AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (12) TMI 527
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....as processed under section 143(1) of the I.T. Act, 1961. Subsequently, the case of the assessee company was selected for scrutiny and notice under section 143(2) of the Act dated 31.08.2015 was issued and duly served upon the assessee. Further, the A.O. issued statutory notice under section 142(1) of the Act along with questionnaire and served on the assessee calling for details. In response to the said notice, the Authorised Representative of the assessee appeared before the A.O. and filed submissions and details as called for. The details filed have been verified and kept on record by the A.O. Since, the assessee company reported international transactions, the A.O. made a reference under section 92CA(1) of the Act to the TPO for determination of Arm's Length Price [in short "ALP"]. 2.1. The brief facts relating to international transactions of the assessee company are that the assessee company has a Joint Venture [in short "JV"] arrangement between Mahindra Life Space Development Limited [in short "MLDL"] and SCM Real Estate (Singapore) Private Limited [in short "SCM Real Estate"]. MLDL is in the real estate development business and part of Mahindra Group. SCM Real Estate opera....
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.... before the Tribunal by raising the following grounds : "1. assessing the total income of the Appellant at INR 99,21,200 as against the income of INR 3,69,080 offered in the return of income by the Appellant. Transfer pricing General 2. making a transfer pricing adjustment of Rs.16,45,67,968 in respect of the international transaction of payment of interest on Compulsorily Convertible Debentures ('CCDs') to Associated Enterprise ('AE'); Rejecting the economic analysis undertaken by the Appellant 3. rejecting the economic analysis conducted by the Appellant undertaken in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ('the Rules') in the transfer pricing study report for the purpose of determination of the arm's length price of the impugned transaction of payment of interest on CCDs; 4. rejecting the primary analysis undertaken by the Appellant on BSE, NSE and NSDL databases for the determination of arm's length price of the international transaction of payment of interest on CCDs without providing any cogent reasons; Unsecured Borrowing under CCD: 5. not considering the fact that CCDs funds ha....
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....cting the search conducted by Appellant by considering RBI data on the ground that the same pertains to data of loan lending rates; Rejecting the fresh search undertaken by the Appellant 13. without prejudice to the above, erred in rejecting the fresh search undertaken by the Appellant on Bloomberg database considering the interest rate earned by debt instruments similar to the CCDs issued by the Appellant by companies during AY 2014-15; Corporate tax Disallowance of Legal and Professional expenses of Rs 50,94,255 14. disallowing legal and professional expenses of Rs.50,94,255 by treating the same as capital expenditure; 15. ignoring the fact that legal and professionalexpenses of Rs.7,50,000 has been suo-moto disallowed by the Appellant in the computation of total income, thereby resulting in double disallowance; Disallowance of advertisement and sales promotion expenses of Rs 39.15.230 16. disallowing advertisement and sales promotion expenses of Rs 39,15,230 by treating the same as project specific and capital in nature without considering the fact that same is revenue and general in nature and are accounted by Appellant as per the revised Guidance Note o....
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.... issued during FY 2013-14 (ii) Debt instruments issued at floating rate or at zero debt coupon rates (iii) Debt instruments issued by companies not engaged in real estate industry; and (iv) Debt instruments issued at floating redemption, the assessee company selected 18 listings for further evaluation. Similarly, in NSE India, the assessee company listed 6 and in NSDL 97 instruments were listed. On merging the search results of the 3 searches undertaken under NSE, BSE and NSDL a total of 91 listings were considered for further evaluation. Out of 91 listings, again the assessee company eliminated 84 debt instructions by following the criteria i.e., (i) Debt instruments due to duplication; and (ii) Instruments issued by companies not operating in residential sub sector of real estate and a total 7 listings were identified as being comparable to assessee company which are (1) VBHC Mumbai Value Homes Private Limited (2) Total Environment Building Systems Pvt. Ltd., (3) Total Environment Living Spaces Private Limited (4) Bagadia Properties Private Limited (5) Vilas Javdekar Lifestyle developers Private Limited (6) VGN Developers Private Limited and (7) Skylark Arcadia Private Limited an....
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....bt Management in ITA.No.7518/Mum/2014 order dated 10.03.2016 and the order of the Tribunal has been affirmed by the Hon'ble Bombay High Court in the case of India Debt Management Pvt. Ltd., vide ITA.No.266/2017 order dated 15.04.2019 wherein the Hon'ble Court observed that as far as the benchmarking done by the lower authorities based on external data using Thomson Reuters, DealScan and Bloomberg Database is not correct. The relevant observations of Hon'ble Jurisdictional High Court is reproduced as under : "15. The last leg of the controversy is, whether the benchmarking analysis done by the assesses is correct or not and whether the average rate of interest of 11.30% paid by the assessee to its AE is at ALP or not. So far as the assesses'sbenchmarking analysis as done in TP Study report based on external data using Thomson Reuters' DealScan, and Bloomberg Database, we find that such an approach is not correct, firstly, there are no INR denominated debt issuance available on such databases and; secondly, in absence of such a data the assessee has to carry out huge adjustments on account of country risk, currency risk and tenor risk. With all these factors of adjustments,....
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....ed." 7.1. In the TP study the assessee had taken the comparables in CUP method related to database used NSE, BSE and NSDL database margin of the appellant is 17.65% gross or 15% net of tax system whereas the rate or merging as per database 18.13%. The assessee in secondary analysis calculated the rate at the rate of 17.89% on basis of the term loan lending rates offered by various banks in India as published in the Reserve Bank of India. the learned TPO undertook a fresh search using Bloomberg database to benchmark the international transaction without appreciating that the circumstances necessitating determination of price by the TPO as mentioned in subsection 3 of section 92Cof the Act did not exist in the instant case. The arm's length rate of interest in CCDs was arrived @8.58% asper Bloomberg database. The assessee applied the same rate of interest both in foreign AE and domestic AE. No other uncontrolled comparable is determined during the TP study under CUP method. The application of CUP method as MAM without taking care the risk adjustment in terms of Rule 10B(1)(e )(iii) of the Rules, which are generally involved in a third-party transaction visà- vis between AEs ....
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.... relied on the orders of the lower authorities and prayed that the orders of the authorities below be confirmed. 10. We have heard the rival submissions of both the parties and perused the material available on record. We find that as per AS 26, any expenditure incurred in the research phase should be expensed out. In this case, the examples of research activity involves activities aimed at obtaining new knowledge, the search for alternatives and the formulation, design, evaluation and selection of possible alternatives. Since the above said expenses cannot be characterized as expenditure incurred for obtaining enduring benefit and cannot be included in the definition of project cost as per Guidance Note, it was characterized as revenue expenditure and expensed out in books of accounts. Further, we noticed that the professional fees paid by MHPL to respective service providers post landacquisition was for availing consultancy services to assess the development opportunity with respect to residential real estate market dynamics and formulate the product-mix for MHPL. Therefore, it could be said that since MHPL is engaged in construction and development of residential projects, thes....
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.... Court in case of Empire Jute Co. Ltd. (V980) 03 taxman 69 (SC) wherein the Hon'ble Supreme Court held that "if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched the expenditure would be on revenue account even though the advantage may endure for an indefinite future." The Learned Counsel for the Assessee also relied upon the Judgment of Hon'ble Gujarat High Court in the case of DCIT vs. Core Healthcare Ltd. (2009) 308ITR 263 (Gujarat) wherein the Hon'ble Gujarat High Court has held that, "even brand promotion expenses are revenue in nature, hence deductible u/s 37 (1) of the Act because such expenditure do not create any intangible interest and merely because of the fact that expenditure may bring some benefit of enduring nature to the assessee, that factor alone is not sufficient to treat the expenditure as capital expenditure."Similar principles was held by the Coordinate Bench of Mumbai Tribunal in case of Vardhman Developers Ltd. vs. ITO (2015) 55 taxmann.com 370 (Mum. Trib.). ....