TaxTMI 
TaxTMI 
TaxTMI 
2013 (11) TMI 1721
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....nal Holdings Mauritius Ltd. (VIHM). The face value of the shares sold by the assessee is ₹ 10 per share. The assessee-company transferred the shares at ₹ 10.32 per share. The assessee had obtained a valuation certificate issued by M/s Deloitte Haskins & Sells, Chartered Accountants. The valuation of the shares has been made in the light of the guidelines issued by the office of Controller of Capital Issues, India. [The said office has since been abolished and its functions have been taken over by Securities Exchange Board of India (SEBI)]. The guidelines were issued by the erstwhile Controller of Capital Issues, as required under Foreign Exchange Management Regulations, 2000. The value determined by the independent valuer has been taken as a comparable price under Comparable Uncontrolled Price (CUP) method. The CUP method is one of the methods prescribed for the purpose of computing the Arm's Length Price (ALP) under Section 92C of the Income-tax Act, 1961. The price was computed taking the weighted average of Net Asset Value (NAV) determined at ₹ 15.05 per share and the Profit Earning Capacity Value (PECV) determined at ₹ 9.23 per share. The weighted av....
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....he arm's length price ('ALP') of the international transaction of the Appellant with respect to full value of consideration accruing to the assessee in terms of section 48 read with section 92(C)(4) of the Income Tax Act. (2) That on the facts and circumstances of the case, the learned AO and the learned TPO have erred in rejecting the Transfer Pricing ('TP') documentation without assigining cogent or concrete reasons and not appreciating the contentions, arguments, and evidentiary data put forward by the Appellant during the course of the proceedings before them. (3) That the learned AO and the learned TPO have grossly erred in making adjustment to the international transaction of sale of shares by Visteon International Holdings Inc. (hereinafter referred to as "VIHI") in Visteon Powertrain Control Systems India Private Limited (hereinafter referred to as "VPCSI"). (4) That the learned AO and the learned TPO have grossly erred in concluding that the valuation of shares certified by an independent valuer based on the guidelines issued by under the erstwhile Comptroller of Capital Issues (hereinafter referred to as "CCI") was not ....
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....r valuation of shares of unlisted companies. (5.2) That the learned AO and the learned TPO have grossly erred in not appreciating that the above stated modification should be considered as a substantive legislature and only used prospectively and should not be applied arbitrarily to some transaction happened in the past; (5.3) That the learned AO and the learned TPO have erred in not considering the fact that valuation per DCF method is particularly sensitive to assumptions like perpetuity growth rates, future cash flows and discount rates. (5.4) Notwithstanding the aforementioned grievances, the learned AO and the learned TPO have erred making certain inappropriate assumptions relating to revenue, expenses and the weighted average cost of capital while adopting DCF method for valuation of shares. (5.5) The learned AO and the learned TPO have erred in being inconsistent in application of the assumptions in the TP order. (6) That the learned AO and the learned TPO have erred in computation of interest under Section 234A of the Income-tax Act, 1961 even though the company has filed its return of income well within the due date under Section 139(1) of the Income-tax Act, 1961....
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....onal grounds raised by the assessee-company are as follows: "(1) The learned Assessing Officer (AO) and the learned Transfer Pricing Officer (TPO) failed to appreciate that since they did not obtain specific approval from the Commissioner of Income Tax prior to determination of arm's length price (ALP) of share transfer the determination of ALP by them was without jurisdiction. (2) Without prejudice to the above grounds and our ground that valuation as per CCI guidelines is more appropriate than DCF method, the learned AO and the learned TPO ought to have appreciated that yield method is the most appropriate method for valuation of shares. (3) Without prejudice to our contention that DCF method is not an appropriate method for determination of ALP of share transfer, the following assumptions of the AO/TPO while adopting DCF method are erroneous: (3.1) The learned AO and the learned TPO have grossly erred in adopting an arbitrary weighted average cost of capital ("WACC") percentage of 14.5 per cent. The learned AO/ TPO ought to have adopted WACC at 16.34 per cent which is based on the industry peers data and salient assumptions. (3.2) The learned AO and the....
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....d wholesale or retail. Cost Plus Method (CPM) is also not applicable as no cost can be ascertained in the case of shares of a company. It is also equally not possible to apply Profit Split Method (PSM). The Transactional Net Margin Method (TNMM) is also not applicable as there is no concept of net margin in the sale of shares. The learned senior counsel explained that the only remaining category available in the present case is "such other method as may be prescribed by the Board". 16. The learned senior counsel explained that as far as impugned assessment year is concerned, the Board has not prescribed "any such method" to value the shares transferred in similar circumstances. He, therefore, argued that the computation provisions with reference to ALP have failed and as such, Section 92C cannot be applied to assessee's case. The learned senior counsel has relied on the decision of Hon'ble Supreme Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1, wherein the Hon'ble Supreme Court has held as under:- "The charging section and the computation provisions together constitute an integrated code. When there is a case to....
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....er Employees' Union v. Hindustan Lever Ltd. [1994] 2 SCL 157. The learned senior counsel has also relied on the judgment of Hon'ble Calcutta High Court in the case of CWT v. Balbhadradas Bangur [1984] 148 ITR 149/[1983] 14 Taxman 177. 19. In the light of the above judicial pronouncements, the learned senior counsel contended that in a case where the computation provisions provided in Section 92C fail, the most appropriate method for valuation of shares is "Yield Method". 20. In the present case, the learned senior counsel contended that the assessee has valued the shares not confining to "Yield Method" alone; but further went to enlarge the computation of the ALP by adopting the integrated method suggested in the guidelines issued by the erstwhile Controller of Capital Issues. Thereby the company has not only considered the yield of the assessee-company but also the net asset value. The yield of the assessee-company, as certified by an independent Chartered Accountant, is ₹ 9.23 per share. The net asset value is ₹ 15.05 per share. The average of the two works out to ₹ 12.14 per share. After providing for discounting at 15% (Rs. 1.82 p....
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....ing an opportunity to the assessee-company to provide the working of ALP under DCF method just for the reason that the work-out was not furnished by the assessee in the first instance, before the TPO. 23. Apart from the TP issue, another ground raised by the assessee-company is regarding the levy of interest under Section 234B of the Income-tax Act, 1961. The learned senior counsel explained that in the present case, it was the duty of the Indian company to deduct tax at the time of sale of shares and therefore, the assessee had no obligation to pay advance tax and in such circumstances, interest under Section 234B cannot be levied on the assessee. The learned senior counsel has relied on the judgment of the Hon'ble Delhi High Court in the case of DIT v. Jacabs Civil Incorporated [2011] 330 ITR 578/[2010] 194 Taxman 495. 24. Shri Vasantha Kumar, learned Commissioner of Income Tax, appearing for the Revenue, on the other hand, explained that the "Yield Method" is not a popular method used by companies in the present scenario. Under the Yield Method, the value is computed after considering the return on capital employed by the assessee. This method is usually applied ....
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....value arrived at by the TPO. 30. Regarding other grounds and supporting submissions, the learned Commissioner of Income Tax relied on the order of the DRP. 31. We heard both sides in detail. 32. Regarding the contention of the learned senior counsel that the computation provisions of Section 92C fail in the present case, would not be acceptable. This is because the jurisdictional Tribunal, ITAT, Chennai "C" Bench in the case of Ascendas (India) (P.) Ltd. (supra), has considered the issue in paragraphs 15, 16 and 17. They had considered the question whether to ignore all the methods prescribed under Section 92C(1). It has been held that it is not necessary to ignore the methods because these methods are not water-tight compartments and reflect the acceptability of permissible methods. 33. Regarding the argument of the learned senior counsel in connection with the acceptability of guidelines issued by erstwhile Controller of Capital Issues, we find that the Tribunal in the above stated order has held otherwise. In fact, the learned senior counsel has argued before us that as the guidelines for valuation of equity shares issued by Controller of Capital Issues, needs to b....
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....l as the assessee have ultimately agreed to compute the ALP under DCF method. When that method is mutually agreed and applied for the succeeding assessment year 2008-09, taking a deviant approach and looking out for another method is nothing but pedantic. 37. Therefore, in the peculiar facts and circumstances governing the present case, we uphold the DCF method adopted by the TPO and the DRP. But, this is not an unconditional direction. The assessee is given an opportunity to present before the TPO its computation of ALP under DCF method. In the light of that computation to be presented by the assessee, the TPO is directed to re-visit the earlier computation of ALP. It is to be seen that the six objections raised by the assessee for the subsequent assessment year 2008-09 have been fairly accepted by the TPO and the DRP. Four of the objections have been accepted by the TPO and remaining two objections have been accepted by the DRP. For example, the liquidity discount assumed by the assessee has been accepted by the DRP for assessment year 2008-09. The TPO has accepted the WACC at 16.34% as assumed by the assessee-company, for assessment year 2008-09. Likewise, the rate of revenue g....