TaxTMI 
TaxTMI 
2019 (12) TMI 370
X X X X Extracts X X X X
X X X X Extracts X X X X
....2012-13 to 2014-15 respectively. 2. This bunch of appeals relating to same assessee on similar issues were heard together and are being disposed off by this consolidated order for the sake of convenience. ITA No.1308/Del/2015 [Assessee's appeal] Assessment Year: 2010-11 3. The assessee has raised following grounds of appeal relating to Assessment Year 2010-11:- 1. "That the assessing officer erred on facts and in law in completing the assessment under Section 144C/143(3) of the Income-tax Act, 1961 ('the Act') at an income of Rs. 120,22,91,210 under the normal provisions of the Act, as against income of Rs. 114,65,96,393 returned by the appellant. 2. That the assessing officer erred on facts and in law in making adjustment of Rs. 5,56,94,818 to the arm's length price of the 'international transactions' undertaken by the appellant with its associated enterprise on the basis of the order passed under Section 92CA(3) of the Act by the Transfer Pricing Officer ("TPO") read with directions of Dispute Resolution Panel ('DRP') passed under section 144C(5) of the Act. 2.1 That the assessing officer/DRP erred on facts and in law in determining the arm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the expenditure on the payment for services received from the associated enterprise was wholly and exclusively for the purpose of business of the appellant. 2.9 That the assessing officer/DRP erred on facts and in law in not appreciating that the expenditure on the payment for services received from the associated enterprise was validly benchmarked along with other closely linked transactions applying TNMM as most appropriate method and that no adverse inference could be drawn on this account. That the assessing officer/ DRP erred on facts and in law in computing adjustment on account of international transaction of payment made for services received from the associated enterprise without applying any prescribed methods. 3. That the assessing officer erred on facts and in law in making an addition of Rs. 14,75,217 on account of the alleged difference in interest charged on foreign currency loan of USD 9,00,000 extended to the associated enterprise by applying the interest rate of 13.25%. 3.1 That the assessing officer / DRP erred on facts and in law in disregarding the fact that the loan was advanced by the appellant to its associated enterp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all be computed considering Libor rates applicable on foreign denominated loans. 4.6 Without prejudice the assessing officer/ TPO erred in not giving effect to the directions of the DRP to consider Base Rate of SBI for computing the arms length rate of interest and instead considering PLR of SBI. 5. That the DRP erred on facts and in law in not adjudicating the claim of allowance of depreciation under section 32(1)(i) of the Act on the difference between the aggregate book value of investment in the equity shares of Flextronics Software Systems Limited ('Flextronics') in the books of the appellant and Future Software Limited ('FSL') in the books of Flextronics and the aggregate face value of share capital of Flextronics held by the appellant and FSL held by Flextronics accounted as goodwill amounting to Rs. 26,75,57,10,570 pursuant to amalgamation of Flextronics and FSL with the appellant. 5.1 That on the facts and circumstances of the case and in law, pursuant to the decision of Supreme Court in the case of CIT vs. Smifs Securities Ltd.: (2012) 348 ITR 302, depreciation ought to be allowed in terms of section 32(1)(i) of the Act in respect of 'Goodwill' ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ociated Enterprises (in short "AE") and one of the said transaction was payment of Corporate Charges of Rs. 3,66,31,346/-. The case of the assessee was that the AE was allocating the said corporate charges among the group companies on the basis of cost plus 5% mark up. The assessee further claims that the said payment of corporate charges of Rs. 3.66 crores, was included in the cost base for the purpose of benchmarking the international transactions undertaken by assessee. The assessee applied Transactional Net Margin Method as the most appropriate method and OP/OC as the Profit Level Indicator (in short "PLI"). The margin of the assessee worked out to 25.54%. The comparables which were selected had mean margin of 14.79% and hence, the international transaction of payment of corporate charges, was benchmarked by the assessee, to be at arms length. 7. The Assessing Officer made reference to the Transfer Pricing Officer (in short "TPO") to determine the arms length price of the aforesaid international transaction. The TPO in the TP proceedings show-caused the assessee in order to analysis the arms length price of the aforesaid international transaction. After considering the submi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....DR for the Revenue pointed out that the assessee in TP study report had clubbed the international transaction of payment of corporate charges with other transactions of provision of software services and software development services. The assessee had applied Transactional Net Margin Method and on this combined approach, had benchmarked the international transaction at arms length. It was further pointed out by the Ld. DR for the Revenue that the law allowed to benchmark the two transactions, if the same were closely linked; but the assessee has to demonstrate the same. Referring to the order of TPO at page 7, the Ld. DR for the Revenue pointed out that from the nature of services, it was clear that these were not services in the field of software services. In such circumstances, the said transaction had to be benchmarked separately. He then pointed out that only question which arises is whether there was any rendition of services and incase the answer is 'yes' then no adjustment to be made, but in case the answer is 'no' then the TPO has to look into the same. Referring to the order of the Tribunal in para 81, the Ld. DR for the Revenue stated that for this year, the evidences ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the assessee has failed to demonstrate the benefit arising on the availment of such services from the AE. 13. We find that similar approach was adopted by the Assessing Officer in benchmarking the international transaction of payment of corporate charges in Assessment Year 2009-10. The Tribunal in ITA No.2671/Del/2014 relating to Assessment Year 2009-10, with lead order in ITA No.90/Del/2013, vide order dated 26.07.2019 had addressed this issue and noted the case of the Revenue and the contention of the assessee, which are similar to the issue raised in the present appeal. The Tribunal looked into the evidences filed by the assessee to substantiate its case of rendition of services by the AE which is availed by the assessee against which payment as made on cost plus 5% mark up. It was pointed out that the AE was providing similar services to the group companies and the expenditure was allocated on the basis of report of an independent valuer, on cost plus 5% mark up. The first issue is whether it is open to the assessee to decide as to avail the service or not? The said issue stands decided by the Hon'ble Delhi High Court in Reebok India Company, 374 ITR 118 (Del.) which ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m the decision of the Hon'ble High Court in the case of Sony Ericson Mobile & Others in ITA No.16/2014 wherein the Hon'ble High Court affirm the benchmarked of closely linked transaction. The Hon'ble High Court held as under :- "91. In case the tested party is engaged in single line of business, there is no bar or prohibition from applying the TNM Method on entity level basis. The focus of this method is on net profit amount in proportion to the appropriate base or the PLI. In fact, when transactions are interconnected, combined consideration may be the most reliable means of determining the arm's length price. There are often situations where closely linked and connected transactions cannot be evaluated adequately on separate basis. Segmentation may be mandated when controlled bundled transactions cannot be adequately compared on an aggregate basis. Thus, taxpayer can aggregate the controlled transactions if the transactions meet the specified common portfolio or package parameters. For complex entities or where one of the entities is not 'plain vanilla distributor, it should be applied when necessary and applicable comparables on functional analysis, with or without ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....page No. 30 - 31, has considered the suspect and agreed with the contention of the assessee that intra group services received from its associated enterprise are closely linked to the main business activity of the assessee company placing reliance on the US regulations, OECD regulations and OECD draft notes on comparability. In view of this we do not find any infirmity and none was pointed out before us by the Ld. departmental representative in the order of the Ld. dispute resolution panel. Consequently, after verifying that assessee has demonstrated need for those services, benefit derived from those services, evidence of receipt of such services and submitting that those services are neither duplicative in nature and nor are share holder activities, the DRP directed the Ld. transfer pricing officer to delete the adjustment proposed with respect to the intra group services of Rs. 3329766244/-, deserves to be upheld. The judicial precedents cited before us also supports the view that the needed test, the benefit test are also required to be viewed from the perspective of a businessperson and not from the perspective of the revenue. Further, no evidences have been led before us by r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld be benchmarked on aggregate basis by adopting the Transactional Net Margin Method as the most appropriate method. Consequently, we reverse the orders of the authorities below and delete the upward adjustment of Rs. 3.66 crores. Thus, Ground of appeal Nos. 2 to 2.11 raised by the assessee in this appeal are allowed. 17. Now, coming to the next issue of transfer pricing adjustment of Rs. 14,75,217/- made on account of interest on foreign currency loan extended to the AE. The assessee has raised Ground of appeal Nos. 3 to 3.2 in this regard. 18. Briefly in the facts relating to the issue, the assessee during the Financial Year 2009-10 had earned interest income of Rs. 4,16,801/- in respect of loan of USD 9,00,000 extended to its AEs-Aricent Japan Ltd & Aricent Technologies (Beijing) Ltd. The interest on the said loans advanced was charged LIBOR + 1.5%. The case of the assessee was that the rate of interest which was charged by it from its AE was comparable to the rate of interest in the international market. The TPO however, applied the Comparable Uncontrolled Price method to benchmark the aforesaid international transaction and he applied rate of 14.88% being the prime lend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....avour of the assessee in Assessment Years 2008-09 & 2009-10 also. Thus, Ground of appeal Nos. 3 to 3.2 raised by the assessee are allowed. 22. The issue raised in Ground of appeal Nos. 4 to 4.6 is against the transfer pricing adjustment made on account of re-characterizing the inter-company receivables as unsecured loan extended by the assessee to its AEs. 23. Briefly in the facts relating to the issue the assessee had raised invoices on account of provision of services to its AEs. Some of the said payments were not received by the assessee. The TPO noted that the receivables were outstanding for long period. He allowed credit of 30 days, treating the same to be normal period within which the amount due should have been paid by the debtors. He re-characterized the amount due from regular debtors, which was outstanding and treated the same as deemed loan. He then imputed notional interest on the delay in receipt of receivable @ 14.88% and proposed an adjustment of Rs. 22.62 crores. The DRP upheld the adjustment made by the TPO, but directed the TPO to impute interest @ 11.75% and allow set off in respect of delayed payments by the assessee to its AEs. The TPO accordingly made ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee's own case in Assessment Year 2009-10 had deleted the aforesaid addition and also held that there is no merit in resorting to explanation (1)(c) to section 92B of the Act. Applying the said ratio, we direct the Assessing Officer/TPO to delete the addition of Rs. 8.72 crores. The Ground of appeal Nos.4 to 4.6 are thus allowed. 27. The issue raised in Ground of appeal Nos. 5 to 5.3 is against the claim of depreciation of goodwill arising out of amalgamation in Assessment Year 2008-09. 28. The Ld.AR for the assessee fairly pointed out that the assessee had not made the aforesaid claim in the return of income and the DRP did not adjudicate the same as no claim was made in return of income. The Assessing Officer also in the final assessment order applied the ratio laid down by the Hon'ble Supreme Court in Goetze (India) Ltd. [2006] 284 ITR 323 (SC). 29. The Ld.AR for the assessee pointed out that the depreciation was claimed in the accounts from Assessment Year 2008-09; but in terms of income tax, no such claim was made. The Ld.AR for the assessee further pointed out that ratio laid down by the Hon'ble Supreme Court in Goetze India Ltd.(supra) has been explained by Hon'bl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and vide para 53, it was held that the said contention of the Ld.DR was not acceptable and it was observed as under:- 53. "This contention of the DR is not acceptable as the Hon'ble High Court in its order giving effect to the scheme of amalgamation mentioned elsewhere has clearly stated that the difference in the net asset value of FSSL and FSL and the consideration paid by the assessee shall be towards goodwill." 34. The Tribunal vide paras 54 to 63 dealt with all other aspects of the issues and the arguments of the DRP on different facets of goodwill acquired in business reconsideration and held that the assessee to be entitled to claim depreciation on goodwill, as per the rates applicable for the year under consideration. We are referring to the findings of the Tribunal in paras 54 to 63, but not reproducing the same for the sake of brevity. However, following same parity of reasoning, we allow the claim of the assessee of depreciation on goodwill. The Ground of appeal Nos. 5 & 5.1 are thus allowed. Ground of appeal No.5.2 is dismissed as not pressed and Ground of appeal Nos. 5.3 & 5.4 also stand allowed. 35. The assessee has raised Ground of appeal No.6 agains....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... erred on facts and in law in upholding addition to the extent of Rs. 3,76,37,933 being 20% of the amount paid by the appellant towards corporate charges to the associated enterprises holding such services to be in the nature of shareholder activity. 1.2. That the Ld. CIT(A) erred on facts and in law in treating 20% of the amount of payment I made towards corporate charges as shareholder activities and holding them to be of no economic and commercial value to the business of the appellant. 1.3. That the Ld. CIT(A) erred on facts and in law in not appreciating that the expenditure on the payment for services received from the associated enterprise was wholly and exclusively for the purpose of business of the appellant. 1.4. That the Ld. CIT(A) erred on facts and in law in not appreciating that the associated enterprise has already reduced the amount incurred towards shareholder activity from the cost allocated to the appellant and accordingly, no cost attributable to shareholder activity has been allocated to the appellant. 1.5. That the Ld. CIT(A) erred on facts and in law in not appreciating that the appellant had benchmarked the impugned transa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... suo moto allow claims which are allowable to assessee but not claimed at all either in the return of income or during the assessment proceedings. 2.2 That the Ld. CIT(A) grossly erred in not appreciating that the claim made before the Ld. assessing officer was merely a modification of original claim made in the return of income and was not altogether a new claim made during the course of assessment proceedings. 2.3 Without prejudice, that on the facts and circumstances of the case and in law, the Ld. assessing officer may be directed to allow deduction of Rs. 2,77,79,494 under section 43B of the Act in respect of leave encashment and gratuity paid by exercising the power conferred under Section 254 of the Act. 3. That the Ld. CIT(A) erred on facts and in law in not adjudicating on addition of Rs. 19,12,401 on account of outstanding sundry credit balances completely ignoring the fact that the Ld. Assessing officer has not deleted the said addition on merits, vide rectification order dated 26.05.2017 passed under section 154/143(3) of the Act. 3.1. That the Ld. CIT(A) erred on facts and in law in not allowing the addition made on account of sundry....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A) accepted that Transactional Net Margin Method was the most appropriate method to be applied, but disallowed 20% corporate charges holding them in the nature of share holder activities. The CIT(A) observed that the assessee had not provided any details whether any deduction was made in the nature of shareholder activity. 45. The Ld.AR for the assessee pointed that the AE had already reduced the amount attributable to shareholder activity and hence, the adjustment sustained by the CIT(A) was bad in law. 46. We have heard the rival contentions and perused the record. The Ground of appeal of appeal raised by the assessee and the Revenue is in appeal against the benchmarking of the aforesaid transaction of payment of corporate charges by applying Transactional Net Margin Method as the most appropriate method. We have already adjudicated the issue of benchmarking of the international transaction of payment of corporate charges in the paras above and following the same parity of reasoning, we find no merit in the Ground of appeal raised by the Revenue hence, the same are dismissed. 47. Now coming to the disallowance retained by the CIT(A) at 20% of the total expenses; we find ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly, the assessee did not claim the said deduction in the return of income filed for the year under consideration. We hold that the assessee is entitled to the aforesaid claim subject to verification by the Assessing Officer. Accordingly, we direct the Assessing Officer to allow the claim of the assessee on verification. 51. Now coming to the last issue raised vide Ground of appeal Nos. 3 & 3.1 is against the addition of Rs. 19,12,401/- being sundry credit balances outstanding from past three years. 52. Briefly in the facts of the case the Assessing Officer had made an addition of Rs. 19,12,401/- on account of alleged static creditors. The addition made by the Assessing Officer is of Rs. 19,12,401/-. The case of the assessee before us is that there is totaling error and amount totals to Rs. 11,92,401/-. The said credit balances as per the assessee were enforceable and recoverable by the creditors and were reflected as payable in the books of accounts of the assessee and hence, the Assessing Officer could not make the aforesaid addition u/s 41(1) of the Act, unless it is established that the liability had seized to exist. 53. The CIT(A) vide para 5.15 & 5.16 observed that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and Futures Software Limited (FSL) into the appellant pursuant to the scheme of amalgamation approved by the Hon'ble Delhi High Court vide order dated 16.05.2007. 2.1 That the DRP/ assessing officer erred on facts and in law in disallowing the depreciation of Rs. 211,64,18,512 under section 32(1 )(i) of the Act on written down value of Goodwill of Rs. 846,56,74,048 arising out of amalgamation of Flextronics and FSL into the appellant on the Ground of appealthat the appellant did not assign fair value to other assets while computing Goodwill. 2.2 That the DRP/ assessing officer erred on facts and in law in relying on the ITAT Ruling of DCIT vs. Toyo Engineering Ltd., ITA No. 3279/ Mum/2008 without appreciating that the same was reversed by the Hon'ble Mumbai Bench of the Tribunal. 2.3. That the DRP erred on facts and in law in holding that the amalgamated company cannot claim depreciation on assets acquired under amalgamation that is more than the depreciation allowable to the amalgamating company in terms of 5th proviso to section 32(1) of the Act. 2.4. That the DRP erred on facts and in law in holding that the Supreme Court in the case of CIT v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e appellant failed to discharge the primary onus cast upon it. 2.10. Without prejudice, that the DRP/ assessing officer erred on facts and in law in failing to appreciate that the customer relationships/ contracts transferred to ATML were intangible assets which was reduced from the goodwill eligible for deduction under section 32(1 )(ii) of the Act and therefore, the said amount ought to be reduced while computing the taxable income of the appellant. 3. That the DRP/ assessing officer erred on facts and in law in making addition of Rs. 2,65,46,256 allegedly holding that the appellant had received interest under section 244A of the Act on the income tax refund of Rs. 24,77,65,100 during the year under consideration. 3.1. That the DRP/ assessing officer erred on facts and in law in not appreciating that the appellant did not receive any interest under section 244A of the Act from the Government treasury during the year under consideration. 4. That the DRP/ assessing officer erred on facts and in law in disallowing expense to the extent of Rs. 60,51,351 while computing long term capital gain from sale of land on the Ground of appealthat the same we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that: (i) The assessee has not been able to prove the benefits that it had derived from the services purportedly provided by the expats. (ii) The assessee has not furnished any evidence as to the cost benefit analysis with regard to the independent local employees. (iii) No documentation has been produced by the assessee to support its claim for the receipt of services. (iv) The benchmarking done by the assessee is not in accordance with the law. 8.2 That the DRP/TPO erred on facts and in law in not appreciating the fact that the associated enterprise while allocating the corporate charges to the appellant has duly excluded the cost in the nature of stewardship expenditure. 8.3 That the DRP/TPO erred on facts and in law in not appreciating that the allocation of expenditure by the associated enterprise was duly supported by a global transfer pricing report prepared by an independent consultant, namely, Deloitte Tax LLP, USA. 8.4 While allegedly holding that no benefit was received by the assessee from payment of corporate charges, the DRP erred on facts and in law in summarily disregarding the correlation between servic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om the associated enterprise is in the nature of unsecured loans. 10.2 That the TPO/DRP erred on facts and in law in not appreciating that delay in receipt of receivable is not an international transaction, per se, under section 92B of the Act but is a consequence of an internal transaction undertaken in the form of sales made to associated enterprise. 10.3 Without prejudice, the TPO/DRP erred on facts and in law in not appreciating that the appellant has received receivables from unrelated parties with similar delay of period and accordingly the delay in receipt of receivables from unrelated parties should be considered as a valid CUP for the purpose of benchmarking. 10.4 That the TPO/DRP erred on facts and in law in not appreciating that since the operating profit margin earned by the assessee is higher than the comparable companies, the assessee has already factored the cost of interest in its pricing while providing software development services to its associated enterprise. 10.5 That the DRP erred on facts and in law by holding that the working capital adjustment does not address the mispricing where the interest free receivables are outstan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Nos. 3 & 3.1 raised by the assessee are allowed as indicated. 64. Now, coming to Ground of appeal Nos. 4 to 4.2 wherein the issue raised is against the disallowance of expenses totaling to Rs. 60,51,351/-, while computing the income from long term capital gains on sale of land, on the ground that the same were not incidental to sale of land. The case of the assessee is that the said expenditure were towards legal charges paid to the legal advisors for the transaction of sale of land. The assessee is also aggrieved by the observation of the DRP in holding that the assessee had filed the supporting documents as additional evidence, though the same were filed on record during assessment proceedings. 65. Briefly in the facts relating to the issue the assessee during the year under consideration had declared income from long term capital gains totaling to Rs. 136.94 crores. The assessee had claimed legal expenses totaling to Rs. 4.58 crores. The Assessing Officer allowed the brokerage fee paid by the assessee totaling to Rs. 3.98 crores, but the balance expenditure was disallowed in the hands of the assessee. The Ld.AR for the assessee has taken us through the details of the expen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fied the capital loss declared at Rs. 69,60,313/-. The Assessing Officer in the draft assessment order observed as under:- 11.3. "The purpose of DCF analysis is simply to estimate the money as investor would revised from an investment adjustment for time value of money. Discounted cash flow models are as good as their imports. Therefore, estimation of net cash flow is based on the data provided by the management and not on the comparable data. hence, it suffers from ambiguity." 71. The long term capital loss of Rs. 69,60,313/- was disallowed in the hands of the assessee. The DRP upholding the order of the Assessing Officer observed that the book value method would be appropriate method for valuing the shares of the companies, which was ITES company and DCF models cannot be applied. The Assessing Officer thus passed final assessment order making the aforesaid addition in the hands of the assessee. 72. The assessee is in appeal before us in this regard. 73. After taking us through the factual aspects, the Ld.AR for the assessee pointed out that there are no provision under Act to substitute the actual consideration with notional value. He further stated that section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onal consideration or fair market value of the asset. 76. Another aspect which needs to be seen is that the said transaction of sale of shares was reported by the assessee in Form No.3CEB and transfer pricing report. The TPO has analyzed the international transaction undertaken by the assessee and had accepted the said transaction at arms length and did not propose any adjustment. In such facts and circumstances, the Assessing Officer cannot make any adjustment/addition by not accepting the sale consideration received by the assessee. The reference to the valuation report which was filed by the Assessing Officer before the RBI cannot be the basis for reworking the capital gains in the hands of the assessee, where the assessee had entered into equity purchase agreement dated 25.08.2011, wherein 800 shares were sold by the assessee at a price of JPY 35 million. Accordingly, we direct the Assessing Officer to allow the loss claimed by the assessee on the sale of shares of its AE, Aricent-Japan. Ground of appeal Nos.5 to 5.2 raised by the assessee are allowed. 77. The issue in Ground of appeal No.6 is against the disallowance of interest paid on late deposit of TDS amounting to R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....86. Briefly in the facts relating to the issue, the assessee had advanced loan to Aricent China. As was the practice, before repaying the Chinese entity had to seek permission from the authorities for repaying the loan and the Chinese laws prohibited accruing of further interest once documents for the repayment of loans were submitted. During the year under consideration, the assessee had not received any interest on the said outstanding loan. The assessee thus, did not account for any interest on the said loans in its books of accounts. The explanation of the assessee was that in view of the provisions of Rule 10B(2)(d) of the Act, no such interest could be provided in the books of accounts. However, the TPO did not accept the plea of the assessee and made transfer pricing adjustment of Rs. 2,39,616/- on account of interest due on foreign currency loan extended to the AE, against which the assessee is in appeal before us. 87. The Ld.AR for the assessee referred to the loan agreement executed in March, 2008 and as per clause 8, the said loan was repayable in March, 2011. On 01.04.2011, the AE moved an application before the Chinese authorities seeking permission for repayment of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ual or actual payment received then same is to be decided within the scope of Article 11(1). What the TPO/AO have sought to tax is that, assessee was supposed to receive interest of 18%, if the contingent event would have arisen, i.e., if in the event, the option was exercised by the assessee to sell its converted shares to the promoters of investee company at an option price then it would have given the return of 18%. Thus, entire edifice of the TPO/AO was based on fixation of contingent event which assessee was supposed to receive. It is also matter of record no such conversion was actualised and assessee remained invested even during the year under consideration. The transfer pricing adjustment has been made on this hypothetical amount of interest receivable. Whether such notional income can be brought to tax even under the transfer pricing provision, has been dealt by the Hon'ble Bombay High Court in the case of Vodafone India Services (P) Ltd. vs. Union of India (supra), wherein their Lordships have held that even income arising from international transaction must satisfy the test of income under the Act and must find its home in one of the charging provisions. Here in this ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 9 to 9.1 raised by the assessee are thus allowed. 91. The last issue raised in Ground of appeal Nos. 10 to 10.8 is against the transfer pricing adjustment made of Rs. 2.04 crores on account of re-characterizing the inter-company receivables as unsecured loans extended by the assessee to its AE. The issue raised herein is similar to issue raised vide Ground of appeal Nos. 4 to 4.6 in Assessment Year 2010-11. Following the same parity of reasoning, we delete the aforesaid transfer pricing adjustment made in the hands of the assesse. Ground of appeal Nos. 10 to 10.8 are thus allowed. 92. In the result, the appeal of the assessee is partly allowed. ITA No.7112/Del/2017 [Assessee's appeal] Assessment Year: 2013-14 93. The assessee has raised following grounds of appeal relating to Assessment Year 2013-14:- 1. "That the assessing officer erred on facts and in law in completing the assessment under Section 144C(1) r.w.s. 143(3) of the Income-tax Act, 1961 ('the Act') at an income of Rs. 297,48,60,850 as against the income of Rs. 119,58,24,310 returned by the appellant. Corporate Tax issues 2. That the assessing officer erred on facts and in law ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... law in not admitting enhanced claim of depreciation of Rs. 158,73,13,884 under section 32(1 )(i) of the Act as against Rs. 122,72,31,644 claimed in the return of income, on the Ground of appealthat the said claim had been made by way of application during the course of assessment proceedings and not by revising its return of income. 2.7 That the assessing officer grossly erred in not appreciating that he was duty bound to suo-motu allow claim which are allowable to appellant but not claimed at all in the return of income 2.8 That the assessing officer grossly erred in not appreciating that the claim for enhancement of depreciation was only modification of original claim made in the return of income and was not altogether a new claim made during the course of assessment proceedings. 2.9 That the DRP I assessing officer erred on facts and in law in denying depreciation on goodwill by relying upon the decision of the Bangalore Tribunal in the case of United Breweries Ltd. vs. ADIT: 722/Bang/2014, wherein it has been held that depreciation on enhanced value of goodwill is barred in terms of sixth proviso to section 32(1 )(ii) of the Act. 2.10 Withou....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....3 That the DRP/TPO erred on facts and in law in not appreciating that the allocation of expenditure by the associated enterprise was duly supported by a global transfer pricing report prepared by an independent consultant, namely, Deloitte Tax LLP, USA. 4.4 While allegedly holding that no benefit was received by the appellant from payment of corporate charges, the DRP erred on facts and in law in summarily disregarding the correlation between services received from the associated enterprise and increase in the revenue and profits of the appellant. 4.5 That the assessing officer/DRP grossly misunderstood and misinterpreted the facts of the cost allocation agreement entered into between the appellant and its AE. 4.6 That the DRP erred on facts and in law in not appreciating that payment made by the appellant to its associated enterprise on account of corporate charges, represents actual cost incurred by the associated enterprise on behalf of the appellant. 4.7. That the DRP erred on facts and in law in not appreciating the evidences submitted in the form of affidavits of employees of the associated enterprise rendering various services to the appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ify the claim of the assessee after allowing reasonable opportunity of hearing to the assessee and decide the issue in accordance with law. Thus, Ground of appeal No.5 raised by the assessee is allowed. 98. Similarly the issue raised in Ground of appeal No.6 is that the assessee is aggrieved by non grant of part of TDS claimed by the assessee in the return of income. The Assessing Officer is directed to verify the claim of the assessee after allowing reasonable opportunity of hearing and decide the issue. Hence, Ground of appeal No.6 raised by the assessee is allowed. 99. The last issue raised in Ground of appeal No.7 is against the charging of interest u/s 234B of the Act, is consequential; hence, the same is dismissed. 100. In the result, the appeal of the assessee is partly allowed. ITA No.7637/Del/2018 [Assessee's appeal] Assessment Year: 2014-15 101. The assessee has raised following grounds of appeal relating to Assessment Year 2014-15:- 1. "That on the facts and circumstances of the case and in law, the impugned order passed by the assessing officer ("Ld. AO") is barred by limitation in terms of section 153 r.w.s 144C of the Act and therefore, is liab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nced claim of depreciation of Rs. 1,19,04,85,413 under section 32(1 )(i) of the Act against Rs. 92,04,23,734 claimed in the return of income. 2.6 Without prejudice, the Ld. AO has erred in facts and in law in inadvertently 1 disallowing Rs. 92,36,46,122/- as against Rs. 92,04,23,734 claimed as depreciation on goodwill by the appellant in the return of income. 4. That the Ld. AO erred on facts and in law in not allowing the deduction of R; 6,58,83,328 claimed on account of reimbursement paid to the parent company towards ESOP for granting stock options to employee's assesses. 4.1 That the Ld. AO erred on facts and in law in proposing to hold that employees section 37 of the Act alleging that the same was not incurred wholly and exclusively for the purpose of the business of the assessee company. 4.2 That the Ld. AO erred on facts and in law alleging that the expenditure claimed did not represent a crystallized liability and being without any objective evidence for justification, the same was not allowable as deduction. 4.3 That the Ld. AO erred on facts and in law in holding that ESOP is a part of salary and since the assessee did not ded....
X X X X Extracts X X X X
X X X X Extracts X X X X
....up of 400 points on LIBOR rate determined by the Ld. TPO/Hon'ble DRP lack any technical analysis and cogent reasoning. 5.6 Without prejudice to above, the Ld. AO/TPO/Hon'ble DRP erred in facts and in law by not calculating the adjustment on the net outstanding balance (i.e. receivables minus payables) instead of gross outstanding receivables. 5.7 The Ld. AO/TPO/Hon'ble DRP have erred in not appreciating that working capital adjustment takes into account the difference in working capital intensities of the comparable companies vis-a-vis the appellant which inevitably considers f'e impact of receivables and payables arising from main service transaction 6. Without prejudice, that the AO/DRP erred on facts and in law in incorrectly allowing credit of TDS of Rs. 11,87,62,498 as against the credit of Rs. 15,01,53,517 claimed by the appellant. 7. Without prejudice, that the AO/DRP erred on facts and in law in charging interest of Rs. 1,00,45,784 under section 234A of the Act. The assessing officer has erred in law and on facts, in levying interest under sections 234A and 234B of the Act." 102. The Ground of appeal Nos.1 & 1.1 raised by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....siness of the appellant company. (b) Expenditure claimed did not represent a crystallized liability and being without any objective evidence for justification, the same was not allowable as deduction. (c) ESOP is a part of salary and since the appellant did not deduct any tax at source on payment to the group company, the amount claimed was disallowable under section 40(a) of the Act." 107. The Assessing Officer thus disallowed the said expenditure in the hands of the assessee, which disallowance was confirmed by the DRP and by the Assessing Officer in the final assessment order. 108. The assessee is in appeal against the order of the Assessing Officer. 109. It was pointed out by the Ld.AR for the assessee that the fair market value of the shares was USD 0.77 dollars per share and options were exercised at USD 0.01 per shares. The difference was reimbursed to the AE in Cayman Island. Since the liability accrued /crystallized during the year and as the assessee was following mercantile system of accounting then the same is to be allowed as a deduction u/s 37(1) of the Act. In this regard reliance was placed on the following decisions:- [i] CIT vs ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....et value of the shares issued under Employees Stock Option Scheme and the value at which they were allotted to the employees, which was debited to the P&L account in accordance with SEBI Guidelines, is an ascertained liability, and thus, allowable as revenue expenditure under section 37(1) of the Act. 115. The said proposition has been applied by the Hon'ble High Court in CIT vs Lemon Tree Hotels Ltd. (supra) and the claim of ESOP expenditure has been allowed as expenditure u/s 37 of the Act. 116. Further, the Special Bench in Biocon Ltd. vs DCIT (supra) held that discount on issue of ESOP, i.e. the difference between the market price of shares on date of exercise was deductible as business expenditure, since the same represents consideration/compensation for services rendered by employees. The Special Bench observed that the company incurs obligation of issuing shares at a discounted price on a future date in lieu of services rendered by the employees, which is allowable as deduction under section 37(1) of the Act. The Special Bench further held that the said discount was an ascertained liability, since the employer incurred obligation to compensate the employees over the ve....