at least within the framework of free capital markets (subject to the arbitrage). In regard to the question as to whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which it borrowed the money." 5. Similarly, in case of CIT v. Tata Autocomp Systems Ltd. [2015] 374 ITR 516/230 Taxman 649/56 taxmann.com 206, had observed as under; "7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT (supra) and Dy. CIT v. Tech Mahindra Ltd. (supra) to reach the conclusion that ALP in the case of loans advanced to AEs would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the Revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. v. Dy. CIT (supra) and Dy. CIT v. Tech Mahindra Ltd. (supra) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. v. Dy. CIT (supra) and Dy. CIT v. Tech Mahindra Ltd. (supra). The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. v. Dy. CIT (supra) and Dy. CIT v. Tech Mahindra Ltd. (supra)." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal company whether it was borrowed from the bank or the AE. viii. The assessee has taken a loan from its AE without any collateral whereas there is no information about torrent pharmaceutical Ltd whether it has borrowed loan on the collateral furnished to the lender. In view of the above, we are of the considered opinion that the rate of interest paid by torrent pharmaceutical Ltd cannot be compared with the rate of interest on the money borrowed with the assessee." 16.7. We find in the case DCIT v JSW Energy Ltd 180 ITD 598 (Mum) it was held that credit rating is an important factor for quantifying the spread and benchmarking the interest on loan from AE's. 16.8. In view of the above, the GRICL in or opinion cannot be said to be the comparable with the assessee company on both the counts, namely, on the credit rating and term of the NCD. In view of above, we are of the opinion that the rate of interest paid on the NCD by GRICL cannot be compared with the rate of interest paid by the assessee to M/s. DB International (Asia) Limited. Having held that the interest paid by the GRICL cannot be compared with the interest paid by the assessee on the NCD to M/s. DB Internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case the borrowing is done by the Indian currencies by the Indian companies. The ld.AR had pointedly referred to paragraph No. 2.1.2 of the said circular to buttress his argument that the SBI PLR rate should be applied. The relevant portion of 2.1.2 of the circular provides as under: "2.1.2. Borrowing in INR by companies in India: A company incorporated in India may borrow in INR, on repatriation or non- repatriation basis, from NRIs/PIOs after satisfying the following terms and conditions: i. Borrowing company does not and shall not: a. Carry on agricultural/plantation/real estate business; or b. Trade in transferable development rights; or c. Act as Nidhi or Chit Fund Company. ii. Borrowing is by issuance of non-convertible debentures (NCDs); iii. The issue of NCDs is made by public offer; iv. The rate of interest is not more than the prime lending rate of State Bank of India as on the date on which the resolution approving the issue is passed in the borrowing company's General Body Meeting Plus three per cent; v. Period of loan shall not be less than three years; vi. …………………………&he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est paid by the assessee on NCD to M/s. DB International as against 13.13%. Thus, the ground nos. 2 to 8 of the assessee are partly allowed. GROUND NOS.9 & 10 19. With respect to ground nos. 9 and 10, the ld. AR for the assessee submitted that DB International (Asia) Limited, Singapore provides investment banking services and Deutsche Bank AG (Mumbai branch) is the Indian branch office of Deutsche Bank AG. Deutsche Bank is a leading European bank with global reach supported by a strong home base in Germany. DB International in Singapore is a subsidiary of Deutsche Bank AG and provides investment banking services in the nature of funding companies in Asia Pacific Region by way of debt or equity routes. The written submissions filed by the assessee in this regard are to the following effect : "1. Ld.AR further submitted that Deutsche Bank AG (Mumbai Branch) is neither a related party nor an AE of the Assessee in any manner. By the virtue of section 92A(2)(C) of the Act, since the value of NCDs issued by the Assessee to DB international exceeds 51% of the book value of assets of the Assessee, DB International became a deemed AE of the Assessee. The shareholder of the deemed AE i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As a result, the transaction of payment of debenture issue expense does not constitute international transaction under section 92B. The learned TPO/AO/DRP have failed in understanding this aspect. 5. Without giving any cogent reasons as to why transfer pricing provisions are applicable qua debenture issue expense, the impugned adjustment even otherwise has been made on an adhoc basis. No comparable have been identified by the learned TPO. The Appellant submits that the impugned transfer pricing adjustment of Rs 3,37,09,375/- without identifying any comparable is bad in law. This submission is supported by the decisions, among others, in Luwa India Pvt Ltd TS-281-HC-2021 (Karnataka-HC), DCIT v Air Liquide Engineering India (P) Ltd ITA No 1408/Hyd/2010; CIT v SI Group India Ltd ITA No 447 of 2017 (Bom-HC); CIT v Lever India Exports Ltd TS-23-HC-2017 (Bom- HC); Agro Tech Foods Ltd v DCIT TS-136-ITAT-2021 (Hyd) [These decisions and others are compiled at Pages 428 to 559 of the Case law Compilation] 6. In view of the above, the Appellant submits that the transfer pricing adjustment to debenture issue expenses is bad in law and deserves to be deleted." 20. Per contra, the Ld.DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , LC Core Opportunities Fund Pte. Ltd. ("LCCOF"), has entered into share purchase agreement ("SPA") with ARE Mauritius No 1 Ltd. and ARE Mauritius No.2 and the target entity Takshila Tech Parks & Incubators (India) Private Limited ("TTPL"). The Assessee acquired 86,54,020 shares of TTPL @ Rs. 138.16 per share. Given the involvement of the AE in negotiations (i.e LC Core), the transaction was reported as a deemed international transaction u/s 92B(2) of the Act. The FMV per share of TTPL was determined at Rs. 169.32 in accordance with Rule 11UA(1)(c)(b) r.w.r. 11U(b) of the Income-tax Rules, 1962 and the shares acquired being less than the FMV, the assessee offered addition of Rs. 26,96,57,437/- u/s 56(2)(viia) of the Act in the revised return of income. 22.1 During the assessment proceedings, the assessee had submitted that it has followed DCF Method, whereby the FMV value was derived at Rs. 147.81 per share. The ld.TPO rejected the valuation report on the pretext that the terminal value of the cash flow is less than the net worth. Thereafter, the TPO benchmarked the transaction as deemed international transaction under Rule 11U and 11UA of Income Tax Rules r.w.s. 56(2)(viia) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and thereafter applied Rule 11U & 11UA for computing the income u/s 56(2)(viia) of the Act. 26. Feeling aggrieved, the assessee approaches the DRP, however, the DRP had also decided the issue against the assessee. The contention of the assessee was that the DRP had wrongly issued the direction to the Assessing Officer to determine the income of the assessee under Rule 11UA(1)(c)(b) of the Income Tax Rules (Rules) by considering the balance sheet as on 31/03/2016 without including the impairment loss of Rs. 64,74,02,716/-. 27. It was the submission of the ld.AR that the valuation of shares is required to be done under Rule 11UA(1)(c)(b) of the Rules. However, the fair market value is required to be computed on the valuation date as provided by the Rules. He had drawn our attention to the definition clause namely, Rule 11U of the Rules wherein in sub-clause (b) the balance sheet has been defined and at sub-clause (j), the valuation date has been defined. On the basis of the above, it was submitted that the learned DRP had committed an error by directing the Assessing Officer to take the valuation date as on 31/03/2016 instead of 30/09/2016. For the above said cognizance, he had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was done in the books of Alexandria Group as on 31/03/2016, therefore, the said information being the external indicator for TTPL, therefore, the corresponding adjustment in the financials of TTPL was done as on 30/09/2016 as a natural corollary. 31. It was submitted that the impairment of building recorded in the audited balance sheet as on 30/09/2016 cannot be tinkered with for the purpose of determining the fair market value u/s. 56(2)(viia) of the Act. The ld.AR relied upon the following case law, in support of the case of the assessee : i. Shahrukh Khan vs. DCIT [2018] 90 taxmann.com 284 (Bombay High Court); ii. Medplus Health Services (P.) Ltd. vs. ACIT [2016] 68 taxmann.com 29 (Hyderabad Tribunal); iii. Minda S M Technocast (P.) Ltd. vs. ACIT [2018] 92 taxmann.com 29 (Delhi Tribunal); iv. Smiti Holding & Trading Co. (P.) Ltd. vs. PCIT [2018] 99 taxmann.com 157 (Mumbai Tribunal); v. DCIT vs. M/s. Kilitch Healthcare India Ltd., ITA No. 7061/Mum/2019 (Mumbai Tribunal); vi. ITO vs. M/s. Mystical Infaratech Pvt. Ltd. ITA No. 4266/Mum/2017 (Mumbai Tribunal); vii. ACIT vs. Y. Venkanna Choudary [2019] 112 taxmann.com 71 (Visakhapatnam Tribunal); viii. K. V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parks as on 31 August 2016 is in order. 2.8.3 In our view, assessee's reliance on US GAAP as a reason for recording of impairment in an Indian company cannot be accepted. Even the reliance on AS 28 no way supports the huge amount of impairment claimed as the accounting standard merely given the procedure that is to be followed where .there is a reduction in the value of assets. The assessee contends that the impairment loss was done to bring the land parcels located in India to their fair value .Such a huge amount of impairment especially in the case of a land parcel ,which traditionally only appreciates in India, is hard to accept. The assessee has not furnished the guideline value in respect of the land nor given details of instances of sale transactions in the vicinity to demonstrate the fall in price. 2.8.4 Therefore, we dismiss the objections of the assessee regarding the non-consideration of the impairment loss as computed in its valuation report. 33. We have heard the rival contentions of the parties and perused the material available on record. The findings of the DRP are reproduced herein above. 33.1 As per the balance sheet of the TTPL as on 31/08/2016 (page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31, 2015, and March 31, 2016, all our investments in Asia were classified as held for use, except for two land parcels in India, described above, which were classified as held for sale as of March 31, 2016. As of December 31, 2015, and March 31, 2016, we concluded that all our investments that were classified as held for use were recoverable under the held for use model as the projected probability-weighted undiscounted cash flows from each operating property and land parcel exceeded our net book value, including our projected costs to complete or develop each land parcel. On April 22, 2016, we decided to monetize our remaining real estate investments located in Asia in order to invest capital into our highly leased value-creation pipeline. We determined that these investments met the criteria for classification as held for sale when we achieved the following, among other criteria: (i) committed to sell all of our real estate investments in Asia, (ii) obtained approval from our Board of Directors, and (iii) determined that the sale of each property/land parcel was probable within one year. On April 22, 2016, upon classification as held for sale, we recognized an impairment char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other comprehensive loss (gain) 828 (1,897) Net assets classified as held for sale - Asia 38,129 $ 76,060 33.4 The auditors of the special purpose vehicle of TTPL have done the audit of the company on 31/03/2018 for the year beginning on 1st April, 2016 and ending 30th September, 2016 and mentioned the impairment loss for the period at Rs. 64,74,02,716/- . 33.5. The auditor of the assessee have determined the fair market value of the shares under rule 11UA r.w.s.56(2)(viia) vide their report dated 31/03/2018 (page 903 of paper book 2B). As per the said report, the fair market value per share was determined at Rs. 169.32. The calculation is given at page 907. In the said calculation, the book value of the assets in the balance sheet was taken as Rs. 169,83,06,012/-. The said book value had factored in the impairment loss at Rs. 64,74,02,716/- . 33.6 In the present case, the property has been received by the assessee as on 4th October, 2016 when the shares were actually transferred to the appellant. Thus, the valuation date which is required to be considered is 4th October, 2016. For the purposes of determining the fair market value, the balance sheet as drawn on the valuati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1 of 1956)26 and where the balance sheet on the valuation date is not drawn up, the balance sheet (including the notes annexed thereto and forming part of the accounts) drawn up as on a date immediately preceding the valuation date which has been approved and adopted in the annual general meeting of the shareholders of the company; and ii in any other case,-- (A) in relation to an Indian company, the balance sheet of such company (including the notes annexed thereto and forming art of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under the laws relating to companies in force; and (B) in relation to a company, not being an Indian company, the balance sheet of the company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company, if any, appointed under the laws in force of the country in which the company is registered or incorporated;]] j) "valuation date" means the date on which the property or consideration, as the case may be, is received by the assessee.] 33.8. As per clause (ii) of Rule 11U [e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in the revised return of income. 33.9 As per law, the only requirement is drawing of Balance sheet as on the valuation date. There is no further stipulation that the audit of balance sheet should also be completed before the transaction date. The audit normally happens subsequently after the receipt of the shares. The audited balance sheet would be available for filing the return of income and offering the income under section 56(2)(viia) of the Act to tax. For the purposes of determining the fair market value, the guiding principle has been provided by the Act for the benefit of the assessing authority i.e., to adopt the valuation as per the balance sheet drawn on the date of transfer subject to it being audited. This should be the basis of making the valuation by the assessing officer for making the addition under section 56(2)(viia) of the Act. Further the law does not expect the assessee to perform the impossible act. It is unimaginable that the assessee will get its accounts audited on the date of drawing up of the balance sheet itself. The accounting standard provides that the accounts of the assessee are required to be audited after the finalization of balance sheet and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ategorically recorded in above noted paragraph that there was impairment of the land, which is contrary to the realities in India. In our view, the above said finding of fact has been wrongly recorded as the assessee has never claimed the impairment of land whereas the assessee has only claimed the impairment of the building. At Page 897 of the Paper Book, a tabulation is provided which categorically mentioned impairment of the building and not the land. At Sl.No.2, it is mentioned against building under the depreciation and net block as under : Depreciation Net block September 30, 2016 April 1, 2016 For the period On disposals Impairment for the period September 30, 2016 Land -- Building 167,707,807 29,421,373 -- 647,402,716 844,531,896 923,725,495 37. Therefore, the finding of the DRP that there is impairment of land is without any basis and contrary to the facts, furthermore, the DRP had recorded a finding that the assessee has not provided the guidance value in respect of the land nor given the details of sale transaction in the vicinity. During the hearing, the assessee was asked to provide the guidance value of the immovable property of the assessee as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contracts); (c) financial assets1, including investments that are included in the scope of AS 13, Accounting for Investments; and (d) deferred tax assets (see AS 22, Accounting for Taxes on Income). 2. This Standard does not apply to inventories, assets arising from construction contracts, deferred tax assets or investments because existing Accounting Standards applicable to these assets already contain specific requirements for recognizing and measuring the impairment related to these assets. 3. This Standard applies to assets that are carried at cost. It also applies to assets that are carried at revalued amounts in accordance with other applicable Accounting Standards. However, identifying whether a revalued asset may be impaired depends on the basis used to determine the fair value of the asset: (a) if the fair value of the asset is its market value, the only difference between the fair value of the asset and its net selling price is the direct incremental costs to dispose of the asset: (i) if the disposal costs are negligible, the recoverable amount of the revalued asset is necessarily close to, or greater than, its revalued amount (fair value). In this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g - 560, it is the auditor's responsibility to take into account the events occurring after balance-sheet date. The scope and objective of Standard of Accounting - 560 provides as under : "1. This Standard on Auditing (SA) deals with the auditor's responsibilities relating to subsequent events in an audit of financial statements. It does not deal with matters relating to the auditor's responsibilities for other information obtained after the date of the auditor's report, which are addressed in SA 720(Revised).1 However, such other information may bring to light a subsequent event that is within the scope of this SA. (Ref: Para. A1) 4. The objectives of the auditor are to: (a) Obtain sufficient appropriate audit evidence about whether events occurring between the date of the financial statements and the date of the auditor's report that require adjustment of, or disclosure in, the financial statements are appropriately reflected in those financial statements; and (b) Respond appropriately to facts that become known to the auditor after the date of the auditor's report, that, had they been known to the auditor at that date, may have caused the auditor t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lities pertaining to the demerged business of the Demerged company have been transferred and vested with Resultant company with retrospective effect from October 1 2016. The consideration for the demerger to the equity shareholders of the demerged company has been discharged by issuance of equity shares of the Resulting Company. Further, pursuant to the provisions of the scheme, the value of investment in the demerged company in the books of the resulting company is to be suitably adjusted considering the net assets transferred pursuant to demerger. In the said scheme of merger, the valuation of the assets were also considered and no objections were raised as to the valuation of the fixed assets acquired by the assessee. The scheme of amalgamation was statutory and therefore, it also shows that the valuation adopted by the assessee was appropriate. For the reasons stated hereinabove, the ground nos. 11 to 16 raised by the assessee with respect to Section 56(ii)(via) are allowed. The Assessing Officer is accordingly directed to delete the addition of Rs.57,92,15,385/-. GROUND NOS. 17 & 18 : 41. During the year under consideration, the assessee had investments amounting to Rs.37.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 643 & 644/Hyd/2017. However, the decision of the Delhi High Court in ERA Infrastructure was not citied before the tribunal in this case. Subsequently, the Gauhati Tribunal in ABC/ Infrastructure Private Limited v. ACIT /TA No. 43/GTY/2022, ITA No. 2 I GTY/2023, ITA Nos. 37, 38 & 39/GTY/2022 followed the decision in ERA Infrastructure (supra) and took a view that the explanation to section 14A is not retrospective and hence no disallowance under section 14A should be made in years prior to AY 2022-23 if no exempt income has been earned. 4.11. The jurisdictional ITAT decisions had been rendered in the light of the Gauhati ITAT's decision holding that the explanation to section 14A is retrospective. With the rendering of the decision of the Delhi High Court, the Gauhati Tribunal itself as noted above, has revered its stand and held that the explanation to section 14A is not retrospective in effect. In the light of a High Court decision, without anything contrary from any other High Court, as also the changed decision of the Gauhati Tribunal, it is prayed that the disallowance under section 14A be deleted. 4.12. Prior to enactment of explanation to section 14A with effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. 9. Furthermore, this Court in Pr. CIT v. Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289/288 Taxman 384 (Delhi) has dealt with the issue of amendment made by the Finance Act, 2022 to Section 14A of the Act. The relevant portion of the said judgment is reproduced hereinbelow: "8. Consequently, this Court is of the view that the amendment of Section 14A, which is "for removal of doubts" cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood." 10. Consequently, this Court is of the view that no substantial question of law arises for consideration in the present appeal. Accordingly, the same is dismissed." 44.1 In our opinion, the present case is covered by the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33 (Delhi), wherein the Court has held that the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hereinabove while deciding the appeal in ITA 340/Hyd/2022 and for similar reasons, ground nos.1 to 7 i.e., T.P. Grounds are partly allowed in favour of the assessee, similarly, ground nos.8 and 9 relating to addition u/s 14A of the Act, is allowed in favour of the assessee. 47. Now we will come to the other grounds i.e., 10 and 11 relating to TDS Credit, which were raised by the assessee in ITA 456/Hyd/2022 for A.Y.2018-19 only. 48. With respect to the disallowance of TDS Credit, the assessee submitted that as per Section 199 of the Act, TDS deducted on the income assessed in the hands of the assessee should be considered as the taxes paid by the assessee. The ld. AR for the assessee also emphasized that the TDS credit should be allowed to the assessee to offer the corresponding income, when the genuineness of TDS credit was not in dispute. 49. On the other hand, ld. DR submitted that the orders of lower authorities are in accordance with law. 50. We have heard the rival submissions and perused the material on record. On perusal of the draft assessment order, we find that during the course of assessment proceedings, though the Assessing Officer had not raised any doubts on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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