ITAT allows transfer pricing relief, Section 43B deductions for successor company, MAT credit carryforward, deletes Section 56 additions

Convergys India Services Pvt. Ltd. Versus DCIT, Circle-4 (2), New Delhi

Convergys India Services Pvt. Ltd. Versus DCIT, Circle-4 (2), New Delhi - TMI Issues Involved:
1. Validity of the assessment order.
2. Upward adjustment for notional interest on outstanding receivables.
3. Deduction under Section 43B.
4. MAT credit under Section 115JAA.
5. Addition under Section 56(2)(viia) for purchase of equity shares.
6. Granting of TDS and Advance Tax Credit.

Detailed Analysis:

1. Validity of the Assessment Order:
The assessee challenged the validity of the assessment order dated March 30, 2021, framed under Section 144(13) read with Sections 143(3), 143(3A), and 143(3B) of the Income Tax Act, 1961. The Tribunal did not specifically address this issue in the final judgment.

2. Upward Adjustment for Notional Interest on Outstanding Receivables:
The Tribunal noted that the DRP directed to allow a credit period of 60 days, resulting in an addition of Rs. 16.24 lakhs for interest on outstanding receivables, applying 6 months LIBOR + 400 basis points. However, it was observed that there is no need to benchmark the interest on receivables if no interest has been charged on either payables or receivables. The Tribunal referenced its previous decision in the assessee's own case for AY 2015-16 and the case of Pr. CIT vs. Kusum Health Care Pvt. Ltd., where it was held that not all receivables automatically qualify as international transactions. Consequently, the Tribunal allowed the appeal on this ground, stating no adjustment is warranted.

3. Deduction under Section 43B:
The assessee claimed a deduction of Rs. 1,49,07,493 under Section 43B for liabilities taken over from Convergys Stream and Convergys Infowavz post-amalgamation. The AO and DRP disallowed the claim, arguing Section 43B is specific to 'an assessee' and lacks provisions for amalgamated companies. The Tribunal disagreed, citing judicial precedents that an order approving amalgamation under Section 391 of the Companies Act has statutory force and is binding. It held that the liabilities taken over, such as Leave Encashment, Bonus, Gratuity, and Professional Tax, fall within the ambit of Section 43B, thus allowing the deduction.

4. MAT Credit under Section 115JAA:
The assessee claimed MAT credit of Rs. 99,61,130 taken over from Convergys Infowavz post-amalgamation. The AO and DRP denied this, stating Section 115JAA does not explicitly allow such transfer of MAT credit. The Tribunal held that all assets and liabilities, including MAT credit, transferred to the assessee post-amalgamation should be available for utilization. Thus, the appeal was allowed on this ground.

5. Addition under Section 56(2)(viia) for Purchase of Equity Shares:
The assessee acquired shares of Digital Think at a fair market value (FMV) of Rs. 242.03 per share, as valued by an independent chartered accountant. The AO added Rs. 31,00,122 to the total income, contending the valuation report was unverifiable and the face value of shares was later increased to Rs. 250 per share. The Tribunal found the valuation by the chartered accountant valid and in accordance with Rule 11UA of the Income Tax Rules. It held that the AO's adoption of the face value of Rs. 250 was incorrect, thus deleting the addition.

6. Granting of TDS and Advance Tax Credit:
The Tribunal directed that the credit for TDS and advance tax pertaining to Convergys Stream and Convergys Infowavz, taken over by the assessee post-amalgamation, be allowed.

Conclusion:
The Tribunal allowed the appeal of the assessee on all contested grounds and dismissed the Stay Application as infructuous. The judgment emphasized adherence to legal precedents and statutory provisions regarding amalgamation and the treatment of liabilities and assets, including MAT credit and share valuation.