TaxTMI 
TaxTMI 
2023 (10) TMI 1051
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....39;ble DRP"), is bad in law and liable to be set aside. Grounds relating to transfer pricing adjustment: 2. The Ld.AO/Hon'ble DRP erred in law and on facts in rejecting the Transfer Pricing ("TP") Documentation of the Assessee in relation to the international transaction involving payment of interest on non-convertible debentures to DB International (Asia) Ltd, without considering the fact that the Assessee's TP Documentation was in accordance with the Indian Transfer Pricing Regulations. 3. The Ld. AO/Hon'ble DRP erred in law and on facts by not appreciating the complete facts of the Assessee's international transaction Involving issuance of secured, rated, listed and Rupee denominated Non-convertible debentures (NCDs") to DB International (Asia) Limited which was, at the time of entering into, an uncontrolled transaction between independent entities. 4. The Ld. AO/Hon'ble DRP erred in law and on facts by alleging that the Assessee has resorted to profit shifting by paying higher rate of Interest on NCDs to DB International (Asia) Limited. 5. The Hon'ble DRP has erred in rejecting the following comparable companies s....
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....f the case and law applicable, the Hon'ble DRP's direction to the Ld. AO to make a new addition under section 56(2)(viia) of the Act is bad in law . 14. Without prejudice to above, the Ld. AO/Hon'ble DRP has erred in law and on facts in making further addition of INR 57,92,15,385/- u/s 56(2)(viia) of the Act on account of acquisition of equity shares of Takshila Tech Parks & Incubators (India) Private Limited ("TTPL") by determining the Fair Market Value ("FMV") of the shares under Rule 11UA(1)(c)(b) of the Income-tax Rules, 1962 ("IT Rules"), adopting the valuation date as 31 March, 2016. 15. The Hon'ble DRP has erred on facts in holding that the Assessee has requested to rely on unaudited financials of TTPL as on 31 August, 2016 for computing the FMV of shares of TTPL. The Hon'ble DRP has erred in not appreciating that the Assessee has requested to consider the audited balance sheet as on the valuation date i.e., 30 September, 2016 for computing the FMV of shares of TTPL. 16. The Hon'ble DRP has erred on facts by denying the impairment loss of INR 64,74,02,716/- in computation of FMV of shares of TTPL, on the premise tha....
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....ng the arm's length price of interest paid on debenture. 6. The Ld. AO/Hon'ble DRP erred in law and on facts in making an upward transfer pricing adjustment of INR 3,04,48,912/- by determining the ALP of the interest on NCDs paid to DB International (Asia) Limited at SBI base rate plus 50 basis points, on an adhoc basis. 7. The Ld. AO/Hon'ble DRP erred in law and on facts in making an upward transfer pricing adjustment of INR 3,04,48,912/- by determining the ALP of the interest on NCDs paid to DB International (Asia) Limited without identifying any comparable. Grounds relating to addition under section 14A of the Income-tax Act, 1961 ("the Act") 8. The Ld. Assessing Officer/Hon'ble DRP has erred in law and on facts in making a disallowance of INR 37,75,415/- u/s 14A of the Act r/w Rule 8D of the IT Rules without appreciating the fact that in the absence of exempt income, disallowance u/s 14A of the Act based on the notional income is not warranted and is unjustifiable under the law. 9. The Hon'ble DRP has erred in confirming the disallowance under section 14A without appreciating that the disallowance has been made wi....
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....m's length price of the international transactions reported by the tax payer. Further, the said order states that if in case of TTPL, Rs. 26,96,57,437/- was offered to Tax u/s 56(2)(viia) of the Income Tax Act in the Revised return, the said adjustment may be reduced accordingly. 6.2. Pursuant to the said order, after verification, the total income of the taxpayer was enhanced by Rs.68,79,81,398/- in the draft assessment order. However, it is noticed that the TPO vide order dated 05.01.2022 redetermined the adjustment u/s 92CA of the Act at Rs.93,99,39,083/- in view of the excess adjustment in determination of purchase of shares to the tune of Rs. 1,76,99,752/-. With regard to deemed international transactions, DRP in its order held that since the payment made to the overseas entity is less than the ALP determined, no transfer Pricing adjustment needs to be made in respect of this international transaction. However, the DRP is of the view that provisions of Sec. 56(2)(viia) are applicable in this case and hence, directed the Assessing Officer to apply the provisions of Sec 56(2)(viia). 6.3 Upon DRP directions, the TPO re-determined total adjustment u/s 92CA(3) at Rs. 6,22....
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....were also initiated u/s. 270A of I.T.Act of the Act. 7. Ground No. 1 is general in nature and requires no adjudication, grounds of appeal Nos. 2 to 10 relate to the transfer pricing issues, grounds Nos.11 to 16 relate to the addition u/s 56(2)(viia) of the Act and ground nos.17 and 18 relate to the addition u/s 14A of the Act. 8. GROUND NOS. 2 TO 8 8.1. The first argument of the ld.AR for the assessee was that the assessee and M/s. DB International (Asia) Limited are not the associated enterprises and, therefore, are independent entities. It was submitted that assessee and M/s. DB International (Asia) Limited are not the AE and, therefore, the transfer pricing adjustment done by the TPO/DRP are without any merit. It was the contention of the assessee that the assessee had reported the investment made by M/s. DB International (Asia) Limited in form 3CEB. However, mere reporting of international transaction in form 3CEB will not automatically lead to determination of the character of M/s. DB International (Asia) Limited as associated entity of the assessee. It was the contention of the AR that M/s. DB International (Asia) Limited is a foreign bank and is in the business of f....
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.... by the assessee was that the TPO had erred in rejecting the TP study of the assessee on the following grounds: (I) The taxpayer has not furnished the search process (Accept reject matrix) claimed to be conducted in the Bloomberg and NSDL database; (ii) Instruments having no or different coupon rate were rejected by the taxpayer, which would have led to cherry picking of comparables; (i) Credit rating filter applied by the Assessee is subjective and has to be seen on a case to case basis; (ii) Industry filter applied by the Assessee is subjective and has to be seen on a case to case basis; (iii) Taxpayer has chosen functionally dissimilar companies; (iv) Taxpayer did not exclude instruments not classified as NCDs. 9.1. The ld.AR had submitted that when the assessee assailed the order of the TPO before the DRP, the DRP had not concurred with the reasoning of the assessee and given the finding with respect to the TP study in paragraph Nos. 2.11.3 to 2.11.4 and had wrongly concluded that - (i) Appellant is incorrect in applying disputable credit rating filter. (ii) Appellant has not used industrial filter of re....
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....e said argument, the ld.AR in the written submissions has submitted as under: "1.15 Leasing business cannot be characterised as real estate business. This submission is supported by the definition of 'real estate business' given in Consolidated FDI Policy effective from 15.10.2020. The definition reads as follows [Page 44 of the Consolidated FDI Policy] "It is clarified that FDI is not permitted in an entity which is engaged or proposes to engage in real estate business, construction of farmhouses and trading in transferable development rights (TDRs). "Real estate business" means dealing in land and immovable property with a view to earning profit there from and does not include development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships. Further, earning of rent/ income on lease of the property, not amounting to transfer, will not amount to real estate business." (emphasis supplied) 1.16. It is discernible from above that leasing of the property is not regarded as real estate business by the Government of India. T....
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....s should be a minimum of SBI base rate plus 300 basis points. The Delhi High Court in Rampgreen Solutions (P) Ltd v CIT [2015] 60 taxmann.com 355 and the Delhi Tribunal in New River Software Services (P) Ltd 56 taxmann.com 440 have relied on safe harbour rules to adjudicate on transfer pricing matters though the assessees in those cases had not opted for safe harbour rules. 1.39. The Appellant submission of adding in excess of 300 basis points is also based on the fact that the Appellant's credit rating is IND BB-(SO) by India Ratings and Research Limited. The rating has not been disputed by the lower authorities. In the following decisions, it has been held that the credit rating is an important factor for quantifying the spread and benchmarking the interest on loan from AE's: (i) DCIT v JSW Energy Ltd 180 ITD 598 (Mum) (ii) India Debt Management Pvt ltd v DCIT 69 taxmann.com 125 (Mum) [Affirmed by the Bombay High Court in 69 taxmann.com 125] 1.40. In fact, in Tega Industries Ltd v DCIT (2016) TaxCorp (AT.) 53503 (ITAT- KOLKATA) and UFO Movies India Ltd v ACIT (2016) 66 taxmann.com 120 (Delhi - Trib), the transfer pricing officer has arg....
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....s ECB framework also support the submission that the learned DRP erred in adding only 50 basis points as a spread. Para 2.1 of the Annex to ECB Framework RBI/2018-19/109 A.P. (DIR Series) Circular No. 17 dated 16.01.2019 indicates that interest cost on INR denominated borrowings [which includes debentures] should be arrived at by adding a spread on 450 basis points to the benchmark interest. Thus, it is submitted that a spread in excess of 300 basis points should be added to the SBI base rate. 1.44. In view of the above, it is submitted that the interest rate on NCDs should be benchmarked with SBI base rate plus a spread in excess of 300 basis points. 1.45. As stated above, the ECB Framework provides that the interest cost on INR denominated borrowings [including debentures] should not exceed benchmark rate plus spread of 450 basis points. The Framework states that prevailing yield of the Government of India securities of corresponding maturity should be adopted as the benchmark rate qua INR denominated borrowings (including debentures) [Para 1.5 of the Annex to ECB Framework]. The debentures in the present case was issued for a period of 5 years. The correspondin....
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....15 to 1.16 above], the said phrase is defined in the Consolidated FDI Policy. The said definition establishes that the business of the Appellant [viz., leasing of buildings for the purpose of earning lease rentals] is not to be regarded as a real estate business. It is thus submitted that the persuasive value of the RBI's Master Directions applies to the Appellant for the purpose of benchmarking the rate of interest paid on NCDs. 1.48. The Bangalore Tribunal in Vena Energy KM Wind Power (P.) Ltd v DCIT 2022] 141 taxmann.com)557 (Bangalore - Trib) relied on the above RBI Master Directions to hold that no transfer pricing adjustment is warranted if the interest rate on rupee denominated NCDs is less than the SBI PLR rate. The Bangalore Tribunal decision was concerning the ALP of interest grid on NCD's which is also the security under consideration in the Appellant's case. In Bennett Coleman & Co. Ltd. (as successor to times infotainment media limited) v DCIT (2021) Taxcorp (AT) 91749 (ITAT-Mumbai), the Tribunal noted that the DRP has taken a view that SBI PLR rate is the rate at which persons other than banks can lend/borrow in India. 1.49. The SBI PLR r....
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....the assessee has entered into international transaction, with the following details: Name of the associated enterprise Nature of the relationship with the associated enterprise as referred to in section 92A(2) Brief description of the business carried on by the associated enterprise LC Cerestra Core Opportunities Fund Pte. Ltd. One enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise Investment company DB International (Asia) Limited A loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one-per cent of the book value of the total assets of the other enterprise. Provides investment banking services Deutsche Bank AG A loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise. Provides banking services 16. In our opinion, once the assessee itself declared the international transaction of loan/advances received from M/s. DB International (Asia) Limited by it being more than 51% of the book value of the assets, then the DRP had ....
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....ise; or (e) more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise; or (f) more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons; or (g) the manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or (h) ninety per cent or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise, or by persons specified....
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....s not a real estate company and is into leasing of the assets and, therefore, it was not appropriate for the authorities to apply real estate filter. In this regard, we may like to refer to page No. 121 of the paper book No.1 wherein the assessee had placed before us the objection in form 35A and at Sr. No. C at page No. 121 it is mentioned as under: (c) Assessee is a newly setup company LC Cerestra Core Opportunities Fund Pte Ltd ("LC Core") is a real estate assets focused private equity firm, based out of Singapore. LC Core expressed its interest in taking over the assets held by Alexandria group in India, which were held for sale. The initial discussions and negotiations of the terms and conditions of the transfer of assets were held between LC Core and Alexandria group. Pursuant to above, LC Core set-up MN Takshila Industries Private Limited "MN Takshila") to act as a SPV for the acquisition of assets held by Alexandria group in India. MN Takshila was incorporated in July, 2016 and the funds required by MN Takshila to acquire the assets of Alexandria Group in India, were infused by LC Core through equity of INR 4,87,500,000 and Compulsorily Convertibl....
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....Hon'ble Bombay High Court in the case of PCIT v India Debt Management (P) Ltd ITA No 266 of 2017 (Bombay), wherein it was observed as under : "15. The last leg of the controversy is, whether the benchmarking analysis done by the assessee 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 assessee's benchmarking 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, it would be difficult to arrive at an appropriate arm's length range of price; therefore, in our opinion such an approach of the assessee for benchmarking the arm's length interest rate may not be correct. However, as regards the search undertaken for comparable debt issuances in BSE data, we find that the assessee has shortlisted two comparables namel....
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....king over or financing of such companies. The business of the assessee was thus froth with inherent risks. Its credit rating therefore was relatively low of 'BBB-'. The assessee was raising funds for such investments through issuance of debentures to its AEs. The tribunal even on comparison found that the average rate of interest of 11.30% paid by the assessee to its AEs was not excessive and was in any case lower than in the comparable instances. The tribunal rejected the transfer pricing adjustment comparing the rate of return for the assessee's US based AE. This later conclusion of the Tribunal is supported by following decisions. And also in the case of CIT v. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523/231 Taxman 401, had held and observed as under; "39. The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country, in our considered opinion, must be answered by adopting and applying a commonsensical and pragmatic reasoning. We have no he....
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....become available (say from exports). If an exchange risk were to prove incapable of being avoided (say, by forward rate fixing), the appropriate course would be to attribute it to the economically more powerful party. But, exactly where there is no 'special relationship', this will frequently not be possible in dealings with such party. Consequently, it will normally not be possible to review and adjust the interest rate to the extent that such rate depends on the currency involved. Moreover, it is questionable whether such an adjustment could be based on Art. 11 (6). For Art. 11(6), at least its wording, allows the authorities to 'eliminate hypothetical' the special relationships only in regard to the level of interest rates and not in regard to other circumstances, such as the choice of currency. If such other circumstances were to be included in the review, there would be doubts as to where the line should be drawn, i.e., whether an examination should be allowed of the question of whether in the absence of a special relationship (i.e., financial power, strong position in the market, etc., of the foreign corporate group member) the borrowing company might not have....
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.... to Torrent Pharmaceuticals Ltd by ICRA during F.Y.2009-10. ICRA has reaffirmed LAA rating to Long Term fund based limits of Rs. 4700 million indicating high credit quality. Further the ICRA has also reaffirmed A1 to Rs. 100 million short term non fund based facilities and Rs. 600 million Commercial paper programme indicating highest credit quality. Please find attached herewith letter showing credit rating given by ICRA to Torrent Pharmaceuticals Ltd vide Annexure 2 Credit Rating given to MICT pvt ltd by ICRA during F.Y. 2009-10. ICRA has assigned LA rating to long Term Borrowing of Rs. 8.0 million of MICT pvt Ltd. ICRA has also assigned A2 to the Rs. 600 million short term non fund based facilities. ICRA has placed both rating watch with negative implications. Please find attached herewith letter showing credit rating given by ICRA to MICT Pvt Ltd. vide Annexure-3 vi. The assessee in the year under consideration has incurred losses whereas the torrent pharmaceutical Ltd has shown a profit. Moreover, the profit of torrent pharmaceutical Ltd has increased by 37% in comparison to the immediately preceding year. vii. The assessee has....
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.... Rule 10TE. Though, in the present case, the assessee had not opted for Safe Harbour Rule, however, Rule 10TD(5) provides that in case the advancing of intra group loans referred to in item No.IV of Rule 10TC exceeds Rs.50,00,00.000/- (fifty crore), then the interest rate declared in relation to the eligible international transaction is not less than base rate of State Bank of India as on 30th June of the relevant previous year +300 basis points. The assessee, in this regard relied upon the Hon'ble Delhi High Court decision in Rampgreen Solutions (P) Ltd v CIT [2015] 60 taxmann.com 355 and the Delhi Tribunal in New River Software Services (P) Ltd 56 taxmann.com 440 who have relied on safe harbour rules to adjudicate on transfer pricing matters though the assessees in those cases had not opted for safe harbour rules.. In the present case, the base rate of the SBI is 9.275% and on that 300 basis points would make 12.275%. However, as against the 12.275%, the assessee has paid interest to M/s. DB International at 13.13% (including grossing up cost arising out of TDS). Even as per the above mentioned Safe Harbour Rule, the interest paid by the assessee was exceeding 12.275% as it was 1....
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....able to the facts of the case as the assessee happens to be a real estate company and, therefore, the SBI PLR rate as contemplated under RBI circular is not applicable. 18.3 In our opinion, the finding recorded by the DRP that SBI base rate plus a nominal premium of 50 basis points as ALP, is incorrect as no basis of 50 nominal basis wih was given by the DRP. In fact, the comparable selected by the Assessing Officer namely, Mahua Bharatpur Express Ltd., was paying the interest @ 18% (SBI PLR + 400 basis points). Similarly, Assetz Premium Holdings Pvt. Limited was paying the interest @ 14%. These two comparables selected by the Assessing Officer were excluded by the DRP on the pretext that the NCDs were subscribed by the related parties. As held hereinabove, Gujarat Road Infrastructure Company Limited cannot be compared with the assessee for the reasons mentioned hereinabove and therefore, there is no comparable available with which the rate of the assessee can be compared as DRP has also not relied upon TP Study of TPO as well as assessee for the reasons "in conclusive". In this scenario, we deem it appropriate to take a guidance from the Safe Harbour Rule and Section194 LD and ....
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....lysis as to whether the payment is commensurate with the benefit received by Appellant. The most appropriate method for is Other method. Under the Other method considering that (a) Basis of fees is not determined; (b) The payment is not commensurate with benefit, fees of 0.5% was considered appropriate. [Pg no 11 of TPO order]. Adjustment of INR 3,37,09,375 was made on this account. Feeling aggrieved by the order passed by the assessing Officer the assessee preferred the proceedings before the DRP. The DRP has confirmed the order passed by the assessing Ofc and the Ld.AR had drawn our attention to pay 16 of the DRP order. The assessing officer had made Adjustment of INR 3,37,09,375 was made to the total income of the Appellant in conformity to the DRP directions. 4. Ld.AR also submitted that the learned TPO/AO/DRP erred in making a transfer pricing adjustment of Rs 3,37,09,375/- by determining the ALP of debenture issue expenses. The Appellant submits that the impugned adjustment has been made without appreciating that the debenture issue expense has been paid to Deutsche Bank AG (Mumbai). Deutsche Bank AG (Mumbai) is not an associate enterprise of the Appellant. Merely be....
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....rnational (Asia) Limited. The TPO / DRP both have determined the ALP at 0.5% as against 2.5% on the pretext that the assessee being AE of Deutsche Bank, Mumbai and further, the assessee has not provided any comparable instance of debenture issue for the purposes of benchmarking the expenses / bank charges. In our view, the assessee had claimed 2.5% on actual basis whereas the DRP has restricted it to 0.5% on estimate basis. In our view, both the views cannot be approved by us as "no person can earn the profit from himself". This principle applies to the fact to the present case as DB International had been held to be AE of the assessee for the reasons mentioned hereinabove, and therefore, to issue the NCD by the branch of DB International, it is highly improbable that they will charge 2.5% as expenses for issuing the debenture / bank charges. In view of the above and also on the account of the fact that the DRP has estimated it at 0.5%, we are of the opinion that a balance is required to be drawn between the rights of the assessee and as well as the Revenue, and therefore, we restrict the determination of ALP by the TPO at 1.5% as against 2.5% paid by the assessee. Thus, the ground....
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....had directed the Assessing Officer to apply the provisions of section 56(viia) of the Act as the assessee has received the shares for a consideration which was less than aggregate fair market value of the assets. 24. On the basis of the directions issued by the DRP, the Assessing Officer passed the order giving effect and made the addition of Rs. 57,92,15,385/- u/s. 56(2)(viia) of the Act. Feeling aggrieved by the order passed by the lower authorities, the assessee is in appeal as per the grounds 11 to 16 reproduced herein above. At the time of argument, the ld.AR had restricted his submission only with respect to the ground No. 14 to 16. 25. Before us, ld. AR has submitted that DCF valuation adopted whereby the FMV per share was derived at Rs. 147.81, however, the TPO had rejected the valuation report contending that Terminal value of the Cash flows was less than the net worth. Thereafter, the TPO had benchmarked the deemed international transaction by relying upon the Rule 11U and 11UA of the Income-tax Rules, 1962 relevant for Section 56(2)(viia) of the Act. For the above purposes, the TPO did not consider the audited financial statements as on 31.08.2016 stating that huge....
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....ith respect to land parcel (para 2.8.3). It was submitted that the DRP had further pointed out that 'the assessee has not furnished the guideline value in respect of the land nor given details of instances of sale transactions in the vicinity to demonstrate the fall in price'. Ld.AR had drawn our attention to page 897 of the paper book wherein the impairment loss has been referred to the building. The table depicting/mentioning the impairment loss, provides as under: 30. It was submitted that the DRP had committed an error in understanding that the impairment loss recorded in the books was for land whereas the impairment loss recorded by the assessee was for building. It was further submitted that the impairment loss was done by the holding company of the TTPL in accordance with the internationally accepted accounting principles in the quarter ended 31/03/2016 when the Alexandria Group decided to exit from the Indian market and classified the asset in India as 'held for sale'. The said financials of Alexandria Group were furnished to the US authorities in accordance with the USGAAP. It was the contention of the assessee that the corresponding impairment loss were carried out in ....
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....tion of the unaudited balance sheet as on August 31, 2016 as the basis for valuation is not acceptable 2.7.3 We therefore, direct the AO add an amount of Rs. 89,12,84,761 to the income of the assessee being the difference between the fair market value of the shares and the consideration paid for acquisition of the shares under section 56(2)(viia).The AO should give credit for the amounts already returned by the assessee in respect of this transaction u/s 56(2) (viia) after verifying whether the revised return was filed within the time prescribed by the Act or not. 2.8.1 Having considered the submissions, as stated earlier Takshila Tech Park Company (whose shares were transferred) had net worth of Rs. 21,607 as on 31.03.2016. The transfer took place on 12 September 2016. 2.8.2 It is seen that Takshila Tech Parks has recorded an impairment of INR 16 in its books as on 31 August 2016. The assessee has stated that the recognition of impairment is based on internationally accepted accounting principles and standards and that the impairment loss was done to bring on the land parcels located in India to their fair value less cost to sell as required by the relev....
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....rable amounts, i.e., the net selling prices. The net selling prices are determined by reference to the estimated releasable values obtainable in an active market. As a matter of measurement, the Company has written down the carrying values of buildings to their estimated recoverable amounts and recorded a impairment loss of Rs. 64,74,02,716/- during the quarter ended September 30, 2016." 33.3 At page 46 and 47 of the paper book (financials of Alexandria Group) the said company has mentioned about the impairment of the asset classified as 'held for sale' the narration was given by the said Alexandria Group at page 433 of the paper book to the following effect: 18. Assets classified as held for sale (continued) On March 31, 2016, we evaluated two separate potential transactions to sell land parcels in our India submarket aggregating 28 acres. We determined that these land parcels met the criteria for classification as held for sale as of March 31, 2016, including among others, the following: (i) management having the authority committed to sell the real estate, and (ii) the sale was probable within one year. Upon classification as held for sale as of March 31, 20....
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....and remaining assets held for sale as of December 31, 2016, in Asia (dollars in thousands): Rental Properties Land Parcels Number RSF Number Acres Sales Price Completed dispositions during 2016 6 566,355 6 196 $ 66,131 Remaining assets held for sale in China 2 634,328 - - TBD Total 8 1,200,683 6 196 We evaluated whether our real estate investments in Asia met the criteria for classification as discontinued operations, including, among others, (i) if the properties meet the held for sale criteria and (ii) if the sale of these assets represents a strategic shift that has or will have a major effect on our operations and financial results. In our assessment, we considered, among other factors, that our total revenue from properties located in Asia was approximately 1.5% of our total consolidated revenues. At the time of evaluation, we also noted total assets related to our investment in Asia were approximately 2.5% of our total assets. Consequently, we concluded that the monetization of our real estate inve....
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.... Rule 11UA(1)(c)(b) is relevant for determination of FMV of unquoted equity shares. The FMV of shares of TTPL should therefore be made in terms of Rule 11UA(1)(c)(b). As per this rule, the FMV of unquoted equity shares should be determined on the 'valuation date'. 'Valuation date' is defined in Rule 11U(j) to mean the date on which the property is received by the assessee. The property in the present case is shares of TTPL. Such shares were received by the Appellant on 04.10.2016. The FMV under Rule 11UA(1)(c)(b) should be determined by reckoning 04.10.2016 as the valuation date. Rule 11UA(1)(c)(b) provides the following formula for determining the value. Formulae A-L/(PE) * (PV) A Book value of assets in the balance sheet as reduced by: (i) Any amount of tax paid as TDS or TCS or advance tax; (ii) Any amount shown in the balance sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; L Book value of liabilities shown in the balance sheet except certain liabilities enumerated in the rule. PE Total amount of paid up equity share capital as shown in the b....
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....resent case, the lower authorities have adopted the balance sheet [unaudited financials] was available on 01.04.2016 thereby negating the very provisions of the Act mentioned in rule 11 UA (1)(1)(c)(b) read with rule 11U(b)(ii). In our considered opinion when the balance sheet was available as on date of receipt of shares i.e., 04.10.2016 which were subsequently audited on 31.03.2018 by the auditor in terms of the Companies Act, then it is not permissible in law for the lower authorities to take the balance sheet as on 01.04.2016. Undoubtedly, the assessee is not expected to get its accounts audited/balance sheet audited on the date of transfer itself. What is contemplated under the Act is that the balance sheet should be drawn by the assessee and it should be audited thereafter. In the present case, the balance sheet was drawn up to 31.08.2016 which formed the basis of the valuation done to arrive at the FMV of 169.32 (Page 907 of the paper book) and difference, if any, to be taxed under section 56(2)(viia) of the Act. In fact, assessee filed its revised return dt.31.03.2018 [Page 913 of the Paper Book 2A] and had offered Rs.26,96,57,437/- towards tax u/s 56(2)(viia) of the Act. T....
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....ase, the audit of balance sheet drawn as on 31.08.2016 was completed on 31.03.2018 after taking into account financials as on 31.08.2016. In view of the above, we hold that the balance sheet as drawn on 31.08.2016 being the closest approximation to the balance sheet on valuation date (date of transfer) should be considered under Rule 11U(b)(ii) read with Rule 11UA(1)(c)(b). 34. In view of the above discussions, the finding of DRP recorded in paragraphs 2.7.2 and 2.7.3 are not in accordance with law and, therefore, we set aside the same. The assessing officer is duty-bound to calculate the fair market value of the shares as per the balance sheet drawn on 31.08.2016. Therefore, the addition made in the hands of the assessee based on the balance sheet as on 31 March 2016, is held to be without any basis and therefore, we quash the same. 35. We further find that the DRP in Para 2.8.3 of its order has recorded as under : " 2.8.3 In our view, assessee's reliance on US GAAP as a reason for recording of impairment in an Indian company cannot be accepted. Even the reliance on AS 28 no way supports the huge amount of impairment claimed as the accounting standard merely giv....
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.... Accounting Standard - 28 for passing of the impairment claim in the account. The DRP had recorded that AS28 has merely provided the procedure which was to be followed where there is reduction in the value of the asset. As per the ld.AR, the impairment was initially done in the parent company namely, Alexandria Group Inc in the quarter ended of 31.03.2016, by following the US GAAP. Before, reporting the impairment, the Alexandria Group Inc has furnished the financials to the concerned authorities and have also provided the valuation report to the US Authorities. It was submitted that thereafter, the impairment of the asset was carried out in the balance-sheet of TTPL Books as per AS28. It was submitted that the finding of the DRP that AS-28 merely provides the procedure to be followed for reporting of the impaired assets, and therefore, merely following it by the assessee would not justify the impairment of the assets was without any basis as no reasons have been provided by the DRP for arriving at the above said finding, we have gone through the objective and scope of Accounting Standard - 28, which provides as under : "Objective: The objective of this Standard i....
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.... its value in use is less than its revalued amount (fair value). In this case, after the revaluation requirements have been applied, an enterprise applies this Standard to determine whether the asset may be impaired; and (b) if the asset's fair value is determined on a basis other than its market value, its revalued amount (fair value) may be greater or lower than its recoverable amount. Hence, after the revaluation requirements have been applied, an enterprise applies this Standard to determine whether the asset may be impaired." 40. The reading of the scope and objective of Accounting Standard - 28 clearly provides that this Accounting Standard was required to be mandatorily followed. The assessee is a real estate company and is drawing revenue from renting of the properties and therefore, the assessee was not able to specify which asset would continue to generate the revenue in future, therefore, the assessee had rightly followed Para 64 of AS-28 and estimated the recoverable amount of cash generating unit. Paras 64 of AS-28 provides as under : "Identification of the Cash-Generating Unit to which an Asset belongs 64. If there is any indication that an as....
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....ch to base the auditor's opinion on the financial statements, including evidence that: (Ref: Para. A58-A61) (a) All the statements that comprise the financial statements, including the related notes, have been prepared; and (b) Those with the recognized authority have asserted that they have taken responsibility for those financial statement Date of the Auditor's Report (Ref: Para. 48) A58. The date of the auditor's report informs the user of the auditor's report that the auditor has considered the effect of events and transactions of which the auditor became aware and that occurred up to that date. The auditor's responsibility for events and transactions after the date of the auditor's report is addressed in SA 560.34 40.4. A conjoint reading of SA 560 and SA 700, makes it abundantly clear that it is the bounden duty of the auditor to obtain appropriate audit evidence about the events occurring between the date of financial statement and the date of audit report that require adjustment. Moreover, the audit report would relate back to the date of balance-sheet drawn. In the present case, the financial statement was draw....
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.... 8D of the Act. Thereafter, the DRP confirmed the disallowance made by the Assessing Officer on the pretext that 14A is applicable even if there is no exempt income received by the assessee. 42. Before us, ld. AR had submitted that in the absence of exempt income, disallowance u/s 14A of the Act is not attracted and cited various decisions of Hon'ble Supreme Court and High Courts. Whereas, the Assessing Officer had held that the investment in unlisted equity shares has the potential of giving rise to exempt income and hence triggers the provisions of Section 14A r.w.r 8D of IT Rules. Accordingly, the TPO proposed the disallowance @ 1% of monthly average investment. The ld. AR had filed the following written submissions in support of the case of assessee, which is to the following effect : "4.9. The Appellant submits that the learned DRP erred in not appreciating that the explanation to explanation to section 14A was incorporated by the Finance Act 2022 with effect from AY 2022-23. The explanation is not applicable to any assessment year prior to AY 2022-23. In other words, the explanation to section 14A is not retrospective and hence cannot be made applicable to AY 2017....
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....h Court in Cheminvest Ltd. v CIT (2015) 378 /TR 33 (Delhi - HC) and Special Bench in Vireet Investment (P.) Ltd 82 taxmann.com 415 (Delhi - Trib.). In the case of the Appellant, there was no exempt income earned during the year. No disallowance under section 14A is therefore called for. 4.13. In view of above, the Appellant submits that the learned DRP has erred in confirming the disallowance under section 14A. The disallowance deserves to be deleted." 43. The Ld. D.R. relied upon the orders passed by the AO / DRP wherein it was mentioned that the amendment to the finance Act, 2022 is retrospective in nature and therefore, even if there is no dividend income for the year under consideration then also the assessee is liable for disallowance u/s 14A r.w. Rule 8D of the Income Tax Act, 1961. 44. We have heard the rival submissions and perused the material on record. It is the settled principle of law that the disallowances u/s.14A of the Act read with Rule 8D of the Rules cannot exceed the amount of exempt income. In the case of Pr. CIT Vs State Bank of Patiala, (2018) 99 taxmann.com 285, the Hon'ble Supreme Court, while dismissing SLP filed by the Revenue against order....
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....e, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. 44.2 Furthermore, the Hon'ble Delhi High Court in Pr. CIT v. Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289/288 Taxman 384 (Delhi) has dealt with the issue of amendment made by the Finance Act, 2022 to Section 14A of the Act. The relevant portion of the said judgment is reproduced hereinbelow: "8. Consequently, this Court is of the view that the amendment of Section 14A, which is "for removal of doubts" cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood." 44.3 Similarly, the Special Bench of the Tribunal in the case of ACIT Vs. Vireet Investment P. Ltd., (2017) [165 ITD 27] (Delhi) (SB) has held as under : "11.16 Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those investments are to be considered for computing average value of investment which yielde....
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.... view of the above circumstances, we deem it appropriate to remand this issue to the file of Assessing Officer for the limited purpose of verification of the correctness of the TDS credits claimed by the assessee in its income tax return and thereafter, give a categorical finding in its order. In the light of the above, we remand the issue of TDS claim for re-adjudication to the jurisdictional Assessing Officer. Needless to say that the assessee shall file all the documents as and when called for by the Assessing Officer / TPO. Thus, this ground of the assessee is allowed for statistical purposes. 51. In the result, the appeal of assessee in ITA No.456/Hyd/2022 is partly allowed for statistical purposes. 52. To sum up, the appeal of assessee in ITA No.340/Hyd/2022 is partly allowed and the appeal of assessee in ITA No. 456/Hyd/2022 is partly allowed for statistical purposes. A copy of this common order may be placed in respective files. Order pronounced in the Open Court on 27^th September, 2023. ============= Document 1 Takshila Tech Parks & Incubators (India) Private Limited Notes to the financial statements for the period beginning on April 1, 2016 and ended ....