TaxTMI 
TaxTMI 
2022 (5) TMI 1514
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.... form of OCDs to its AEs 4. emanates out of ownership and is quasi equity in nature; failed to appreciate that the investments by way of OCDs is in the nature of shareholder activity which does not require any compensation 5. failed to appreciate that these OCDs have in fact been converted into equity shares 3. As we take up the above grounds of appeal, we also deem it appropriate to also take up the following grievances, which are interconnected with the above, raised in ground nos vi and vii of the appeal filed by the Assessing Officer. vi. Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in directing the AO/TPO in restricting the adjustment made on account of interest chargeable on Optionally Convertible Debentures (OCDs) confirmed by CIT(A) as debt to only Rs. 1,59,79,785/- by adopting ad-hoc LIBOR + 150bps as interest rate as against total adjustment of Rs. 2,46,40,344/- made by the TPO by adopting LIBOR + 262 bps as interest rate arrived after scientifically deriving the same by using Bloomberg Database. vii. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in ignoring the basic tenet of the t....
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....) Ltd. The Appellant has submitted that the OCDs in question were ultimately converted into equity FY 2015-16. In this regard, I am of a considered opinion that since the OCD was not converted during the financial year relevant to the captioned assessment year, the nature of funding remained as a loan only. Hence, the TPO is justified in treating the said OCD as a loan. The TPO has benchmarked the interest at the rate of 3.2% by following search process on bloomberg‟s database. I agree with the contention of the Appellant Assessee that the TPO has not brought anything on record to show that interest is receivable on comparable OCD transaction. In view of the decision of Hon‟ble Bombay High Court in the case of CIT v/s Lever India Exports Ltd. (ITA 1306/1307/1349 of 2014) and CIT 6 v/s Merck ltd (ITA No. 272 of 2014), the determination of ALP by TPO is rejected as being ad-hoc and arbitrary. In view of fairness and justice, I direct the AO to adopt LIBOR plus 150 bps in view of my own decision in Appellant‟s sister concern‟s case, viz. Reliance Industries Limited for AY 2016-17, dated 17.02.2021. 5. The assessee is not satisfied and is in further ap....
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....us (i.e. the Accountant Member), in the case of Soma Textile & Industries Ltd Vs ACIT [(2015) 154 ITD 745 (Ahd)], as follows: 5. ..............The question, however, arises as to what are the connotations of expression „quasi capital‟ in the context of the transfer pricing legislation. 6. Hon‟ble Delhi High Court, in the case Chryscapital Investment Advisors India Ltd Vs ACIT [(2015) 56 taxmann.com 417 (Delhi)], has begun by quoting the thought provoking words of Justice Felix Frankfurter to the effect that "A phrase begins life as a literary expression; its felicity leads to its lazy repetition; and repetition soon establishes it as a legal formula, undiscriminatingly used to express different and sometimes contradictory ideas". The reference so made to the words of Justice Frankfurter was in the context of the concept of "super profits" but it is equally valid in the context of concept of "quasi capital" also. As in the case of the super profits, to quote the words of Their Lordships, "many decisions of different benches of the ITAT indicate a rote repetition (in the words of Felix Frankfurter J, quoted in the beginning of this judgment a "lazy repetition"....
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....s something materially different than a loan simplictor, for example, a non-refundable loan which is to be converted into equity. It is in this context that the loans, which are in the nature of quasi capital, are treated differently than the normal loan transactions. 9. The expression „quasi capital‟, in our humble understanding, is relevant from the point of view of highlighting that a quasi-capital loan or advance is not a routine loan transaction simplictor. The substantive reward for such a loan transaction is not interest but opportunity to own capital. As a corollary to this position, in the cases of quasi capital loans or advances, the comparison of the quasi capital loans is not with the commercial borrowings but with the loans or advances which are given in the same or similar situations. In all the decisions of the coordinate benches, wherein references have been made to the advances being in the nature of „quasi capital‟, these cases referred to the situations in which (a) advances were made as capital could not subscribed to due to regulatory issues and the advancing of loans was only for the period till the same could be converted into equit....
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....citor, and that it's the opportunity to subscribe to equity which, in such a case, becomes pre-dominant motive for subscription of the optionally convertible debenture. There is not even a dispute that the OCD's in question have been subsequently been converted into equity capital at par value. The actual value of OCD being in the convertibility of OCD in the equity capital is thus not even in doubt. The very foundation of the impugned adjustment thus initiated in law as elaborately discussed in the above judicial precedent. In view of these discussions, and being in considered agreement with the views of the co-ordinate bench- as reproduced above, we uphold the plea of the assessee and delete the impugned ALP adjustment of Rs. 2,46,40,344. In this view of the matter, grievances raised by the Assessing Officer, which are only on quantification of the ALP, have been rendered infructuous. 9. In the result, ground nos 1 to 5 of the assessee's appeal are allowed and ground nos. vi and vii in the appeal filed by the Assessing Officer are dismissed as infructuous. 10. Ground nos 6, 7 and 8 in the appeal filed by the assessee, in view of our findings above are rendered academic and do n....
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....in the books of TElL were also taken over by the Appellant. During the finalization of accounts, it was noticed that outstanding debit balance Rs. 23,63,812 could not be reconciled in the ledger of BNA. Therefore, the Appellant could not even recover the same. Eventually, it was decided to write-off the said outstanding balance by debiting the profit and loss account. c) Seachange International ("SII") SII was providing annual maintenance services to TElL. Pursuant to the aforesaid amalgamation, outstanding debit balance in the account of SII was also taken over by the Appellant. Since the said debit balance pertaining to SII could not be reconciled and hence could not be recovered, the same was also written off by debiting the profit and loss account. 5.4. The Appellant submits that the advances given to all the 3 parties was in its normal course of business and as such write off of the said advances would be deductible as loss us. 28 of the Act. In this regard, the Appellant relies on the following judicial pronouncements. a) Jackie Shroff v. ACIT (2019) 174 ITD 770/ 197 TTI 568/ 174 DTR 161 s (Mum) (Trib.) Advance given by actor for film production which turned ir....
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....t is the fact that so far as write off of dues on Business News Asia Pvt Ltd., and Seachange International is concerned, the write off is for the amounts which are unrecoverable. The claim for deduction therefore can only arise in which amount is written off, and that is preciously what the assessee has claimed. We see no infirmity in the same. So far as the amounts given to MIB are concerned, it is only when the assessee realized that MIB issues only receipts and no separate instrument of the invoice nature, for registration of channels, that the write off was claimed. There is no dispute about genuineness or nature of payment, or the fact that this deduction has not been made earlier. In these circumstances, the amount admittedly being of revenue nature should have been allowed as a deduction. In view of these discussions, as also bearing in mind entirety of the case, we uphold the plea of the assessee and direct the Assessing Officer to delete the impugned disallowance of Rs. 59,01,362/-. The assessee gets the relief accordingly. 17. Grounds no 9 is thus allowed. 18. The appeal of the assessee is, thus partly allowed in the terms indicated above. 19. We now take up appeal fil....
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....n the facts and in the circumstances of the case and as per law, the Learned CIT(A) has erred in ignoring the fact that - as per the provisions of Rule 8D(2) (i), in case the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income of receipt, the disallowance out of interest expense has to be computed as per the procedure laid down in Rule 8D(2) (i). 25. So far as ground nos ii & iii are also covered by several decisions in assessee's own case including the order dated 19.06.2019 for assessment year 2008-09 wherein the co-ordinate bench observed as follows: 122. We have heard the rival submissions, perused the orders of the Authorities below. In so far as the disallowance under Rule 8D2(ii) of I.T. Rules in respect of interest is concerned, it is the submission of the assessee that assessee has own and interest free funds much more than the investments made, therefore, no disallowance is warranted towards interest. This Bench following the decision of the Hon'ble Jurisdictional High Court in the case of HDFC Bank Limited (supra) and Reliance Utilities and Power Ltd (supra) consistently holding....
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.... is allowed. Thus, the Assessing Officer is directed to verify the claim of the assessee and recompute the disallowance u/s. 14A of the Act if any and the income for the year accordingly. 26. We see no reasons to take any other view of the matter the co-ordinate bench. Respectfully following the co-ordinate bench, we confirm the action of the learned CIT(A) and decline to interfere in the matter. 27. Ground nos. ii & iii are thus dismissed. 28. In ground nos (iv) & (v) the Assessing Officer has raised the following grievances:- iv. Whether on the facts, in the circumstances of the case and as per law, the Learned CIT(A) has erred in holding that for the purpose of computing disallowance U/S.14A of the IT. Act read with Rule 8D(2) (ii) of the IT. Rules, only those investments which yielded dividend income should be considered for disallowance, relying on decision of Hon'ble ITAT in the assessee's own case for AY2008-09 to 2011-12 without appreciating the fact that said decision was not accepted and is being contested before the High Court. v. Whether on the facts, in the circumstances of the case and as per law, the Learned CIT(A) has erred in excluding the value of....
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....n the investments. If the submissions of the assessee are found to be correct, no disallowance under Rule 8D2(ii) is required in view of the decisions of the Hon'ble Jurisdictional High Court in the cases of CIT v. HDFC Bank Lid and CIT v. Reliance Utilities Power Limited (supra). Similarly, the Special Bench in the case of ACIT v. Vireet Investments Private Limited held that only those investments which yielded dividend income should be considered for disallowance under Rule 8D2(in). Thus, respectfully following the Special Bench decision, we direct the Assessing Officer to recompute the disallowance under Rule 8D2(ii) following the Special Bench. Accordingly, we set- aside this issue to the file of the Assessing Officer with the above observations. This ground of appeal is allowed for statistical purposes. 123. Respectfully following the said decision of the Hon'ble Jurisdictional High Court, we hold that when assessee has sufficient own and interest free funds for making the investments no disallowance is warranted under Rule 8D(2) (ii) of I.T. Rules. Subject to verification the claim of the assessee is allowed. Thus, the Assessing Officer is directed to verify the cl....