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TMI Blog2024 (7) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... al transactions have to be benchmarked at the cost of capital based on the respective Libor rate. In this case, the preference shares are issued for a period of 7 years, however, it is redeemed within 3 years. Therefore, the bench-marking has to be undertaken by adopting the 3 years LIBOR rate. It is normal on the part of the various banks to charge the interest on the basis of Libor rate plus certain basis points considering the risk factors involved in financing the same. However, in the given case assessee has taken financing from its own AE. Therefore, the benchmark has to be done based on the Libor rate i.e., LIBOR + basis points + adjustment of risk factor, considering the fact that the AE has invested in India without any collateral securities. In this case, the cost involved in the capital financing is 8.5% of dividend. Therefore, it has to be benchmarked on the basis of Libor rate available on the date of issue of preference shares. Accordingly, we direct the Assessing Officer to benchmark the same by adopting the Libor rate (3 years quote) basis as indicated above. Since assessee has incurred the cost of 8.5% in comparison to the LIBOR rate, accordingly, we direct the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of assessee as per IND-AS 17 [AS-19] and at the same time we also direct the assessee to explain the accounting of leases properly before the AO and we direct AO to verify the same, after verifying the same allow the depreciation as per the above direction after providing adequate opportunity of being heard to the assessee. Accordingly, this ground of appeal is allowed for statistical purpose. Employees Share Option Scheme [ESOP] - AO rejected the submissions of the assessee and observed that ESOP expenses debited by the assessee in its profit and loss account is not crystalized in the previous year as the same is contingent, notional and capital in nature, hence he rejected the claim of the assessee - HELD THAT:- Hon ble Karnataka High Court in the case of CIT v. Biocon Ltd [ 2020 (11) TMI 779 - KARNATAKA HIGH COURT] has decided the issue in favour of assessee and respectfully following the above decision the Coordinate Bench of this Tribunal in assessee s own case for the A.Y. 2015-16 [ 2023 (5) TMI 1354 - ITAT MUMBAI] has decided the issue in favour of assessee as held that incurring of the expenditure by the assessee entitles him for deduction under Section 37(1) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer, we deem it fit and proper to remit this issue back to the file of the Assessing Officer to verify the claim of the assessee and allow the same as per law. Accordingly, this ground of appeal is allowed for statistical purpose. Addition u/s 68 - cash deposit in Specified Bank Note (SBN) during demonetization period - HELD THAT:- Since assessee is in the business of travel agent and tourism where it is dealing in foreign exchange conversion and relevant remittances being authorized dealer across India. As discussed earlier it has 39 branches across India and during demonetization period it has deposited huge cash generated by the 39 branches of the specific bank notes. Since the assessee is in this line of business and dealing in cash transactions it may have carried cash balances which was subsequently deposited through 39 branches in the respective banks. Since it is an authorised dealer assessee is required to maintain books of accounts and details of cash deposits and remittances across the branches and it has to report back to the RBI in regular intervals. Therefore, assessee must be having details of closing cash balances across the branches. These details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same for its own business, as such assessee is in possession of the building which is under renovation that itself shows that it is under the control of the assessee and it will be used for the purpose of business. Once it has become ready to be occupied by the assessee for running its own business and with that it fulfills the conditions of sec 32, the depreciation is automatically applicable. Therefore, the assessee has claimed only the depreciation for the period after surrender of the tenancy rights by the tenant. Therefore, it is not relevant whether actually utilizes for the remaining period, as long as it is in its position and the depreciation can be claimed for utilization as well as based on the concept of passage of time during which the property was in its control and possession. Therefore, the above said depreciation cannot be denied to the assessee. Accordingly, this ground of appeal is allowed. Claim of indexation while computing book profit - assessee has reduced the indexation cost acquisition of transfer of shares while calculating the book profit u/s 115JB - HELD THAT:- While claiming the benefit, the assessee acknowledged that this transfer of shares is exempt f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal interest of INR 81,21,14,830 on receivables on account of issuance of NCCRPS (Ground 1.1. to Ground 1.8): On the facts and in the circumstances of the case, and in law, the Learned Assessing Officer (Ld. AO), following the directions of Hon'ble Dispute Resolution Panel (Hon. DRP), erred in confirming the transfer pricing addition of interest of Rs 81,21,14,830 on deemed receivables which is overdue for the difference in the face value of Non-convertible Cumulative Redeemable Preference Shares (NCCRPS) issued vis- -vis the market price of the equity share as on the date of issuance (hereby referred as alleged transaction') 1.1 On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in not adjudicating the jurisdictional requirement, as laid by the CBDT Instruction 3 of 2016, of existing of an income which is a pre-requisite before making a reference to Lt. TPO or proposing an addition on the capital transaction of issuance of NCCRPS. The Hon. DRP/ Ld. AO/ Ld TPO failed to appreciate that in the absence of any income arising on account of issuance of NCCRPS, transfer pricing provisions contained in Chapter X of the Act do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble DRP/ Ld. AO/Ld. TPO have erred in adopting an adhoc and arbitrary approach in determining the interest rate to be imputed on the deemed receivable determined by the Hon. DRP/Ld. AO/ Ld. TPO without undertaking a benchmarking analysis. An interest rate of 9.945 percent was determined based on the stray interest rates on redeemable NCDs issued by the Appellant 1.9. On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in not following DRP's own direction in the Appellant's case for AY 2015-16 wherein reliance was placed on the decision of the Hon'ble Bombay High Court in the case of Vodafone Services Pvt Ltd. v/s UOI [2015] 53Taxmann.com 286 (Bombay) and concluded that an element of income was a prerequisite for applicability of transfer pricing provisions since they are merely 'machinery provisions and not charging provisions 2. Disallowance of principal lease payment of finance lease 2.1. On the facts and in the circumstances of the case, and in law, the Ld AO, following the directions of Hon'ble DRP, erred in disallowing Rs 73.02.481 related to principal lease payment of finance lease under section 37(1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 On the facts and in the circumstances of the case, and in law, the Ld. AO and Hon'ble DRP. erred in disallowing Rs. 5,78.21.490 under section 14A of the Act read with Rule 8D of the Rules while computing the MAT on the book profits in accordance with section 115JB of the Act. 5. Adjustment on Dividend Distribution Tax 5.1 On the facts and in the circumstances of the case and in law, the Hon'ble DRP and the learned AO: (a) erred in not granting excess Dividend Distribution Tax (DDT) paid erroneously amounting to Rs 3,96,056, arising on account of payment of DDT at the rate of 20.925% on the entire dividend paid, instead of the statutory rate of 20.385% (including surcharge and cess), since as per the provisions of Section 237 of the Act read with Article 265 of the Constitution of India, only legitimate tax could have been retained. Your Appellant prays that the AO be directed to grant refund of Rs 3,96,056 to the appellant (b) erred in not appreciating that the DDT paid by the appellant in relation to the dividend of Rs 5,48,24,449 paid to its overseas shareholder je Fair bridge Capital (Mauritius) Limited (FCML) out of total dividend of Rs 13,64,11,665 ought to have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 271 (1)(c) 7.1 The Ld. AO erred in proposing to levy penalty under section 271(1)(c) of the Act for furnishing inaccurate particulars of income 8. Levy of interest under section 234B of the Act 8.1. The Ld. AO erred in levying interest under section 234B of the Act. The Appellant craves leave to add, alter, amend, substitute or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing so as to enable the Honble Tribunal members to decide these according to the law. 4. Assessee has filed additional grounds on jurisdictional issue, for the sake of clarity it is reproduced below: - Ground No. 9: 1. On the facts and in the circumstances of the case and in law, the final assessment order dated 20 April 2021 passed by the under section 143(3) read with section 144C(13) of the Act, having been passed beyond the limitation provided in terms of section 153(1) r.w. section 153(4) of the Act, is illegal, being barred by limitation, void-ab-initio and is therefore liable to be quashed. Ground No. 10: 2. On the facts and in the circumstances of the case and in law, the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the requirements embodied in the Transfer Pricing provisions contained in sections 92 to 92F of the Act r.w. Rules 10A to 10E of the I.T. Rules. Assessee heavily relied on the decision of Hon ble Bombay High Court in the case of Vodafone India Services Private Limited [WP No. 871 of 2014. (2014) 50 taxmann.com 300 (Bombay), dated 10.10.2014. 10. In assessee s submissions before Transfer Pricing Officer, assessee submitted that T.P. provisions are not applicable to the transaction under consideration and submitted copy of Board resolution indicating the terms of issue and has not submitted any further details including financials of the AE. The Transfer Pricing Officer rejected the submissions of the assessee and he observed that assessee is a listed company and during current assessment year it has issued 12,50,00,000 Cumulative Redeemable Non-Convertible Preference Shares (NCCRPS) @₹.10 per share to its AE on 01.12.2015, which are redeemable at par within a period not exceeding seven (7) years from the date of allotment. The Transfer Pricing Officer observed that the NCCRPS issued by the assessee are in the nature of quasi equity and thus the transaction is squarely covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vides virtually the same level of value add as a straight equity investment. According to him, it can be mezzanine debt, venture debt or convertible debt, structured equity or preferred equity. It can be used for anything as the company needs including expansion capital, acquisition capital or to recapitalize. 12. Transfer Pricing Officer discussed the salient features of a quasi-equity in his order at Page No. 3 to 5 of this order with the above observation he concluded that the NCCRPS issued by the assessee being in the form of quasi equity bears its valuation based on all the above factors. He observed that assessee is listed company and its shares are listed and traded on browsers at very high average rates which is at ₹.205.45 as on the date of issue above NCPS by assessee i.e. 01.12.2015. According to him, a third party scenario, no prudent business entity will invest in such a high value company at a face value of ₹.10/- unless there is a factored return on exit. Therefore, the quoted market rate can be considered as ALP rate which is ₹.205.45 for issue of such NCPS as on the date of issue of shares. Accordingly, he determined the ALP for issue of such NCPS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 10 each were allotted on December 1, 2015 (Due for redemption on December 1, 2022 at par) to Hamblin Watsa Investment Counsel Limited, a wholly owned subsidiary of Fairfax Financial Holdings Limited at face value in order to partly fund the investment made by the Company in SOTC Travel Services Private limited (formerly known as 'Kuoni Travel India (Private) Limited ). The NCRPS are entitled to a dividend of 8.5% per annum. The Company has proposed to Reserve Bank of India, that Promoter will not divest any of its shareholdings In the Company (except inter-se transfers) till such time the NCRPS is not redeemed. Further, the assessee was governed with the following regulations applicable for issuance of NCCRPS (refer paper book page no. 732 to 859): Extract of provisions of Sections 42, 55 of the Companies Act, 2013, The Companies (Prospectus and Allotment of Securities) Rules, 2014; The Companies (Share Capital and Debentures) Rules, 2014 The Securities and Exchange Board of India (Issue and Listing of Non- Convertible Redeemable Preference Shares) Regulations, 2013 The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the difference between the market price of equity shares and the face value cannot be treated as deemed loan to the AE Accordingly, the Tribunal deleted the addition made on account of notional interest on such deemed loan. Facts being identical, respectfully following the aforesaid decision of the Co-ordinate Bench, we delete the addition made on account of notional interest. This ground is allowed. . While the TPO admitted that the transaction was issuance of non-convertible preference shares it still erred in classifying the same as quasi equity. Further, from the perusal of the order of the TPO it is evident that cogent reasons as not provided in the order justifying the claim of the TPO: Thus, the order of the TPO is being vague, it is required to be stuck down In view of the above, it is evident that the assessee has issued and redeemed non-convertible redeemable preference share at the same price. Thus, the action of TPO treating the alleged transaction as quasi equity without providing cogent reasons is baseless and required to be struck down. V. Creation of Notional Transaction by TPO- Not permitted under Indian Law The TPO eared in equating NCCRPS with equity shares an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erprises, which is not envisaged by the law as it stands for the year under consideration. The law only requires actual international transactions to be at arm's length and does not permit imputation of arm's length price based on notional transactions. There is no provision in the Act which stipulates that the difference between them arm's length price and the transaction price represents amount which must be received by the assessee for the year under consideration. The Act requires that the income or expense arising from an international transaction should be at arm's length: The Act relevant for the year under consideration nowhere requires that the arm's length income should be brought in to India by way of inflow of cash. In the absence of such a provision an adjustment to the arm's length price couldn't be considered as an amount receivable from associated enterprises. Hence, the proposal of the TPO / AO is bad in law, void-ab-initio and non-est in the eyes of law. It may be noted that Section 92CA(3) which enables the TPO to make transfer pricing adjustments inter-alia states that by order in writing, determine the arm's length price in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt with the methods described in Chapter II. In other than exceptional cases, the tax administration should not disregard the actual transactions or substitute other transactions for them. Restructuring of legitimate business transactions would be a wholly arbitrary exercise the inequity of which could be compounded by double taxation created where the other tax administration does not share the same views as to how the transaction should be structured .. Based on the above, it is submitted that the transfer pricing guidelines of the OECD provides for recognition of actual transaction undertaken between entities. Such guidelines specifically provide that in other than exceptional cases, the tax administration should not disregard the actual transaction or substitute other transaction for them. It is further provided that restructuring of legitimate business transaction would be a wholly arbitrary exercise the inequity of which could be compounded by double taxation created where the other tax administration does not share the same views as to how the transaction should be structured. The guidelines recognize that the actual transaction can be disregarded only when (1) where the eco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake secondary adjustments either as a matter of practice or because their respective domestic provisions do not permit them to do so. Some countries might refuse to grant relief in respect of other countries' secondary adjustments and indeed they are not required to do so under Article 9. Thus, in the commentary on Article 9 of the model treaty convention, OECD has clarified that sovereign countries can opt for secondary adjustments, if permissible by their domestic laws Since India has specifically introduced specific legislation for inflicting upon secondary adjustments vide Finance Act 2017 ie. w.e.f 1 April 2018, provisions of secondary adjustment are not applicable for the year under consideration. Thus, such secondary adjustment made by TPO is liable to be struck down, as lacking the necessary legislative mandate for the year under consideration. Based on above, we submit that the approach adopted by the TPO is prima facie arbitrary, capricious or perverse in the eye of law and not tenable under the law and on the given facts. 1. Arbitrary approach in determining rate of interest Without prejudice to the above, it is submitted that the TPO has erred in determining the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration: a) The assessee totally ignored the basic tenet of transfer pricing as enshrined in section 92F(ii), as no unrelated party in uncontrolled circumstances would have fore gone such huge sum of money without charging interest from AE. Therefore, the receivable representing the difference in the ALP value of the 7 years 8.5% NCCRPS to its AE and the issue price has been rightly characterised and treated as loan to AE by the TPO b) in benchmarking the transaction the assessee totally ignored the BEPS (Base Erosion and Profit Shifting) Action plan 9 of which India is a party and clearly mandates that transactions can be disregarded for TP purpose where they lack commercial rationality, as far as proper return on deemed advance is concerned and that substance over form, economic reality over legal form and conduct of parties over contracts have to be looked through c) Hon'ble Delhi High Court decision in the case of CIT vs. EKL Appliances Ltd, 345 ITR 241 held that such re-characterization is possible in exceptional circumstances as under? 18. Two exceptions have been allowed to the aforesaid principle and they are (i) Where the economic substance of a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the investment is to be redeemed at face value with coupon rate, so it is not quasi- equity in nature and therefore the said investment cannot be treated as loan financing. It is to be noted here that they have been redeemed at par in terms of issue which mandates coupon rate of 8.50%. Hence, this argument of the assessee is untenable. These facts further strengthen that the investment is essentially in the nature of quasi equity only and requires determination of ALP and in case of difference the difference so receivable shall also be imputed with equal amount of ALP interest. h. h. The assessee's argument that the said investment falls beyond the scope of provisions of Chapter X of the Act is misplaced and untenable as provisions of section 92B of the Act are clearly applicable to transactions in the nature of capital financing too. i. By looking through the substance of the transaction instead of merely looking at the superficial form of the transaction, it is clear that the transaction is essentially a loan transaction. j. BEPS (Base Erosion and Profit Shifting) Action Plan 9 of which India is a party clearly mandates that transactions can be disregarded for TP purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his issue at objection No.6 is found to be not tenable and the ground of objection is, accordingly, rejected. 16. Aggrieved assessee is in appeal before us. At the time of hearing, Ld.AR of the assessee submitted that assessee has issued NCCRPS at par which is in the nature of preference shares and redeemable within the period of seven years. However, assessee has preferred to redeem the same at par within three years itself. He objected to treat this transaction equating with equity shares. He brought to our notice various observations of the Transfer Pricing Officer and observations of Ld.DRP at Page No. 89 to 93 of the Ld. DRP Order and he also objected to the recharacterizing of the transaction as deemed loan by the tax authorities. He also brought to our notice Page No. 109 of the Ld. DRP order and their conclusions. 17. Ld.AR of the assessee basically objected that the issue under consideration is issue of preference share capital and subsequently assessee also redeemed the same at par, hence by recharacterizin g the transaction under consideration into loan transaction is far-fetched. In this regard he relied on the decision of Vodafone India Services Private Limited (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... better footing. He also brought to our notice Balance Sheet of the AE which is placed on record at Page No. 685 of the Paper Book [A.Y. 2018-19] wherein the AE has recorded as preference shares @ ₹.10 only. 20. On the other hand, Ld. DR relied on the orders of the Ld. DRP / Assessing Officer. He also took us to the various findings of the DRP/TPO and objected the various submissions of the Ld AR and submitted that the case relied by the assessee are distinguishable. 21. Considered the rival submissions and material placed on record, we observe that assessee has issued NCCRPS at the face value of ₹.10/- to its AE with the commitment to pay dividend at 8.5% as per the Board Resolution. The assessee has issued these shares to be redeemed within seven years. However, assessee has redeemed the same within three years by redeeming at par. We observe from the Balance Sheet of AE which is placed on record that even the AE has recorded the investment in Non-convertible preference shares at the face value of ₹.10 only. We observe that assessee has preferred to finance its company by way of issuing non-convertible preference shares at 8.5% of dividend. This way of financing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the definition u/s 92B in the nature of capital finance. Accordingly, he proceeded to bench mark the same by treating the same as quasi Equity, however in our view, it is not quasi equity but it is quasi capital. There is considerable difference in the both the categories. The instrument issued by the assessee is non convertible preference shares. It is distinct liability on the company, which is not similar to the Equity Capital. The difference between them are, the equity share holders are the real owners of Assets and liabilities of the company and Preference Share holders are additional share issued for additional capital requirement for the company. It is an additional finance option to the company without parting or diluting the voting rights or ownership of Equity shareholders. The only assurance given to the preference shareholders are preference in refund of capital and dividends. We are in agreement with the submissions of the assessee that Transfer Pricing Officer cannot equate the issue of non convertible preference shares with equity shares. The preference shares can never be treated as equal to equity shares or adopt the value of equity shares for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible preference shares, it clearly indicates that it is more of debt instrument than the equity instrument. Therefore, the bench-marking has to be done on the basis of cost of borrowing in the international market. 24. Coming to the next issue of treating the above transactions as capital financing we are in agreement with the Transfer Pricing Officer it is a Capital financing. However, it can never be quasi-equity. Therefore, the assessee preferred to finance the company by adopting this method of issue of preference shares instead of taking finance from external borrowings or issue of dividend or issue of similar debt instrument. As per the definition of section 92B any long term finance is treated as international transaction. Therefore, issue of preference or debentures or external finance has cost, which may or may not be in the character of interest. In this case, it is in the nature of dividend which may not be burden on the company; however, it is burden on the shareholders or on the profit available for appropriation. In our view, this has a cost of employing the capital in the company, hence, it has to be bench marked. That being so, considering the fact that it is treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per above discussion. Accordingly, we are inclined to allow the Ground No.1 raised by the assessee for statistical purpose. It is needless to say that the bench marking may be carried out by the assessee and confirm by the TPO or vice versa after giving proper opportunity of being heard to the assessee. 25. With regard to Ground No. 2, brief facts of the case are, during the years under consideration, assessee has taken vehicles on lease from lessors (Kotak Mahindra Prime Limited and L T Finance Limited). For A.Y. 2016-17, the assessee, in its capacity as Lessee, had paid lease rentals to the Lessor for the entire year under consideration. Out of the total amount of lease rentals, an amount of ₹.73,02,481 was with respect to principal payment and the balance constituted interest on such lease rentals. The factual and legal submissions submitted by Ld.AR of the assessee are reproduced below: 2.1 At the outset, the Appellant humbly submits that out of total lease rental payment, Rs. 73,02,481 pertains to the payment made by the Appellant towards the principal component of the car lease rental payments (capitalised in the books of accounts as per Ind-AS accounting system of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mics India Private Limited us DCIT (ITA No 2226/Hyd/ 2017) (15 November 2019) 2.6 Further, it is a settled law that treatment in the books of accounts is not determinative of liability towards income tax for the purpose of the Act. The liability under the Act is governed by the provisions of the Act and is not dependent on the treatment followed for the same in the books of accounts. For the above proposition, the Appellant would like to reply on the following decisions as under: Sutlej Cotton Mills Ltd. vs. CIT [1979] 116 ITR 1 (SC) Kedarnath Jute Mfg. Co. Ltd. vs. CIT [1971] 82 ITR 363 (SC) 2.7 In the instant case, the Appellant has duly disallowed the book depreciation on the assets taken on finance lease which has been capitalized in the books of account in accordance with AS-19/ Ind-AS accounting for the period for which the assets were taken on lease by the Appellant. Further, the Appellant has not claimed any depreciation under the Act and therefore, claimed deduction for the lease rentals lease in its tax return in accordance with Circular No. 2 of 2001 for the period for which the assets were taken on lease by the Appellant. 2.8 Further, the Appellant does not have any own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Operating Lease. As per the accounting standards a lease is classified as Finance Lease if the lessor transfers substantially all the risks and rewards incidental to the ownership. Otherwise it is called operating lease when the lessor does not transfer substantially all the risks and rewards incidental to the ownership. It is fact on record that the issue under consideration is of Finance lease and it is accepted by both the parties that it is a Finance Lease of Vehicles. From the characteristics of the Finance Lease, if the following characteristics are present in the transaction then it will be classified as Finance Lease i.e., (a) the lessor transfers ownership of the assets to the lessee by the end of the lease term; (b) lessee has the option to purchase the asset at a price i.e., accepted to be sufficiently lower than the fair market value.; (c) the lease term is for the major part of the economic life of the asset; and (d) the lease assets are such a nature that only the lessee can use them without major modifications. 29. Therefore, from the facts available on the record we observe that as per the lease agreement submitted before us it clearly shows that the assets/vehicle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Leases and the case law relied by the assessee are relating to operating lease which is distinct from finance lease, where the main distinction is that in operating lease, the ownership remains with the lessor whereas in the finance lease, the ownership passes on to lessee. 32. Let us discuss the method followed by the assessee in the financial statement, it has declared the accounting policy in its notes to account as under: 2.14 Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the Statement of Profit and Loss on a straight- line basis over the period of the lease. The Company leases certain tangible and intangible assets and such leases where the Company has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the Inception of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is apportioned between the finance charge and the reduction of the outstanding liability. The outstanding labi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heet before AO, even we are not in a position to understand since it was not explained at the time of hearing. In our view, the method adopted by the assessee in following the Accounting standard and calculating the depreciation seems to be right however, the method to claim differently for computation of Income tax i.e., claim the principal repayment instead of relevant depreciation may not be right method. Therefore, it needs proper explanation and verification of various figures declared by the assessee in Depreciation schedule and computation sheet. The right method is to claim only the depreciation as per the depreciation schedule prepared under Income Tax Act because the assessee is the deemed owner of the assets and it has rightly recognized in its books of account. The assessee cannot bifurcate the claim under the I.T. Act separately for interest depreciation. Therefore, we direct A.O to allow only the depreciation on the assets under I.T. Act. 36. Accordingly, we deem it fit and proper to remit this issue back to the file of the Assessing Officer to recheck the claim of assessee as per IND-AS 17 [AS-19] and at the same time we also direct the assessee to explain the accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses debited by the assessee in its profit and loss account is not crystalized in the previous year as the same is contingent, notional and capital in nature, hence he rejected the claim of the assessee by observing as under: - 9.6 A scheme of Employee Stock Option (ESOP) is one such process where employers reward employees by making them partners/ rightful owners in wealth which they have build together by issuing shares in the entity at a discounted price which otherwise is available at higher price in the market due to various reasons such as market expecting to reap the reserves sitting in the books of accounts, goodwill generated by the Company in the market, expected discounted cash flow forecasts of the Company etc. 9.7 ESOP is a plan wherein an option is provided by the employer to employee to opt for issue of shares in the company at the end of vesting period on satisfying specific conditions set in by employer at an agreed pre-determined discounted price against a commitment from the employee of provision of uninterrupted services to the company The major benefits out of such ESOP scheme are (i) Employers do not have immediate payout obligation while they continue to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SOP expenditure is allowable under the Income Tax Act 1961 ('Act). The only provision where a company can claim the expenditure is section 37 of the ActHence, it is pertinent to test the conditions mentioned in section 37 in order to conclude whether the expenditure is allowable? Section 37 of the Act allows an assessee to claim expenditure if it fulfills the following conditions: It should be an expenditure, It should not be dealt in section 30 to 36, It should not be a capital expenditure or personal expense of the assessee, and It should be incurred or laid out wholly and exclusively for the purpose of business or profession. 9.11 As discussed above, the expense which is debited to profit and loss account (P L) is the difference between the market value of share as computed under the guidelines of SEBI and the value at which the share are issued to employees In this connection it is submitted that The company is choosing to either receive securities premium of a lower amount or no securities premium when compared to that of which it would have received during a normal course of share issue. Hence there is no expenditure that the company is incurring or laying out. The issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for adjudication. 40. Aggrieved with the above order assessee is in appeal before us raising the issue before us. 41. At the time of hearing, Ld.AR of the assessee brought to our notice issues under consideration raised before Assessing Officer and Ld. DRP and he brought to our notice that the issue under consideration is covered in favour of assessee and brought to our notice Page No. 191 of the Paper Book where the similar issue was considered by the Tribunal in assessee s own case for the A.Y. 2015-16 in ITA No. 7807/MUM/2019 dated 31.05.2023 and decided the issue by relying on the decision of the Hon ble Karnataka High Court in the case of CIT v. Biocon Ltd., (21 taxmann.com 351). He brought to our notice Page No. 191 to 196 of the case law Paper Book and prayed that similar issue was raised by the assessee in this appeal and the same may be allowed. 42. With regard to second issue of claim of additional ESOP he also brought to our notice similar issue was considered by the Coordinate Bench in assessee s own case in ITA No. 7807/MUM/2019 dated 31.05.2023 and the same was remitted back to the file of the Assessing Officer to verify the claim of the assessee and he prayed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession . 7. Thus, from perusal of the aforesaid provision permits deduction for the expenditure laid out or expanded and does not contain a requirement that there has to be a pay out. If an expenditure has been incurred, provision of Section 37(1) of the Act would be attracted. It is also pertinent to note that Section 37 cash. 8. Section 2(15A) stock option' to mean option given to the whole time directors, officers or the employees of the company, which gives such directors, officers or employees, the benefit or right to purchase or subscribe at a future free determined price. In an ESOP a company undertakes to issue shares to its employees at a future date at a price lower than the current market price. The discount and the same amount of discount represents the difference between market price of shares at the time of grant of option and the offer price. In order to be eligible for acquiring shares under the scheme, the employees are under an obligation to render their services to the company during the vesting period as provided in the scheme. On completion of the vesting period in the service of the company, the option vest with the employees. 9. In the instant case, the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployees. The aforesaid decision is of no assistance to decide the issue of allowability of expenses in the hands of the employer. It is also pertinent to mention here that in the decision rendered by the Supreme Court in the aforesaid case, the Assessment Year in question was 1997-98 to 1999- 2000 and at that time, the Act did not contain any specific provisions to tax the benefits on ESOPS. Section 17(2)(iiia) was inserted by Finance Act, 1999 with effect from 01.04.2000. Therefore, it is evident that law recognizes a real benefit in the hands of the employees. For the aforementioned reasons, the decision rendered in the case of Infosys Technologies is of no assistance to the revenue. The decisions relied upon by the revenue in Gajapathy Naidu, Morvi Industries and Keshav Mills Ltd supra support the case of assessee as the assessee has incurred a definite legal liability and on following the mercantile system of accounting, the discount on ESOPs has rightly been debited as expenditure in the books of accounts. We are in respectful agreement with the view taken in PVP Ventures Ltd. And Lemon Tree Hotels Ltd Supra. 13. It is also pertinent to mention here that for Assessment Year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The ground No. 4 of the assessee is accordingly allowed for statistical purposes. 47. Respectfully following the above decision, we are inclined to remit this issue also back to the file of the Assessing Officer to verify the claim of the assessee and allow the same as per law. Ground No. 3.2 raised by the assessee is allowed for statistical purpose. 48. With regard to Ground No. 4 which is relating to disallowance under section 14A of the Act, relevant facts on this ground are, during the course of assessment proceedings Assessing Officer observed that assessee has invested substantial amount in investments yielding exempt income to the extent of ₹.1219,90,07,951/- in equities and mutual funds as on 31.03.2016 and ₹.1158,31,14,189/- as on 31.03.2015. During the year assessee has earned dividend income of ₹.6,14,35,915/- from mutual funds and dividend of ₹.6,85,86,320/- from investments in subsidiary company and claimed the same as exempt under section 10(35) of the Act. When the details were called from the assessee, assessee filed its response vide letter dated 06.12.2019, for the sake of clarity it is reproduced below: - During the year under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92 TTJ 987 (Del.) It was, inter alia, held in this case that onus is on the Revenue to prove that interest paid by the assessee on borrowed funds related to the acquisition of shares yielding tax-free income. ACIT vsEicher Ltd. [2006] 101 TTJ 369 (Del.). It was held in this case that burden is on the AO to establish nexus of expenses incurred with the earning of exempt income, before making any disallowance under section 14A. Accordingly, your goodself will appreciate the fact that section 14A of the Act has no application in the absence of any direct expenditure actually incurred by the company. Nexus of expenditure with exempt income: 1. The company has utilized the fund received from sale of short term investment for purchase of short term investment in mutual funds. 2. In this regard, we submit that in the absence of nexus between expense and earning of exempt income, disallowance under section 14A of the Act cannot be made. The same has been upheld in the following judicial precedents CIT vs Sintex industries (93 taxmann.com 24) (SC) (2018) CIT vHero Cycles Ltd(323 ITR 518) (P H HC) (2010) Justice Sam P. Bharucha v Addtl. CIT [2012] 53 SOT 192 (Mum Trib.) (URO) [AY 2008-09]; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be made without resorting to computation as contemplated under Rule 8DWe reiterate that the company has not incurred any direct expenditure to eam the exempt income, and in absence of a direct expenditure no disallowance can be made as per the provisions of section 14A read with Rule 8D of the Act. 1. view of the above, we submit that no disallowance is warranted other hat above as per the provisions of section 14A read with Rule 8D since; No disallowance can be made in absence of any direct expenditure Interest expenditure has not been incurred to earn exempt income; Onus is on the department to prove that expenditure has been incurred to earn exempt income; Without prejudice, to the above, only those investments which have incurred exempt income should be considered for the calculation disallowance as per the provisions of section 14A read with rule 8D(iii); Provision for calculating disallowance as per section 14A read with rule 8D are not applicable for calculation of book profits as per provisions of section 115JB of the Act. 49. After considering the submissions of the assessee Assessing Officer found not acceptable, the Assessing Officer observed that assessee has not disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he monthly average of opening and closing balance of value of investments mechanically. We observe that Assessing Officer has taken total value of average investments which may include those investments which has not generated any exempt income in the above said total investments made by the assessee, however, it is settled position of law that the Assessing Officer has to consider only those investments which has actually yielded exempt income. Therefore, we deem it fit and proper to remit this issue back to the file of the Assessing Officer to consider those investments which has actually yielded the exempt income. Accordingly, Ground No. 4.1 is allowed for statistical purpose. 54. With regard to Ground No. 4(b) of grounds of appeal, it is brought to our notice that Assessing Officer has invoked clause (f) of Explanation (ii) to section 115JB of the Act to disallow the 14A disallowance as determined by him under section 14A of the Act. This issue is settled as far as assessee is concerned that the 14A disallowance cannot be part of clause (f) of Explanation (ii) of section 115JB of the Act. We observe that the Delhi Special Bench of the Tribunal in the case of ACIT v. Vireet Inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in not adjudicating the jurisdictional requirement, as laid by the CBDT Instruction 3 of 2016, of existing of an income which is a pre-requisite before making a reference to Lt. TPO or proposing an addition on the capital transaction of issuance of NCCRPS. The Hon. DRP/ Ld. AO/ Ld. TPO failed to appreciate that in the absence of any income arising on account of issuance of NCCRPS, transfer pricing provisions contained in Chapter X of the Act do not apply to the facts of the present case. 1.2 On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in rejecting the reliance placed by the Appellant on the Hon'ble Bombay High Court's decision dated 10 October 2014 in Writ Petition No. 871 of 2014 in the case of Vodafone Services Pvt Ltd vs UOI [2015] Taxmann.com 286 (Bombay) and concluding that no income arises to it from such a transaction and accordingly transfer pricing provisions contained in Chapter X of the Act will not apply to the facts of the present case. 1.3. On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Bombay High Court in the case of Vodafone Services Pvt Ltd. v/s UOI [2015] 53Taxmann.com 286 (Bombay) and Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. Vs CIT [2015] 64Taxmann.com 150(Delhi) and gave a finding that an element of 'income' was a prerequisite for applicability of transfer pricing provisions since they are merely machinery' provisions and not charging provisions 2. Addition of Rs. 11.57,22,000/- under section 68 of the Act in respect of cash deposit in Specified Bank Note (SBN) during demonetization period. 2.1 On the facts and circumstances of the case and in law, the Ld. AO erred in passing the final assessment order u/s 143(3) r/w 144C of the Act, without giving effect to the binding directions of the Ld. DRP wherein the DRP had directed the Ld AO to verify the cash deposits and restrict the additions only to the unverifiable deposits. Accordingly, the Ld AO issued the final assessment order identical to the draft assessment order without giving cognizance to the DRP directions and accordingly the order in this context bad and illegal in law and liable to be quashed 2.2 On the facts and circumstances of the case and in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order u/s 143(3) r/w 144C of the Act, without giving effect to the binding directions of the Ld. DRP wherein the DRP had directed the Ld AO to exclude the disallowance of depreciation on Jodhpur property. Accordingly, the Ld. AO issued the final assessment order similar to the draft assessment order without giving cognizance to the DRP directions and accordingly the order in this context bad and illegal in law and liable to be quashed; 3.2 On the facts and circumstance of the case, the Ld. AO failed to appreciate that depreciation has already been suo-moto disallowed by the Appellant while computing income under the head 'profit and gains from business and profession 3.3 On the facts and circumstances, the Ld. AO erred in not considering the submission filed by the Appellant during the course of assessment proceedings explaining the fact that the depreciation on Jodhpur property has already been disallowed in the return of income. 4 Claim of Employee Stock Option Plan (ESOP) of Rs. 7,42,11,889 4.1. On the facts and in the circumstances of the case, and in law, the Hon. DRP/Ld.AO erred in not allowing the additional claim made during the course of DRP proceedings for ESOP exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance to the provisions of section 92C, 92D and 92E of the Act. 6.3. The Ld. AO erred in proposing to levy penalty under section 271AAC of the Act towards addition made under section 68 of the Act 7. Levy of interest under section 2348 of the Act 7.1. The Ld. AO erred in levying interest under section 2348 of the Act. 61. Assessee has filed additional grounds on jurisdictional issue, for the sake of clarity it is reproduced below: - Ground No. 9: 1. On the facts and in the circumstances of the case and in law, the final assessment order dated 20 April 2021 passed by the under section 143(3) read with section 144C(13) of the Act, having been passed beyond the limitation provided in terms of section 153(1) r.w. section 153(4) of the Act, is illegal, being barred by limitation, void-ab-initio and is therefore liable to be quashed. Ground No. 10. 2. On the facts and in the circumstances of the case and in law, the directions dated 27 January 2022, issued under section 144C(5) of the Act by the Ld. DRP, not being signed by all the members of the Hon'ble DRP, are illegal, bad in law, void-ab-initio and liable to be quashed 62. At the time of hearing, Ld.AR of the assessee submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the customer, the purpose of purchasing foreign currency and RBI approval, if required, for an amount exceeding certain limits. ii) Screening of the customer is done into the system by checking his transaction history using his passport number and necessary documents are required to be submitted. iii) Once screening is done, the purchase request of the customer is approved after obtaining necessary internal approvals depending on amount of foreign currency to be released. The payment in cash is accepted for currency exchange equivalent of amount not exceeding INR 50,000. iv) The system captures PAN Card, customer name, Date of birth and country of the customer. Once the transaction is saved, the Sales bordereaux is generated which is signed and stamped by the teller. The Cashier need to input manually on bordereaux, the INR denomination received by him and foreign currency sold to the customer. v) The customer signs the acknowledgement of the bordereaux copy and the copy of such acknowledgement along with hardcopies of all the documents submitted by the customers are filed in the records. NCOME TAX DEPARTMEN vi) Similar process is followed when customer approached for buying foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame period and that the increase in the deposit of cash during the demonetisation period is due to all SBN available across all the branches having deposited into the bank accounts. The assessee has stated to have submitted the details of cash deposited during the FY 2015-16 and FY 2016-17 in specified format as requested by the Ld. AO as under: Sr. No . Particulars Amount (in Rs.) i) (a) Total Cash deposit in bank in financial year 2015-16 2,38,35,88,414 (b) Total Cash deposit in bank from 01.04.2015 to 08.11.2015 1,64,77,33,772 (c) Total cash deposit in bank from 09.11.2015 To 30.12.2015 21,66,82,920 ii) (a) Total Cash deposit in bank in financial year 2016- 17 1,92,82,34,566 (b) Total Cash deposit in bank from 01.04.2016 to 08.11.2016 1,49,25,68,258 (c) Total cash deposit in bank from 09.11.2016 to 30.12.2016 22, 10,71,066 iii) (a) Percentage increase between (ii)(a) (i)(a) Decrease by 23.61% (b) Percentage increase between (ii)(b) (i)(b) Decrease by 10.40 (c) Percentage increase between (ii)(c) (i)(c) Increase by 2.03% 7.2.6 The Assessee stated that it has made the submissions before the Ld. AO: vide Letter dated 15 February 2021, Letter dated 10 March 2021 Letter dated 12 Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d once the transaction is saved, the Sales bordereaux is generated which is signed and stamped by the teller. The customer also signs the acknowledgement of the bordereaux copy and the copy of such acknowledgement along with hard copies of all the documents submitted by the customers are filed in the records as well. Therefore, assessee maintains adequate trail of information/documents to substantiate the source of INR cash generated into the system. Further, they observed that assessee had submitted the details of cash deposited during the F.Y.2015-16 and F.Y.2016-17 in the format prescribed, as required by the Assessing Officer, which apparently the Assessing Officer has not taken into account. The details submitted by the assessee shows that there is a marginal increase of 2.03% in cash deposited during the demonetization period as compared to the last year for the same period and the increase in the deposit of cash during the demonetization period is attributable to cash available across all the branches which was deposited into the bank accounts as per the instruction given by the Government under the demonetization policy. However, they also observed that assessee has not sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zation period vide letter dated 15.02.2021, 10.03.2021 and 12.04.2021 these letters are part of Paper Book submitted before us. 69. He also submitted that the assessee has deposited during demonetization period various specified bank notes in 39 branches which consist not only of cash deposits from customers and it also the specified bank notes available in the business as per the directions of RBI during demonetization period. Further, he brought to our notice Page No. 3 to 5 of the final assessment order and submitted that Assessing Officer has not followed the direction of Ld. DRP and as per the direction Assessing Officer should have called for the relevant information and made the verification instead he followed the findings in the draft assessment proceedings. 70. He also brought to our notice Page No. 898 of the Paper Book and prayed that the cash deposited during demonetization period is nothing but cash generated by the business and the cash in Hand available of such specified bank notes denomination which is part of cash available in the business. 71. On the other hand, Ld. DR submitted that since no information was submitted before Assessing Officer during the draft ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above said details of cash balances available across the branches during the demonetization period, which was reported in regular intervals to RBI may be submitted for verification before Assessing Officer. Accordingly, we direct the Assessing Officer to verify the documents which assessee will submit before him as per the RBI norms, after giving proper opportunity of being heard, and decide the issue in accordance with law. Accordingly, the ground raised by the assessee is, accordingly, allowed for statistical purpose. 73. With regard to Ground No. 3 which is relating to Disallowance of depreciation on Jodhpur property of ₹.72,328/-, at the time of hearing, Ld.AR of the assessee submitted that this ground is not pressed, accordingly, this ground is dismissed as not pressed. 74. With regard to Ground No. 4 which is relating to the Claim of Employee Stock Option Plan (ESOP) of ₹.7,42,11,889/-, this ground is similar to Ground No. 3 raised by the assessee for the A.Y. 2016-17. Since the issue is exactly similar and grounds as well as the facts are also identical, the decision taken in Ground No. 3 for the A.Y. 2016-17 shall apply mutatis-mutandis to the appeal for the A.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of NCCRPS, transfer pricing provisions contained in Chapter X of the Income-tax Act 1961 (the Act) do not apply to the facts of the present case. 1.2. On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in rejecting the reliance placed by the Appellant on the Hon'ble Bombay High Court's decision dated 10 October 2014 in Writ Petition No. 871 of 2014 in the case of Vodafone Services Pvt Ltd vs UOI [2015] Taxmann.com 286 (Bombay) and concluding that no income arises to it from such a transaction and accordingly transfer pricing provisions contained in Chapter X of the Act will not apply to the facts of the present case. 1.3 On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in not recording any reasons to show that the conditions mentioned in clause (a) to (d) of section 92C(3) of the Act were satisfied, either before initiating the transfer pricing assessment or before the completion of the assessment proceedings. 1.4. On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in recharacterizing a legitimate business transaction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Delhi High Court in the case of Maruti Suzuki India Ltd. Vs CIT [2015] 64Taxmann.com 150(Delhi), and giving a finding that an element of income accruing/ arising was a prerequisite for applicability of transfer pricing provisions since they are merely 'machinery provisions and not charging provisions' 2. Addition on account of disallowance of car lease rentals (Ground 2.1 to Ground 2.3) 2.1. On the facts and in the circumstances of the case and in law, the Ld. DRP/ the Ld. AO erred in disallowing an amount of Rs. 24,86,533 in respect of principal portion of lease payment for assets taken on finance lease on the basis that the said expenditure is capital in nature and should not be allowed as deduction under section 37(1) of the Act. 2.2. Without prejudice to the above ground, on the facts and in the circumstances of the case and in law, the Ld. DRP/ the Ld. AO erred in not granting depreciation on the alleged capital expenditure towards principal portion of lease rentals under section 32 of the Act. 2.3. On the facts and in the circumstances of the case and in law, in spite of the Ld. DRP's directions, out of the total disallowance of Rs. 24,86,533, the Ld. AO er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case and in law, the Ld. DRP/ the Ld.AO erred in disallowing an amount of Rs. 11,52,88,300/- under Section 14A of the Act read with Rule BD of the Income Tax Rules, 1962 by simply following its orders for the earlier assessment years, without appreciating the fact that no direct or indirect expenditure was incurred by the Appellant for earning exempt income. 6. Addition on account of depreciation on building (Ground 6.1 6.2): 6.1. On the facts and in the circumstances of the case and in law, the Ld. DRP/ the Ld.AO erred in disallowing an amount of Rs. 45,64,124 in respect of depreciation on building on the grounds that the Appellant failed to produce any cogent evidence to show that the said premises was put to use' by it for its own business purposes. 6.2 On the facts and in the circumstances of the case and in law, the Ld. DRP / the Ld. AO erred in concluding that some expenditure or activity would have been required to be incurred to bring the premises in the category of asset which have been 'put to use' by the Appellant, and thereby erred in denying claim of depreciation to the Appellant, without tappreciating the Appellant's contention that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 237 of the Act read with Article 265 of the Constitution of India, only legitimate tax could have been retained. 9.3. erred in adjudicating that since there was no variation of income and since there was no adjustment being made to the income of the Appellant in the assessment order, the said claim of refund of DDT could not have been raised before the DRP. 9.4. erred in observing that provisions of Section 115-0 of the Act overrides the provisions of Section 90(2) of the Act and hence, beneficial rate as per Article 10(2) of the India- Mauritius tax treaty will not be applicable and hence, erred in subjecting the Appellant to additional income tax in terms of section 115-0 of the Act. 9.5. erred in observing that tax as per Section 115-0 of the Act is a tax on net distributed profit of the company and not a tax on dividend income of shareholder. The AO failed to appreciate that the dividend income was that of the non-resident recipient who was governed by the provisions of relevant DTAA. 9.6. erred in observing that DDT is a secondary tax on corporate profit distributed and not akin to withholding of tax. 10. Penalty under section 270A of the Act 10.1. The Ld. AO erred in pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al assessment order and DRP directions are bad in law, null and void and liable to be quashed, and the entire addition made by Ld. AO/ Ld. TPO/ Hon'ble DRP be deleted. 81. At the time of hearing, Ld.AR of the assessee submitted that assessee is not pressing the additional grounds of appeal. Accordingly, these additional grounds of appeal are dismissed as such. Therefore, we shall deal with only main grounds of appeal raised by the assessee 82. We proceed to dispose off this appeal by adjudicating the issues ground wise. 83. With regard to Ground No. 1 which is relating to Transfer Pricing adjustment for adding the notional interest of INR 180,39,60,000 on receivables on account of issuance of NCCRPS, this ground is similar to Ground No. 1 raised by the assessee for the A.Y. 2016-17. Since the issue is exactly similar and grounds as well as the facts are also identical, the decision taken in Ground No. 1 for the A.Y. 2016-17 shall apply mutatis-mutandis to the appeal for the A.Y. 2018-19. We order accordingly. 84. With regard to Ground No. 2 which is relating to Addition on account of disallowance of car lease rentals, (Ground 2.1 to Ground 2.3), this ground is similar to Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lease. Accordingly, this issue also remitted back to the file of the Assessing Officer. Accordingly, this ground is allowed for statistical purpose. 88. With regard to Ground No. 3, it is submitted that assessee has taken cars on Finance Lease from Lessors and subsequently in July 2017 assessee has purchased the vehicles from the lessors. Therefore, assessee has become the owner of the cars and fulfilled the conditions specified under section 32 of the Act, the foreclosure has merely changed the nature of arrangements from that of leasing of vehicles to ownership of vehicles and it is not in dispute that the above said vehicles were used for official/ business purpose. It is also brought to our notice that in the remand proceedings the Assessing Officer has changed the valuation of the cars. However, transaction being between two unrelated parties the actual cost of the assets being entitled for depreciation is the amount actually paid by the assessee, the supporting documents of which is already been submitted to the Ld. DRP as well as Assessing Officer. 89. Ld.AR of the assessee also brought to our notice Page No. 989 to 990 of the Paper Book which is the additional evidences su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation on the said amount in accordance with the provisions of Section 43(6) and Section 43(1) of the Act. 4.4 The claim of the Assessee has been duly considered. It is seen from the Simulation report' that the valuation of car has been done on the basis of 'Discounted Future Rentals and RV as increased by 'Proportionate Interest till termination. A sample example of one of the cars at Annexure 10 is duly examined. The car user is prescribed as 'Krishna Mohan' and the vehicle is 'Vento. A search in google shows that the car price in July, 2017 was between the range of Rs. 10.84 lacs to Rs. 13.43 lacs (copy of screenshot is enclosed for reference). 4.5 It is seen from the 'Simulation Report' that, the assessee has made 'Rental Payment' from July 2017 to August 2019 i.e. for about 27 months, to the tune of Rs. 9,27,554/-. The assessee has further paid an amount of Rs. 8,04,606/- (excluding VAT) while taking over of the car from the finance company. It is thus, considered that the assessee has paid excessively for the takeover of car after a period of about 27 months and its depreciated value has not been considered. The assessee has made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cars which were used by the assessee in its own business under Finance Lease. He submitted that it is fact on record that the finance companies i.e., lessors are not related concerns and it should be considered as independent transactions. 91. On the other hand, Ld. DR submitted that the finance companies are the interested parties and the valuation adopted for the purpose purchase of cars are highly valued and this valuation cannot be accepted and he supported that these vehicles were used in the business of the assessee. Therefore, the depreciation value in the Balance Sheet of the lessor should be the value of vehicles purchased by the assessee and he relied on the order of the lower authorities. 92. Considered the rival submissions and material placed on record, as we have already addressed the issue of Finance Lease at Para Nos. 27 to 30 and as per which assessee has to follow the method of accounting for Finance Lease and as per the method of accounting assessee has to record the value of assets and liabilities in the Finance Lease transactions and Accordingly, the assessee also recorded the same in their books of account. As discussed in the Para nos. 27 to 30 and it was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 14A of the Act, this ground is similar to Ground No. 4 raised by the assessee for the A.Y. 2016-17. Since the issue is exactly similar and grounds as well as the facts are also identical, the decision taken in Ground No. 4 for the A.Y. 2016-17 shall apply mutatis-mutandis to the appeal for the A.Y. 2018-19 also. We order accordingly. 95. With regard to Ground No. 6, relevant facts of the ground are, Assessing Officer observed that assessee has earned rental income from M/s. Gem Photographic India Pvt. Ltd., which is consistently offered as income from house property. During the year, a compensation of ₹.8,69,06,480/- was paid to the tenant for surrendering of their tenancy right and also stamp duty of ₹.43,76,000/- was paid on registration of this deed. Therefore, total amount spent is ₹.9,12,82,480/-. However, the said amount has been added to the block of Building (10%) and the assessee claimed depreciation on the same. Since the period of addition was considered as less than 180 days the depreciation is worked out as 50% of allowable depreciation i.e., ₹.45,64,124/- claimed by the assessee in its profit and loss account. 96. The Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rment to the effect that the said premises was 'put to use' by the assessee for its business purposes is not sufficient and the assessee needs to corroborate the averment with some cogent evidence to show that the said premises was 'put to use' by it for its own business purposes. Therefore, we are not inclined to grant the objection of the ore, we are assessee. Hence the ground of objection no. 7 is rejected. 99. Aggrieved assessee is in appeal before us. At the time of hearing, Ld.AR of the assessee brought to our notice Page No. 39 of the draft assessment order and Page No. 55 of the Ld. DRP order and submitted that the assessee has given on lease a portion of the building on rent to M/s. Gem Photographic India Pvt. Ltd., he submitted that the assessee has given a portion of the building on rent to the tenant and it is fact on record that assessee was holding the possession of the whole building. Since the tenant has vacated the portion of the building the assessee has kept that building with the minimum repairs and made it habitable. He brought to our notice Page No. 147 to 149 of the Paper Book which is the additional evidences filed before Ld. DRP which is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that assessee has spent considerable amount and in order to claim the depreciation assessee has to fulfill the conditions laid down in section 32 of the Act, i.e., assessee should be the owner and should have the control of the assets and also it should have been used for the purpose of business. In the given case the tenancy rights were surrendered at the fag end of the previous year. However, the ownership of the building is still with the assessee and it is not relevant whether assessee occupies the building for the purpose of business or not. It is evident that assessee is owner of the property and it has renovated for the purpose of utilizing the same for its own business, as such assessee is in possession of the building which is under renovation that itself shows that it is under the control of the assessee and it will be used for the purpose of business. Once it has become ready to be occupied by the assessee for running its own business and with that it fulfills the conditions of sec 32, the depreciation is automatically applicable. Therefore, the assessee has claimed only the depreciation for the period after surrender of the tenancy rights by the tenant. Therefore, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its purview Consequently, any income' considered exempt under section 10(38) under the normal tax provisions is regarded as taxable for the purpose of section 115JB of the Act 6. On the reading of clause (0) and clause (ii) it can be derived that the intention of the section is to tax 'any income' exempt under section 10(38) of the Act Therefore, the issue revolves around interpretation Of the term any income as used in sub-section (38) of section 10 from the transfer of long-term capital asset. 7. Provisions of section 48 provide for method Of computation Of income chargeable under long-term capital gains. It is provided that long-term capital gain shall be computed by deducting from full value of consideration received as a result of long term capital asset expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset and the cost of any improvement thereto. It is further provided that the amount in case of long-term capital gain arising from transfer of long-term capital asset, cost of acquisition shall be substituted by indexed cost of acquisition. 8. Therefore, the term 'any income, used in section 10( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of the assessee. Therefore, they added back of ₹.21,98,18,240/- by stating that the benefit of indexation shall not be available while computing the book profits as per provisions of section 115JB of the Act. 104. Aggrieved assessee filed an objection before Ld. Ld. DRP. Before Ld. DRP, assessee reiterated the submissions made before Assessing Officer and it has relied on the decision of the Hon ble Karnataka High Court in the case of Best Trading and Agencies Ltd. v. DCIT [202] (119 taxmann.com 129. 105. After considering the submissions of the assessee Ld. DRP by relying on the decision of the ITO v. Galaxy Saws (P) Ltd., (2011) 132 ITD 236, wherein the ITAT has reiterated that Assessing Officer can only make adjustments specified as per Explanation1 to section 115JB(2) of the Act. The above said proposition is also settled by the decision of the Hon ble Supreme Court in the case of Apollo Tyres Ltd., v. CIT, by relying on those decisions Ld. DRP has rejected the adjustment made by the assessee in the book profits that price difference between the original cost of shares and the indexed cost of shares, accordingly, the objections was dismissed. 106. Aggrieved asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 10(38) of the Act and relied on the decision of Hon ble Karnataka High Court in the case of Best Trading and Agencies Ltd (supra) wherein it was held that indexation benefit should be allowed. It was held that the indexation benefit was allowed for the reason that the assessee company was established as SPV for transfer of Land and Building. Further it was held that indexed cost of acquisition is a claim allowed by sec.48 to arrive at the income taxable as per sec.45 at the rates provided u/s 112. Further, it was held that the assessee has to be given the benefit of indexed cost of acquisition as considering the profits on sale of land without giving the benefit of indexed cost of acquisition results in taking the income other than actual/real income. Since the Hon ble court allowed the indexation while determining the book profit u/s 115JB. Further they relied on the decision of ITAT Bangalore, Karnataka State Industrial (supra), wherein it was held as under: 15. In ground No.2(c) the assessee-company contends that while computing the tax liability u/s 115JB, amount of capital exempt u/s 10(38) should alone be considered. It is the contention of the assessee-company that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion received as a result of long-term capital asset expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset and the cost of any improvement thereto. It is further provided that the amount in case of long-term capital gain arising from transfer of long-term capital asset, cost of acquisition shall be substituted by indexed cost of acquisition. Therefore, the term 'any income' used in sub-section (38) of section 10 of the Act refers to only the amount of long term capital gains computed under the provisions of section 48 which means that the benefit of indexation of cost of acquisition should be given to the assessee while computing long term capital gain for the purpose of section 115JB of the Act. Even the Hon'ble Supreme Court, in the case of Ajanta Pharma v. CIT [2010] 327 ITR 305/194 Taxman 358 in the context of deciding whether amount eligible profits u/s 80HHC or the amount of deduction u/s 80HHC to be deducted from book profits for the purpose of computing u/s 115JB held that it is only the amount of eligible profits which are eligible as deduction from the book profits. The relevant part of the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered for the purpose of tax liability u/s 115JB of the Act. The co-ordinate bench in the case of M.S.R Sons Investments Ltd. v. Dy. CIT [IT Appeal No.769 (Bang.) of 2000, dated 20-05-2005] held while computing capital gains, benefit of indexed cost of acquisition is to be considered for the purpose of computing tax liability u/s 115JB. This decision was appealed by the Revenue before the Hon'ble jurisdictional High Court in ITA No.3189 of 2005 and the Hon'ble jurisdictional High Court by its judgment dated 14th September 2011 had upheld the order of the Tribunal. The same ratio is squarely applicable to the facts of the case. Therefore, the assessee-company is entitled to the benefit of indexation while calculating long-term capital gains which are to be considered for the purpose of computing tax liability u/s 115JB of the Act. This ground of appeal viz. 2(b)is allowed. 111. Respectfully following the above decision, we are inclined to allow the ground raised by the assessee wherein the facts and claim of the assessee in this case also exactly similar. Hence the ground raised by the assessee is accordingly allowed. 112. With regard to Ground No. 9 which is relating to ref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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