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TMI Blog2023 (11) TMI 994X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. DRP that the total assets of Wormhole also included the assets (situated outside India) other than investment in Orbgen and, therefore, the AO grossly erred in deriving the value of shares of Orbgen on the assumption that 100% value is relatable to its investment in Orbgen. There is no dispute that the ld. TPO did not propose any adjustment. As per Section 92CA(4) of the Act, the AO is required to compute the Arm s Length Price in conformity with the ALP so determined by the TPO. But in the present case, the AO deviated from the order of TPO. Such deviation is not permissible under law in the light of the statutory provisions and judicial pronouncements as relied by the assessee in its written submissions - See M/S. CUSHMAN AND WAKEFIELD (INDIA) PVT. LTD. [ 2014 (5) TMI 897 - DELHI HIGH COURT] Thus where TPO has not proposed any adjustment and valuation has been adopted by the AO without verifying the true and correct facts qua the assets, we are unable to sustain such erroneous finding both on legality and facts . The grounds raised by the assessee are allowed. - Shri Shamim Yahya, Accountant Member And Shri Kul Bharat, Judicial Member For the Assessee : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of the case and in law, the Ld. AO grossly erred in rejecting the financials of Wormhole for the period ended March 31, 2018, suo-moto submitted by the Appellant post-DRP directions, and passing the final assessment order, on account of the following: a) by contradicting its own stand of considering the transaction values pertaining to the FY 2017-18 and thereby determining the alleged sale consideration of Orbgen for the FY 2016- 17 during the course of assessment proceedings; and b) without appreciating the fact that the financial statement of Wormhole for the period ending March 31, 2018 covering the period beginning from October 25, 2016 till March 31, 2018 and thus includes the financial results both for FY 2016-17 and FY 2017-18. 6. Without prejudice to the above and on the facts and circumstances of the case and in law, the Ld. AO erred in a) substituting the actual sale price of Equity Shares Compulsorily Convertible Preference Shares (CCPS) of Orbgen sold to Wormhole, without even pointing out the provisions/ section of the Act that permits such substitution: b) arbitrarily increasing the actual sale consideration of Equity Sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Orbgen India by the assessee to Wormhole Singapore derived its value substantially from Orbgen India, was undertaken within a period of 6 months after sale of shares of Orbgen India to Wormhole Singapore and that all the entities involved at such point of time were related parties. The assessee stated that the TPO has already examined the arm's-length price of transaction relating to sale of shares of Orbgen India and has not drawn any adverse inference and that the order of the TPO is binding as per provisions of section 92CA(4) of the Act. Undisputedly, under section 92CA(4), the AO is required to compute the total income of the assessee in conformity with the arm's-length price determined by the TPO. However, in a case where certain facts have not been brought to the notice of the TPO during TP proceedings, the AO is not precluded from proceeding on the basis of such facts to determine the total income of the assessee. 3.5 In the present case, the AO has recorded that the fact of subsequent related party sale by the assessee of shares held in Wormhole Singapore (which as per the AO had 75% shareholding of Orbgen India) at a markedly higher valuation was not brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee are reproduced as under: 1. SAC Finance Company Limited (hereinafter referred as 'SAC' or 'Appellant') is a Hong-Kong- based company. 2. SAC acquired shares of an Indian company, Orbgen Technologies Private Limited ('Orbgen'), through fresh subscription of shares (Equity and CCPS) on January 24, 2017 and purchase from independent third-party shareholders of Orbgen on January 30, 2017, at Fair Market Value ('FMV'). FMV was computed as per DCF methodology was duly supported by a valuation report obtained from an independent chartered accountant (refer Page 90 to 108 of Paperbook). The total equity shares of 888,287 and CCPS 151,525 were acquired/subscribed at the cost of USD 1,56,74,058 (equivalent to INR 103,52,71,530). 3. Thereafter, in the same FY, on March 30, 2017, the above shares were sold by SAC to its wholly-owned subsidiary - Wormhole Technology (Singapore) Private Limited ('Wormhole'). Due to close proximity of time, both purchase and sale transactions were undertaken at the same price i.e USD 1,56,74,058. This value was also supported by the valuation report obtained from independent chartered accounta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gain calculated by the Ld. AO in the final assessment order (refer page 198 and 199 of paper-book) 8. The DRP through its directions dated June 21, 2022, accepted the COA disclosed by the Assessee and directed the AO to accept the same for capital gain computation. 9. Further, in relation to the Sale consideration, the Assessee adopted the FMV basis the valuation report obtained from CA (which was same as the value of acquisition of shares due to proximity of time). However, the Ld. AO substituted the sale consideration by calculating it on the basis of the sale of shares of Wormhole by Assessee in the next FY (i.e. FY 2017-18) alleging that Wormhole derived its 100% value from its investment in shares/securities of Orbgen. The Ld. AO calculated the sale consideration at INR 1,23,22,34,505 instead of FMV of INR 103,52,71,530 (USD 1,56,74,058) 10. The Assessee claimed before the DRP that the total assets of Wormhole also include assets (situated outside India) other than investment in Orbgen and therefore, the Ld. AO is grossly erred in deriving the value of shares of Orbgen on an assumption that 100% value of Wormhole is relatable to its in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation]; Vodafone India Service (P.) Ltd. [2013] (37 taxmann.com 250)- Bombay High Court [refer para(s) 69 to 75 at pg no. 75 and 76 of the case law compilation]; and Carraro India Private Limited ([2019] 104 taxmann.com 166/(ITA No 1260/PUN/ 2018)- Pune ITAT} [refer para 6 at page 120 of the case law compilation]. Ld. AO did not abide by the direction of DRP to verify the claim of the Appellant that entire value of Wormhole does not derive from its investments in Orbgen shares and to compute capital gain income in accordance with section 48 of the Act [Ground 4 of our appeal] DRP directions-refer para 3.5 on page 178 of paper book 1. As per section 144C(10) of the Act the DRP directions are binding in nature and any order passed not in conformity with the directions is bad in law and needs to be quashed. The said principle is duly supported by the following judgments: M/S. ESPN Star Sports Mauritius S.N.C. ET Compagnie ([2016] 68 taxmann.com 377 (Delhi)/[2016] 388 ITR 383 (Delhi)) (Delhi High Court) [refer para 31 at page 135 of the case law compilation]; and Yokogawa India Ltd ITALIA No. 1715 692/Bang/2016 (ITAT Bangalore) [refer para 11 at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty on the acquisition of shares [Ground 7 of our appeal] 5.1. The Appellant's claim of expenses borne at the time of the acquisition of shares was not granted by the Ld.AO while computing capital gains in the final assessment order. As per the principle laid down by various judgments any cost incurred to acquire an asset can be considered as its cost of acquisition. 4. On the other hand, learned DR opposed the submissions and supported the assessment order. 5. We have heard rival submissions and perused the material available on record. The moot question that arises for our consideration is, whether the AO is bound by the order of TPO passed u/s 92CA(3) of the Act, even in the situation when the material evidence was not brought on record by the assessee in T.P. proceedings. There is no quarrel so far cost of acquisition is concerned. The Ld. DRP deleted the proposed adjustment in respect of cost of acquisition. The dispute is with regard to sale consideration. In the impugned assessment order the AO adopted sale consideration at INR 123,22,34,515/- as against fair market value of INR 103,52,71,530/-. Thus, the AO treated INR 16,69,27,557/- as capital gain. Unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s length price of which was to be determined by the TPO, If it is so, then, the post amended provisions of Section 92CA(4) will be applicable and arm's length price determined by the TPO is binding upon the Assessing Officer. It has already been mentioned that all the six transactions entered into by the assessee are referred in the TPO's order and the impugned transaction has been mentioned at SL.No.1 and it has been recorded by the TPO in its order that regarding transactions 1-4 above no adverse inference is drawn. Therefore, Ld. TPO has accepted the impugned transaction of the assessee at arm's length. According to the provisions of Section 92CA(4), as applicable to the present case, the arm's length price determined by the TPO is binding on Assessing Officer. Once the arm's length price is determined by TPO, the Assessing Officer cannot have the jurisdiction to re- determine the profit or loss arising out of that transaction under the normal provisions of the Act. By bringing this transaction again under the normal provisions of the Act, the Assessing Officer has sought to do an act indirectly which he cannot do directly. Such action of the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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