9911796707
TMI Blog2024 (7) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... national 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for adding the notional 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-à-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 conta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances of the case and in law, the Hon'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 "pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puting disallowance under section 14A of the Act read with rule 8D of the Rules. 4.5 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit of tax deducted at source as claimed in the return of income amounting to ₹.14,28,61,602 7. Penalty under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from issue of Non-Convertible Preference shares to its associated enterprise. Therefore, assessee believes that it should not be liable to comply with 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -like functionality and he observed that this transaction is in the form of financing with flexibility and value. The capital listed is less expensive than straight equity, yet provides 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15-16(refer paper book page no. 504to 528) wherein it is evident that Cumulative redeemable non-convertible preference shares were issued on 1 December 2015 at par "NCRPS 125,000,000 NCRPS 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the appeal preferred by the assessee in the assessment year 2008-09 vide ITA no.7573/Mum /2012, /etc., dated 25th March 2015, the Tribunal following the decision of the Hon'ble Jurisdictional High Court in Vodafone India Service Pvt. Ltd. (supra) held that 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Transaction" as defined under Section 92B of the Act being entered into by the assessee. • As such, the action of the TPO of treating the alleged transfer pricing adjustment as a deemed receivable is patently erroneous in law. If this approach is followed, then every transfer pricing adjustment would result in a notional loan / receivable between the associated enterprises, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 953] 56 ITR 52 (SC) …………. Nimbus Communications Ltd vs ACIT [2011] 43 SOT 695 (Mum) ………………. Patni Computer System vs DCIT [ITA No 426 & 1131/PN/06 (Assessment Year 2002-03 & 2003-04)] ………… The assessee also wishes to draw your attention towards OECD Guidelines. which states the following: "1.64 A tax administration's examination of a controlled transaction ordinarily should be based on the transaction actually undertaken by the associated enterprises as it has been structured by them, using the methods applied by the taxpayer insofar as these are consistent 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 tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istent with the primary adjustment. Secondary transactions may take the form of constructive dividends, constructive equity contributions, or constructive loans In this regard, we wish to submit the following extracts of the OECD Guidelines: 4.69 The Commentary on paragraph 2 of Article 9 of the OECD Model Tax Convention notes that the Article does not deal with secondary adjustments, and thus it neither forbids nor requires tax administrations to make secondary adjustments. In a broad sense the purpose of double tax agreements can be stated as being for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital. Many countries do not make 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of section 92 of the Act, which do not apply to capital account transaction. Ld. DRP sustained the observation of the Assessing Officer/Transfer Pricing Officer that the current transaction under consideration is covered by Explanation (i)(c) to section 92B of the Act by observing that this transaction is covered under capital financing. Therefore, this transaction is covered under international transaction and required to be benchmarked. With regard to recharacterizing of transaction and adjustment of interest is concerned Ld. DRP discussed the issue in detail in their order at Page No. 111 to 114 of the order with the following observations: - "2) Whether the re-characterization of transaction and adjustment of interest is permissible for 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 loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e money in another unrelated company for no return. Then, it is essential for the transfer pricing machinery of the country to set it right. This very essence of transfer pricing is embedded in section 92F(ii) of the Act. f) The very concept of transfer pricing is that the transactions have to be looked into by removing the related-party nature. Whether two independent unrelated entities would have entered into such transaction? This is the vital question to be addressed in transfer pricing. The answer here is 'no', as no independent entity would have parked such huge sums for no return in a negative net-worth company. If the answer is 'no', then it calls for transfer pricing adjustment to address the base erosion for this country. g) The assessee has taken an argument 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 ess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gth by the Hon'ble Delhi High Court (at para 18) in this decision as under. 18 Two exceptions have been allowed to the aforesaid principle and they are (1) where the economic substance of a transaction differs from its form; and (i) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner" Therefore it is held that, the transaction treated as loan by TPO is clearly an International Transaction and required to be bench marked as per the provisions of Chapter X of the IT Act and the rules framed there under and TPO has rightly benchmarked the same using Other Method as Most Appropriate Method. Accordingly the objection raised by the assessee on this 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar facts were involved. He brought to our notice facts of the case wherein assessee has issued equity shares to its holding company and even in this case the Transfer Pricing Officer has re-characterized sale of equity shares as long term loan to the AE without charging any interest. He also brought to our notice the ratio of this case wherein it was held that difference between market price of equity shares and the face value of the shares was treated as deemed loan to the AE. Accordingly, ITAT deleted the addition made on account of notional interest on such deemed loan. He prayed that in the given case the issue of issue of non-convertible preference shares whereas in the above said decision the issue involved is transfer of equity shares and recharacterization of such equity shares in the loan transactions. He submitted that the case of the assessee is in 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 va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Vodafone India Services Private Limited (supra) wherein the Hon'ble Bombay High Court has dealt with the issue of shares with premium and held that such premium will not fall under the category of any income defined under the Income Tax Act (i.e., Sections 4, 5 ,15, 22, 28, 45 and 5b. In our view, the ratio of the above decision has no relevance to the issue in hand in which the TPO has not treated the mere issue of share capital as income of the assessee but treated the transaction as capital finance. In the given case Transfer Pricing Officer has treated the issue of non-convertible preference shares as quasi equity and he proceeded to adopt the market value of equity shares as on the date of issue of the above said preference shares which is at ₹.205.45. We are in agreement with the findings of TPO that it is an international transaction which falls 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer, however, treating the value of the above preference shares which was issued at par with the value of equity shares, in our view, is not proper and at the outset we reject the same. Therefore, it can never be treated as part of equity share capital considering the fact that it is non-convertible. In case it is issued on convertible basis, to certain extent, we could have treated as part of capital which will be converted in the near future. Still, till such conversion, the preference shares can never take the place of equity shares. Therefore, the valuation adopted by Transfer Pricing Officer @₹.205.45 is not acceptable and unjustified. However, it can be treated as capital financing and the bench marking has to be done on the cost of employing the capital in the business like any other capital instruments. In this case, it is issued as non convertible 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Therefore, 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 Assessing Officer / Transfer Pricing Officer to benchmark the same and determine the ALP i.e., the difference of dividend of 8.5% and the LIBOR rate as 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 rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lessee is obligated to the return the asset to the lessor; • The lessor will have the right of inspection of the asset at all times. 2.4 In the instant case, the Appellant does not have any ownership rights over the asset during the lease tenure. The amount paid was not for acquiring any leasehold right. The lessor is exclusive owner of the asset at all points of time. The lease rentals are paid by the lessee to the lessor and thereby, the lessee is eligible to claim deduction under section 37(1) of the Act. 2.5 The Appellant would also like to place reliance on the following additional judicial precedents claiming allowability of lease rentals as a revenue expenditure under section 37(1) of the Act, even though the lease was categorized as finance lease: • Rajshree Roadways vs. Union of India [2003] 129 Taxman 663 (Raj. HC) • CIT vs. Banswara Synthetic Ltd. [2013] 216 Taxman 113 (Raj HC) • M/s Rak Ceramics 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the claim of the assessee that the payments are revenue in nature and incurred wholly and exclusively for the purpose of business. However, Assessing Officer and Ld.DRP held that the assessee makes payments of lease rentals during the tenure of the lease which has two portions one towards interest and another towards capital repayment of principal value of assets. After considering the similar submissions that assessee is not the owner and assessee has to return the assets after the completion of the lease period, tax authorities held that the assessee has claimed portion of principal amount of the installment paid against the assets taken on Finance Lease. Therefore, the principal amount component is a capital in nature and is not allowable as revenue expenses under section 37(1) of the Act. 28. Before we proceed further, let us understand the Lease transaction and its recording in the books as per Accounting Standard, the leases are classified as Finance Lease and 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 le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to pay for that right an amount approximating at the inception of the lease, the fair value of assets and related finance charges. Therefore, for a Finance Lease, both assets and the obligation/liability to pay for future lease should be recognized in the assessee's Balance Sheet. Therefore, the liability recognized in the Balance Sheet is only towards the obligation to pay the lease rentals. However, the assets value recognized in the Balance Sheet is eligible to claim as depreciation as per IND AS-17. Therefore, the assessee is eligible to claim the value of assets as recognized in the Balance Sheet which include both finance as well as principal amount of the assets capitalized in the Balance Sheet. Therefore, the Lessee accepted to recognize both finance commitment as well as value of assets in their Balance Sheet being deemed owner of the property as per the terms of Finance Lease. 31. From the above discussion, we have discussed the various aspects of recognizing the 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 le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AS 19 of ICAI. For the sake of clarity, the relevant note forming part of Financial Statement is reproduced below: - 34. From the above two depreciation schedules, the assessee has recognized the finance charges and also claimed the depreciation based on Schedule rates on the Vehicles as per Companies Act. Further, it has also calculated the depreciation as per Income Tax on the Vehicles. 35. Till this there is no issues, however, for the purpose of Income tax computation, assessee added the depreciation on the vehicles acquired on finance- lease and claimed as deduction the payment of principal portion. This is where the whole issues crept up. In our view, the method adopted by the assessee is not proper and the proper method would be only to claim the depreciation as per Income tax as calculated at 152 of paper book as stated above. However, in our view, the assessee has to explain the various values declared in the depreciation schedule as well as the value adopted in the Computation sheet 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 stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o employees and exercises prices of the ESOP is recognized equally over the vesting period of ESOP. This is in accordance with the guidelines and accounting principle laid down by SEBI for listed entities. If the expenditure is laid out or expended fully for the purpose of business and it is claimable revenue expenditure under section 37(1) of the Act. Further, it was submitted that the discount on issue of ESOP is one of the mode of compensation to employees for their services and they have relied on the decision of the Special Bench of the Bangalore in the case of Biocon Ltd. v. DCIT [2013] 35 taxmann.com 335) and other Tribunal orders. Further, assessee also made a further claim of ₹.2,48,85,009/- for grant of ESOP to the employees and the same was not claimed in the return of income and the details of additional claim was submitted before Assessing Officer. 38. After considering the submissions of the assessee, Assessing Officer 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India (ICAI) and SEBI the main objective to issue an ESOP share or say sweat equity share is to remunerate the employee for, his past services, for making available intellectual property rights to the employer However, due to the issue of ESOP the rights of the existing shareholders get diluted and therefore there is a need to compensate such dilution by creating an artificial reserve. The only resource available with any company is the corporate profits. Hence the ICAI and SEBI have suggests to create such reserve from the current profits earned by the company. The methodology to be adopted as suggested by ICAI and SEBI to compute the quantum of reserve is the difference between market value as computed under SEBI rules on the date of grant and the price at which the shares are issued to the employees in order to compensate the payout obligation which might arise on ESOP shares either at buyback or at liquidation. 9.10 Allowability of ESOP expense in the income Tax Act- There is no specific section under which ESOP 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n expenditure In the case of Indian Mollasses Co Pvt Ltd Vs CIT 37 ITR 66, CIT VS Nainital Bank Ltd 62 ITR 38, it is held that what denotes expenditure in the normal course as spending paying out or away of money Accordingly ESOP cannot be held as expenditure of me assessee. 9.15 The above views of Delhi ITAT in the case of Ranbaxy (supra) were also pheld subsequently by the following judicial courts: • Hyderabad ITAT in the case of Medha Servo Drivers Limited ITA No 1114/Hyd/2008. Mumbai Tribunal in the cases of: • DCIT Vs Blow Plast Limited ITA No 512/Mum/2009. • Mahindra & Mahindra Vs DCIT ITA No 8597/Mum/2010. • M/s VIP Industries Vs DCIT ITA No 7242/Mum/2008 39. Aggrieved with the above order assessee preferred objection before Ld. DRP and filed the detailed submissions before Ld. DRP. Ld. DRP followed the findings of the proceedings for the A.Y. 2015-16 and in order to keep the issue alive, they have rejected the submissions of the assessee and further, they observed that the decision of the Special Bench of the ITAT is pending before the Hon'ble Karnataka High Court and it was admitted and pending for adjudication. 40. Aggrieved with the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the passing of the order of the Ld. DRP the Hon'ble Karnataka High Court in the case of CIT v. Biocon Ltd -21 taxmann.com 351 has upheld the finding of the Special Bench Tribunal in the case of CIT v. Biocon Ltd (supra). The relevant finding of the Hon'ble Karnataka High Court is reproduced as under: 6. We have considered the submissions made by learned counsel for the parties and have perused the record. The singular issue, which arises for consideration in this appeal is whether the tribunal is correct in holding that discount on the issue of ESOPs i.e., difference between the grant price and the market price on the shares as on the date of grant of options is allowable as a deduction of the Act. Before proceeding further, it is apposite Section 37(1) of the Act, which reads as under: Section 37(1) says that any expenditure (not being expenditure of the nature described in nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, "Profits and Gains of Business or Profession". 7. Thus, fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of Section 37(1) of the Act. The primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of capital The tribunal therefore, in paragraph 9.2.7 and 9.2.8 has rightly held that incurring of the expenditure by the assessee entitles him for deduction under Section 37(1) of the Act subject to fulfillment of the condition. 11. The deduction of discount on ESOP over the vesting period is in accordance with the accounting in the books of accounts, which has been prepared in accordance with Securities And Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. 12. So far as reliance place by the revenue in the case of CIT VS. INFOSYS TECHNOLOGIES LTD is concerned, it is noteworthy that in the aforesaid decision, the Supreme Court was dealing with a proceeding under Section 201 of the Act for non deduction of tax at source and it was held that there was no cash inflow to the employees. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w: - "16. We have heard rival submissions of the parties and perused the relevant material on record. We find that the LdDRP has rejected the additional claim mainly on the ground that proceedings before the Ld. DRP are in continuance of the assessment proceedings and not in the nature of appellate proceedings and therefore, the Ld. DRP was not authorized to admit such a additional claim otherwise then by revised return of income However, the Tribunal being appellate authority is entitled to admit such a claim if same is purely being legal in the nature and n investigation of the fresh facts is required. Before us, the Ld. Counsel of the assessee has filed all details in respect of claim and submitted that all such details were filed before the Ld. DRP and therefore, same are available on record. In view of the facts and circumstances, we admit this claim of the assessee relying on the decision of the Hon'ble Bombay High Court in the case of CIT v. Pruthvi Brokers & Shareholders (ITA No. 3098/2010) and restore the matter back to the file of the Ld. Assessing Officer for examining the claim in accordance with law after verifying the documentary evidence submitted by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... • CIT v. Hero Cycles Ltd. (323 ITR 518) (P&H HC) (2010) • Yatish Trading Co. (P.) Ltd. vACIT (129 ITD 237) (Mum ITAT) (2011) • Justice Sam P. BharuchavACIT (53 SOT 192) (Mum ITAT) (2012) • Principal Commissioner of Income tax- IL&FS fax -04 v IL & FS Energy Development Co Ltd (84 taxmann.com 186) (Delhi HC) (2017) 2. It is therefore emphasized that our company has not incurred any direct expenditure to earn the dividend income during the captioned assessment year, hence, no disallowance should be made as per the provisions of section 14A. 3. Further, we would like to submit that the onus is on the department to prove that any expenditure was incurred for earning tax free income. The burden of proof or onus in this regard would lie on the AO, not only to show that some expenditure was factually incurred but also to show its relationship with the income exempt from taxIn the regard, reliance is placed on the following legal precedents: • WIMCO Seedlings Ltd. Vs Dy.CIT [2007] 109 TTJ 462 (Del) (TM) "It has been held in this case that burden would lie on the AO not only to show that some expenditure was factually incurred, but also to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(ii) would not apply. 2. Without prejudice to the above, our company contends that no disallowance under section 14A of the Act is warranted on account of the following: 1. Our company contends that while considering the average value of investment, for the purpose of calculation of disallowance under section 14A read with rule 8D(iii) of the Income-tax Rules, 1962, only those investments are to be considered that have yielded exempt income and not those investments that did not yield any exempt income during the year. Reliance in this connection is placed on the decision of Hon'ble Kolkata Tribunal in the case of REI Agro Ltd v Deputy Commissioner of Income tax, Central Circle-XXVII [2013] 35 taxmann.com 404 has held that disallowance under rule 8D(i) can be computed only by taking into consideration average value of investment appearing in balance sheet as on first and last day of previous year from which income not falling within total income has been earned. 2. Further, the company would like to submit that the provisions of section 14A read with Rule 8D is not applicable to the company. Reliance in this connection is placed on the decision of Hon'ble Delhi ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure, the disallowance made by applying Rule 8D of I.T.Rules are erroneous relying on the CBDT Circular and also objected that amended Rule 8D are applied in the case of assessee and amended Rule are applicable prospectively and further, submitted that Rule 8D should be restricted to the investments which has given rise to exempt income. After considering the submissions of the assessee Ld. DRP rejected the submissions of the assessee and sustained the additions proposed by the Assessing Officer. 51. Aggrieved assessee is in appeal before us raising the issue. At the time of hearing, Ld.AR of the assessee brought to our notice findings of the Assessing Officer at Page No. 33 of the final assessment order and he submitted that Assessing Officer has determined the disallowance applying the annual average of the value of investment without eliminating the value of investments which has not yielded any dividend and he prayed that this issue may be remitted back to the file of the Assessing Officer for proper disallowance by removing the investments which has not yielded any dividend income. 52. On the other hand, Ld. DR relied on the order of the lower authorities. 53. Considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer to verify the claim of the assessee and allow the same as per law. Accordingly, this ground of appeal is allowed for statistical purpose. 57. With regard to Ground No. 7 which is on penalty levied under section 271(1)(c) of the Act, which is premature ground raised by the assessee at this stage, accordingly, this ground is dismissed as such. 58. With regard to Ground No. 8 which is relating to levy of interest under section 234B which is consequential in nature, accordingly, this ground is also dismissed. 59. In the result, appeal filed by the assessee is partly allowed as indicated above. ITA No. 752/MUM/2022 (A.Y. 2017-18) 60. Assessee has raised following grounds in its appeal: - "1. Transfer Pricing adjustment for adding the notional interest of INR 2,42,96,87,813 on receivables on account of issuance of NCCRPS (Ground 1.1. to Ground 1.10): 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 2,42,96,87,813/- on deemed receivables which is overdue for the difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tfall arising on account of alleged transaction as a nature of debt/receivable in the hands of the Appellant, thus creating a notional transaction 1.6. On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in making secondary adjustment that is not permitted under the Indian regulations for the year under consideration ie. AY 2017-18. 1.7. On the facts and circumstances of the case and in law, the Hon'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. 1.8. On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in mechanically relying on observations and conclusions made during the transfer pricing assessment of AY 2016-17 with respect to issuance of NCCRPS and have not examined evaluated the matter afresh in AY 2017-18. This demonstrates pre- determined mindset to make t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO erred in law and in facts in making and addition of Rs. 11,57,22,000 as income under section 68 of the Act for depositing cash in SBN in bank accounts during demonetization period; 2.4 On the facts and circumstances of the case, the Ld. AO failed to appreciate the source and nature of cash deposited during demonetization period which was on account of normal cash balances maintained during demonetisation period and record his satisfaction based on the submissions, 2.5 On facts and circumstances of the case, the Ld. AO failed to appreciate that the cash deposit in SBN during the demonetisation period was on account of the following: • Collection from customers arising in the normal course of business pre demonetisation period. • Cash withdrawal from bank accounts required for maintaining cash balance at branches as foreign exchange dealer. • Petty cash requirements of branches all over India. 2.6 On facts and circumstances of the case, the Ld. AO failed to bring anything on record to prove that cash in SBN deposited in bank accounts are out of unaccounted and unexplained income of the Assessee. 2.7 On facts and circumstances of the case, the Ld. AO f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granting refund of excess DDT paid of ₹.1,43,14,573/- to the appellant in respect of dividend of ₹.9,32,08.092/-paid to FCML, 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. 5.3 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. 5.4. 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-O of the Act. 5.5. 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. 5.6. erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addition of ₹.11,57,22,000/- under section 68 of the Act in respect of cash deposit in Specified Bank Note (SBN) during demonetization period, brief facts relating to the ground are, during the course of assessment proceedings Assessing Officer observed that assessee had deposited cash amount of ₹.11,57,22,000/- during demonetization period i.e., from 08.11.2016 to 31.12.2016 and the assessee was asked to furnish copy of bank statements of relevant bank accounts during the demonetization period and also assessee was asked to submit the cash deposits during the financial year 2015-16 and 2016-17 as per the format given in show cause notice issued under section 142 of the Act. However, assessee did not made any submissions or reply to the above show cause notice and several opportunities were given to the assessee as discussed by the Assessing Officer at Para No. 5.1 of his order. Therefore, Assessing Officer came to the conclusion that the total cash deposited during the demonetization period was generated in specified bank notes is treated as unexplained and out of unaccounted income of the assessee for the year under consideration, accordingly, he proceeded to make the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s payment in INR or out of balance in EEFC account for purchase of foreign currency or vice versa for sale of foreign currency. v) An acknowledgement on A2 form & bordereaux duly signed by the corporate customer is filed along with all hard copies of documents. 7.2.3 Based on above, the assessee has claimed that it maintains adequate trail of information/ documents to substantiate the source of INR cash generated into the system and also that there are enough checks and balances into the system. Thus, submitting that the operations are also governed by RBI regulations which are duly complied by the Assessee, the assessee, has argued that the proposition that the assessee is not able to substantiate the source of cash is ill-founded. 7.2.4 The assessee has submitted that the Cash deposited by the Assessee during the demonetisation period is on account of normal cash balances maintained at various branches as foreign exchange dealer and collection from customers in normal course of business pre demonetisation period and that the Assessee had deposited cash amounting to Rs. 11,57,22,000 at 39 bank accounts across all branches in India, as per the instruction given by the governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment proceedings, however, of cash book and bank account statements could not be submitted due, the data being voluminous, the Assessee had to collate information from various sources and due to restrictions imposed by the state government on account of rising COVID-19 cases in Mumbai Area, the Assessee's offices were closed hence, it was difficult to compile the details from various source during such period. 7.2.9 Further the Assessee has submitted that books of account and the financial statement of the Assessee is audited, the transactions are verified by the Auditors, hence, the provisions of section 68 should not be applied in the present case. Reliance placed on the Hon'ble Patna High Court's decision in the case of Laxmi Rice Mills v CIT [1974] 97 ITR 258wherein it is held that when books of accounts of assessee were accepted by revenue as genuine, and cash balance shown therein was sufficient to cover high denomination notes held by assessee, assessee was not required to prove source of receipt of said high denomination notes which were legal tender at that time. 67. After considering the detailed submissions Ld. DRP observed that assessee is a lead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before us. At the time of hearing, Ld.AR of the assessee brought to our notice Page No. 18 of the Ld. DRP order and explained the nature of business of the assessee and submitted that cash received from customers for foreign exchange purpose and tour related services is deposited into bank accounts regularly by all branches / outlets all over India and the modus operandi of the assessee business operation as authorised dealer which was explained before Ld. DRP are reproduced at Para No. 18 of the Ld. DRP order. He also brought to our notice detailed submissions made by the assessee before Ld. DRP that assessee has submitted the cash deposits by it during demonetization period on account of normal cash balances maintained at various branches as foreign exchange dealer and collection from customers in normal course of business pre demonetization period and the Assessee had deposited cash amounting to ₹.11,57,22,000 at 39 banks of various branches across all branches in India, as per the instruction given by the government under the demonetization policy and he also brought to our notice that assessee has submitted details as called for by the Assessing Officer for the F. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic in nature i.e., the cash deposited during financial year 2015-16 which was bifurcated into cash deposited in bank from 01.04.2015 to 08.11.2015 and cash deposited from 09.11.2015 to 30.12.2015. Similarly, for financial year 2016-17 with the same break up. Based on the above details of cash deposits it was noticed that there is variation of only 2.03%. In our considered view it is just a general information submitted before Assessing Officer, no doubt this is how the Assessing Officer has called for the information. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, this issue is consequential in nature, accordingly, this ground is dismissed at this stage. 78. In the result, appeal filed by the assessee is partly allowed as indicated above. ITA No. 2541/MUM/2022 (A.Y. 2018-19) 79. Assessee has raised following grounds in its appeal: - "1. Transfer Pricing adjustment for adding the notional interest of INR 180,39,60,000 on receivables on account of issuance of NCCRPS (Ground 1.1. to Ground 1.10): On the facts and in the circumstances of the case, and in law, the Learned Assessing Officer/Transfer Pricing Officer ('Ld. AO') Ld. TPO), following the directions of Hon'ble Dispute Resolution Panel ('Hon. DRP), erred in recharacterizing the issuance of Non- convertible Cumulative Redeemable Preference Shares ('NCCRPS) as quasi equity, and thereby erred in treating the difference of the market price of the equity share of the appellant as on the date of issuance of NCCRPS vis-à-vis the face value of NCCRPS as a deemed loan. The Ld. AO') Ld. TPO thus erred in confirming the transfer pricing adjustment of INR 180,39,60,000, being notional interest on aforesaid deemed loan (hereby referred as 'alleged ..... 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 adopting an ad-hoc and arbitrary approach in determining the interest rate to be imputed on the deemed receivable as determined by the Hon. DRP/Ld. AO/ Ld. TPO. without undertaking a benchmarking analysis. An interest rate of 9.945% was determined based on the stray interest rates on redeemable NCDs issued by the Appellant. 1.7. The Hon'ble DRP/Ld. TPO/AO erred in not taking cognizance of the fact that during the year under consideration i.e. in AY 2018- 19, the appellant redeemed 125,000,000, 8.5% Nonconvertible Redeemable Preference Shares of INR 10 each that were issued at par during FY 2015-16 and accordingly the action of the Hon'ble DRP/ Ld.AO/TPO in treating interest on notional income on issue of NCCRPS is contrary to the facts of the case and should accordingly be deleted. 1.8. On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in mechanically relying on observations and conclusions made during the transfer pricing assessment of AY 2016-17 and AY 2017-18 with respect to issuance of NCCRPS and have not examined/ evaluated the ma ..... 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 erred in interpreting the provisions of Section 43(6) of the Act by holding that the depreciated value of the vehicles in the balance sheet of the lessor (i.e. seller) ought to be taken as the cost of acquisition of the said vehicles to the Appellant for the purposes of computing depreciation under Section 32 of the Act, as against the actual cost incurred by the Appellant for acquisition of the said vehicles. 3.3. On the facts and in the circumstances of the case and in law, the LD. DRP erred in not considering the submission filed by the Appellant during the course of proceedings before the Ld. DRP outlining the provisions of Section 43(6) read with Section 43(1) of the Act, as to why claim of depreciation under Section 32 should be granted on the amount actually paid by the Appellant to the sellers. 4. Addition on account of expenditure on Employee Stock Option Plan (ESOP) (Ground 4.1 & 4.2): 4.1. On the facts and in the circumstances of the case and in law, the Ld. DRP / the Ld.AO erred in not granting deduction of Rs 6,12,20,000 in respect of expenditure relating to ESOP under Section 37(1) of the Act by simply following i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, which is a complete code in itself. 8. Addition on account of disallowance while computing the book profits under section 115JB of the Act (Ground 8.1 & 8.2); 8.1. On the facts and in the circumstances of the case and in law, the Ld. DRP/ the Ld.AO erred in adding an amount of Rs. 21.98,18,240, representing the difference between the original cost of shares and the indexed cost of shares while computing the book profits in accordance with section 115JB of the Act. 8.2 On the facts and in the circumstances of the case and in law, the Ld. DRP/ the Ld.AO erred in making the said adjustment in spite of decision of the Hon'ble Kamataka High Court in the case of Best Trading and Agencies Ltd v. DCIT, Circle 11(2), Bangalore [2020] (119 taxmann.com 129), which squarely applies to the facts of the Appellant, wherein the said claim was allowed by the Hon'ble Karnataka High Court. 9. Refund of excess Dividend Distribution Tax On the facts and in the circumstances of the case and in law, the Hon. DRP and the Ld. AO: 9.1. erred in not appreciating that the DDT amounting to Rs. 1,87,71,184 paid by the appellant in relation to the dividend of Rs. 9,22,07,027 paid t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest under section 234B of the Act 13.1. On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest of Rs. 7,44,40,051 under section 234B of the Act. 14. Levy of interest under section 234C of the Act 14.1. On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest of Rs. 1,74,49,212 under section 234C of the Act. 15. Levy of interest under section 234D of the Act 15.1. On the facts and in the circumstances of the case and in law, the Ld. AO erred in charging interest of Rs. 19,41,750 under section 234D 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 Hon'ble Tribunal members to decide these according to the law." 80. 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 31 July 2022 passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds claim of principal lease payment of Finance Lease an amount of ₹.1,46,28,472/- instead of lease deposit and he treated the same as principal lease payment and disallowed both the amounts. Aggrieved assessee filed an objection before Ld. DRP and Ld.DRP has considered the submissions of the assessee and acknowledged that assessee has claimed ₹.12,63,186/- and ₹.1,46,28,472/- on account of principal lease payment of Finance Lease and lease deposit and they also acknowledged that assessee has suo moto disallowed an amount of ₹.1,34,05,125/- out of lease deposit. In this regard, he submitted that even Ld. DRP has misunderstood that assessee has claimed ₹.24,86,533/-. In this regard he brought to our notice Page No. 295 of the Paper Book which is computation of income for the purpose of tax. He brought to our notice the assessee added the inadmissible amount i.e., lease deposit expenditure of ₹.1,34,05,125/- and deducted the admissible lease deposited income of ₹.1,46,28,472/- in the net result assessee has actually claimed expenses of ₹.12,23,347/-. Therefore, as per the directions of Ld. DRP, if it is implemented, it amounts to double ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opted by the assessee which is based on discounted future rentals and they dismissed the objections by observing as under: - "8.3.2 Keeping in view the report submitted by the AO, the additional evidence submitted by the assessee are admitted and the report submitted by the AO is also taken into consideration for deciding the issue. In his report the AO has submitted as under: Disallowance in respect of depreciation on vehicles: 4.1. The Assessee has submitted that it has paid an aggregate amount of Rs. 5,19,25,798 to its lessors towards purchase of vehicles and accordingly capitalized the said amount in its books of accounts. The Assessee has placed on record following additional evidence. 4.2 Policy for entitlement of cars(Pg. No. 32 to 46 of application for Additional Evidence (DRP) dated 25 April 2022);List of Assessee's offices/ branches across the country (Pg. No. 47 to 50 of application for Additional Evidence (DRP) dated 25 April 2022); List of employees to whom cars have been provided(Pg. No. 51 to 52 of application for Additional Evidence (DRP) dated 25 April 2022); • Copy of the statement showing the employee-wise details of the foreclosure amount pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cars are considered highly excessive. The Hon'ble DRP may kindly decide the matter on merits and facts as explained above. 4.2 Disallowance in respect of depreciation on vehicles: The AO has submitted that on the basis of the facts and absence of any valid valuation report, the payments made towards to the cars are considered highly excessive. 8.3.4 In our considered view, we find that the assessee has been able to demonstrate that the cars under question were used for business purposes and the depreciation is admissible to the assessee on the same as per the provisions of the Act. However, we are of the considered opinion that the depreciated value of the cars in the balance sheet of the lessor (now seller) at the time of the transfer of the asset (cars) ought to be taken as the cost of acquisition to the assessee and depreciation need to be restricted as per this cost of acquisition as per the provisions of section 43(6)(b) of the Act, because the cars have only changed ownership from the lessor to the assessee. Therefore, the ground of objection no. 4 is disposed off accordingly." 90. Aggrieved assessee is in appeal before us and at the time of hearing, Ld. AR submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assets along with the penalty if there is any as per the lease agreement. Therefore, we are directing the Assessing Officer to adopt the value as per the Balance sheet and reject the valuation submitted by the assessee. Still the Assessing Officer has to verify the recording of lease transaction and relevant adoption of depreciation claim as per the law and adopt the same here for the value for recognizing the value for foreclosure, as such there should not be any difference to the value in the depreciation schedule. Therefore, the controversy of valuation of vehicle will be addressed and the value of assets as on the date of foreclosure in the Balance Sheet of the assessee will be the actual value as per depreciation schedule on the date of foreclosure. Therefore, this ground of appeal also remitted back to the file of the Assessing Officer to determine the value of assets for the purpose of Finance Lease in the books of accounts of the assessee. Accordingly, we also direct the assessee to determine the value of assets in its books of accounts as per AS-17 of the IND-AS and it is needless to say that the Assessing Officer may extend opportunity of being heard to the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted to substantiate the claim. Further, he observed that compensation was paid in February 2018 and the surrender deed does not provide any specific date of eviction of tenant although the deed does state that the possession shall be handed over upon execution of surrender deed. The assessee must have conducted certain modifications in the premises to make it conducive to conduct its business. Such modifications / renovation generally takes a period of two to three months which would fall beyond March 2018. Accordingly, Assessing Officer observed that it is not possible for the assessee could have put to use in its business on or before 31.03.2018. Accordingly, he disallowed the depreciation claimed by the assessee for the current year. 98. Aggrieved with the above order assessee preferred objection before Ld. DRP and before Ld. DRP assessee made detailed submissions. After considering the detailed submissions Ld. DRP rejected submissions of the assessee and submitted as under: - "We have considered all the material placed before us. We have considered the relevant facts and circumstances attending to the issue, including the fact that the said premises was acquired at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and was occupied by the assessee on immediate basis. When the assets are in a ready to use condition from the date of occupation by the assessee depreciation can be claimed. 100. On the other hand, Ld. DR relied on the order of the lower authorities. 101. Considered the rival submissions and material placed on record, we observe from the record that the tenant has vacated the portion of office premises and the assessee has occupied the building and claimed the depreciation for the period of reoccupation by the assessee. The Assessing Officer and Ld. DRP was of the view that immediate surrender of tenancy rights at the fag end of the previous year and it may not be possible for the assessee to put to use for its business purposes. The assessee has submitted auditor certificate certifying that assessee has incurred certain expenditure on the building and occupied the same for the purpose of business, as per record, it is also acknowledge by the Ld.DRP. However, the Ld. DRP was of the view that the premises was inhabitable and it would require some expenditure or activity to bring it in the category of asset which have been put to use by the assessee in its business, hence they re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the book profits under section 115JB of the Act, during the course of assessment proceedings Assessing Officer observed that assessee has reduced an amount of ₹.21,98,18,240/- from its book profits and the said item was reduced as others. The assessee was asked to substantiate the above reduction, in response assessee submitted as under: - "During the captioned assessment year, our company Thomas Cook (India) Limited (TCIL), had sold shares of Quess Corp Limited being a listed entity. The company has reduced an amount of Rs. 21,98, 18,240/- from the book profits for computation of MAT. Your good self has requested us to show cause why Rs. 21,98, 18,240/- reduced from Book Profits while computing MAT on account of indexation benefit on long term capital gains, should not be added back to book profits. In this regard, our company submits as under: 1. The company has earned long term capital gains on sale of shares of listed entity amounting to Rs. 5,35,36,03.045- Such capital gains are exempt as per the provisions of section 10(38) of the Income tax Act, 1961 (the Act) for computing tax under normal provisions of the Act. 2. Under MAT, However, such exempt incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcle 11(2), Bangalore [2020] (119 taxmann.com 129) (Karnataka HC) (ii) M.S.R & Sons Investments Ltd (ITA No 3189 of 2005) (Karnataka HC) (iii) Karnataka State Industrial Infrastructure Development Corporation Limited vs Deputy Commissioner of Income tax TAXD15) (2016) (76 taxmann.com 360) (Bangalore Tribunal) 1. In view of the above judicial precedents, the company submits that the term 'income' as appearing under the provisions of section 115JB Act refers to long term capital gains as computed as per the computation mechanism provided under the Act i.e. giving effect to section 48 of the Act and thus, the company shall be entitled to the benefit of indexation. 2. Accordingly, our company has computed the capital gains on sale of shares of listed company Of Rs. 5, 13,37 after giving effect to indexation and offered such gains under MAT 3. The profit on sale of listed shares considered in the books of accounts without giving effect to indexation is Rs. Accordingly, the differential amount of Rs. 21.98, 18,240/- has been reduced from the book profits to give effect to the indexation benefit. Your good self will appreciate that the above position i.e. negating prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view has been accepted by the Karnataka High Court in the case of Best Trading and Agencies Ltd. v. DCIT (119 Taxmann.com 129) wherein the Karnataka High Court has after considering the decision of the Apex Court in the case of Apollo Tyres Ltd v CIT [255 ITR 273] has allowed the claim of the Assessee of indexation while computing book profit. 107. Further, reliance is placed on the decision of the coordinate bench of the Tribunal in the case of Karnataka State Industrial Infrastructure Development Corporation Ltd v. DCIT [76 taxmann.com 360 (Bang)]. The Assessee submits that even as per clause (ii) of Explanation 1 to section 115JB of the Act, indexation is required to be allowed to the Assessee. Clause (ii) of Explanation 1 reads as under- "the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the (statement of profit and loss);" 108. In view of the aforesaid, the Assessee submits that firstly, the whole of the amount of capital gains as credited in the profit and loss account i.e. without indexation is the amount of income t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital gain without indexing the cost of acquisition are to be considered for the purpose of computing tax liability u/s 115JB of the Act. 16. Clause (ii) to Explanation to section 115JB lays down that the amount of income to which provisions of section 10, other than provisions of sub-section (38) of section 10 or sections 11 and 12 if any such amount is credited to P&L A/c shall be reduced from the book profits for the purpose of computing tax liability. The provisions of section 10(38) read as under: "10(38) any income arising from the transfer of a long-term capital asset, being equity share in a company or a unit of an equity oriented fund where -- (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No.2)Act,1004 comes into force. (b) such transaction is chargeable to securities transaction tax under that Chapter: Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB. Explanation : For the purposes of this clause, "equity oriented fund" means a fund -- (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed under clause (a) or clause (b) or clause (c) of subsection (3) or sub- section (3A) as the case may be, is subject to the conditions specified in that Section, http://www.itatonline.org According to the Department, the assessee herein is trying to read the various provisions of Section 80HHC in isolation whereas as per clause (iv) of Explanation to Section 115JB, it is clear that book profit shall be reduced by the amount of profits eligible for deduction under Section 80HHC as computed under clause(a) or clause(b) or clause(c) of subsection (3) or sub-section (3A), as the case may be, of that Section and subject to the conditions specified in that Section, thereby meaning that the deduction allowable would be only to the extent of deduction computed In accordance with the provisions of Section 80HHC. Thus, according to the Department, both "eligibility" as well as "deductibility" of the profit have got to be considered together for working out the deduction as mentioned in clause (iv) of Explanation to Section 115JB. We find no merit in this argument. If the dichotomy between ''eligibility" of profit and "deductibility" of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply mutatis-mutandis to the appeal for the A.Y. 2018-19. We order accordingly. 113. With regard to Ground No. 10 which is relating to penalty under section 270A of the Act, this issue is premature at this stage, accordingly, the same is dismissed. 114. With regard to Ground No. 11 which is relating to short grant of TDS credit, this ground is similar to Ground No. 6 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. 6 for the A.Y. 2016-17 shall apply mutatis-mutandis to the appeal for the A.Y.2018-19. We order accordingly. 115. With regard to Ground No. 12 which is relating to Non- grant of TDS credit, at the time of hearing Ld AR submitted that Assessing Officer has not granted the TDS credit in its account and he prayed that this issue may be directed to Assessing Officer so that the proper credit may be granted after proper verification and Ld DR has not made any objection, therefore, we are also inclined to remit this issue back to the file of AO to verify the claim of the assessee as per law and after due verification, the same may be allowed. Accordingly, this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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